Gender differences in financial literacy

Our mission, here at the Florence School of Banking and Finance, is to foster the development a common culture of regulation and supervision in the sector of banking and finance, To achieve this objective, over the past five years we developed numerous education and outreach initiatives, where we hosted an increasingly wider range of individuals, with diverse personal and professional backgrounds.

In building this community, the topics of financial literacy and gender equality have become for us more and more important. In fact, empirical studies show that women participate in financial markets far less than men. This has been recognised as an obstacle to women’s financial well-being, and illustrated by less savings and more financial fragility. Covid-19 crisis exposed these vulnerabilities. Many of these issues have generally been attributed to lower financial knowledge of women as compared to men.

However, this is not what data says, according to Annamaria Lusardi, University Professor of Economics and Accountancy at the George Washington University School of Business and the founder and academic director of GWSB’s Global Financial Literacy Excellence Center. We invited Professor Lusardi to be the main speaker in the second lecture in our Women in Finance initiative, where she shed a light on financial literacy and the implications of gender equality in financial knowledge.

In her lecture, she outlined the fact that nearly a third of the financial literacy gap between men and women is not due to the women’s lack of knowledge, but rather to their lack of confidence. Not the lack of financial knowledge but self-doubt about their knowledge and ability to take decisions constitutes a significant factor undermining women’s participation in financial markets and their financial well-being.

On the basis of her recent paper with Tabea Bucher-Koenen, Rob Alessie, and Maarten van Rooij, Professor Lusardi explained their study of women’s participation in stock markets and how they developed a model to analyse the data about financial literacy. Although the study confirms the universal gender gap in financial literacy, authors’ analysis sheds more light on how much of this gap is due to differences in financial knowledge as opposed to women’s lack of confidence in making financial decisions. As explained by Professor Lusardi, the empirical results showed that women are more likely to answer “I don’t know” when such option is available. Instead, where “I don’t know” option is removed, many respondents choose the right answer. This reveals the lack of confidence in women’s own financial knowledge and capacity to make financial decisions. In other words, women know more about finance than they think they do.

The lack of confidence and awareness about their financial knowledge precludes women from participating in stock markets, and has important economic consequences. In addition to lower wealth accumulation and financial well-being, lack of participation hinders financial inclusion and increases financial fragility. Effects on women’s ability to handle a financial shock have been disproportionate and explicit throughout the Covid-19 pandemic.

The findings of the paper contribute to the robustness of inquiries into financial literacy as well as to the shaping of public programmes aimed at reducing financial literacy gap. Financial literacy matters, and it is crucial to improve financial literacy amongst women. To be effective, however, financial literacy programmes need to instil confidence in women. In response to the questions from the audience, Lusardi agreed that women are rightly characterised by their consciousness and wisdom in taking important decisions. The problem, however, is when being conscious and wise turns into fearfulness. The “Fearless girl” in front of the New York Stock Exchange symbolises this struggle. Efforts directed at improving financial literacy need not only be made with the aim to reduce the knowledge gap, but also to boost women’s confidence.

As potential solutions, Annamaria Lusardi indicated the need to introduce more and better targeted financial education programmes, but also emphasised the importance of changing the culture around money, and of enhancing women as role-models in finance and beyond.