Lack of Confidence Accounts for One-Third of Financial Literacy Gender Gap

WASHINGTON, March 8, 2021 /PRNewswire/ -- Women are less likely to own stocks—and show other gender-related financial shortcomings—due to lack of confidence as well as lack of knowledge, according to groundbreaking research from the Global Financial Literacy Excellence Center (GFLEC) at the George Washington University School of Business and a group of collaborators.

About two-thirds of the financial literacy gender gap is explained by lower financial knowledge and one-third is due to lower confidence. The study is the first of its kind to deconstruct both components of financial literacy by gender.

"Although women have lower financial literacy than men, they know more than they think they know," said author Annamaria Lusardi, GFLEC Academic Director and University Professor of Economics and Accountancy at GW. "It's crucial for women to have confidence in their knowledge because more than ever, women need to take charge of their financial lives. Their accumulation and management of wealth depends on it."

The study, Fearless Woman: Financial Literacy and Stock Market Participation, found that women tend to disproportionately choose "do not know" when answering financial literacy questions. However, when the "do not know" option is removed, women choose the correct answer more frequently, indicating a gap in confidence, not simply knowledge.

The study also examined the gender discrepancy in owning stocks and found only 20% of women included in the study's dataset owned stocks compared to 34% of men. Although this gap can be explained partly by women having lower financial literacy than men, the researchers calculated that, if women had just as much confidence as men, this gap would substantially shrink. "If you increase either financial literacy or confidence, female stock ownership rises," Lusardi said. "But increasing both financial literacy and confidence would bring women significantly closer to men's ownership rates."

Lusardi noted the lifetime effect of wealth building via stocks versus less-risky investments with lower returns.

"We want educators and policy makers to know how important it is to inspire girls and women to take care of their financial lives," Lusardi said. "And it is time for women to be fearless!"

SIDEBAR: Beyond the research, GFLEC experts offer actionable strategies for consumers

Five Strategies to Encourage Confidence and Financial Fearlessness in Women

1. Take charge of your financial life by setting short- and long-term goals. Build a spending plan and review it regularly.
2. Band together with other women on a quest to improve your financial literacy.
3. Tap into trusted financial education resources to boost your knowledge. Knowledge is power.
4. Find role models of financial fearlessness among your friends, family, colleagues and community. You can be a role model for them too.
5. Remember: financial fearlessness is a lifelong journey. Let Wall Street's Fearless Girl inspire you to reach your goals.

About the research
Fearless Woman: Financial Literacy and Stock Market Participation examined the "Big Three" financial literacy questions, which measure knowledge about interest compounding, inflation, and risk diversification, in data from the De Nederlandsche Bank Household Survey. Lusardi's co-authors are Tabea Bucher-Koenen, University of Mannheim and ZEW; Rob Alessie, University of Groningen; and Maarten van Rooij, De Nederlandsche Bank. Access the paper here.

About GFLEC
Founded in 2011 at the GW School of Business, the Global Financial Literacy Excellence Center has positioned itself to be the world's leader in financial literacy research and policy. Through rigorous scholarship and research, wide-reaching education, and global policy and services, the center aims to improve financial literacy globally. https://gflec.org/

MEDIA CONTACT:
Timothy Pierce: [email protected]; 202-994-5647

SOURCE The Global Financial Literacy Excellence Center (GFLEC)

Related Links

https://www.gflec.org