Financial literacy ...are women opting-out?

How you define career success might depend on your gender. Men tend to report goals of increasing their earnings and positions of power. Women, despite a long history of seeking entry to powerful decision-making positions, including a recent resurgence to reform powerful institutions and workplace norms, still prioritise human relationships and happiness in many cases. In other words, they have not yet conformed to wanting what a lot of men would. Nor should there be any expectation of conforming to narrow goals in a diverse workforce.

There is much said about gender pay gaps and women opting out of leadership positions. Workplaces try to address these imbalances with workshops aimed at fixing women. However, it could be said that performance indicators and workplace structures benefit masculine traits in ways that we are still trying to understand.

Another domain with a persistent gender gap is financial knowledge. Researchers in financial literacy identify men to be more knowledgeable of financial concepts and better able to make significant financial decisions. Usually, conclusions are drawn to the effect that women aren’t as interested in money as men.

In a research project on women and financial literacy¹, we decided to pay close attention to the measurement tool used to capture financial knowledge. The measurement tool requires respondents to answer three questions:

1. Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?

• More than $102
• Exactly $102
• Less than $102
• Do not know
• Refuse to answer

2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, how much would you be able to buy with the money in this account?

• More than today
• Exactly the same
• Less than today
• Do not know
• Refuse to answer

3. Please tell me whether this statement is true or false. “Buying a single company’s stock usually provides a safer return than a stock mutual fund”.

• True
• False
• Do not know
• Refuse to answer

How'd you go? The answers are the bottom of this article.

Like many other studies, we found that women didn’t get as many questions correct as men. But, we were more interested seeing whether women picked the ‘Do not know’ option more than men, thereby opting-out of answering the question. We found that, in situations of making decisions with uncertain outcomes, such as tests, women tend to skip questions or choose the non-response option (such as ‘I don’t know’ or ‘I’m not sure’). Further, men were still willing to choose an option with a more concrete answer even if they didn’t know the correct answer, i.e. they chose an incorrect answer over choosing the non-response option when uncertain. We provide three reasons for this behaviour:

Risk aversion

Women are found to be risk averse in many contexts, such as stock investing, gambling and tasks related to physical skills. The non-response option reduces the chance of a negative outcome, if the test is associated with points or reward (i.e. it is high stakes). This behaviour could also be interpreted as greater prudence, humility and insight demonstrated by women. Conversely, men tend to be more risk-seeking, especially when young. Women may not seek promotions and pay rises as they perceive it to be a risk beyond their comfort level.

Lack of ‘overconfidence’

Men are consistently found to be overconfident across many domains, such as tasks with numerical skills and stock market trading. Reiner and Wagner (2017) find that women are underconfident and underestimate their ability to provide the correct answer in questions involving mathematics.

Unconsciously conforming to a stereotype

Individuals (conditional on ability) are less willing to contribute ideas in areas that are stereotypically outside of their gender’s domain. Family economists contend that gender-based labour division within the household means that men traditionally and frequently make the majority of financial decisions for families. Many women, therefore, may not have observed positive role-modelling from their mothers on attitudes to managing money or undertaking math-based tasks.

It can be seen that on test questions of financial knowledge, women are at a disadvantage. However, when women are asked questions regarding their motivations for managing money, they reveal a values-based approach. Women highlight their decisions centre on the wellbeing of their family, ranging from providing for their children and grandchildren, to caring for elderly parents. The time women spend on caregiving and the value derived from it is not as easily measured by a test or statistics, but surely just as essential to societal wellbeing.

In direct relation to our research, as women comprise half of the population, their ability to make financial decisions is important for societal outcomes. The intergenerational transfer of knowledge and attitudes to financial decision-making by important role models such as mothers adds weight to the need to intervene with education, legislation and other tools to address the gender gap. Risk aversion, lack of overconfidence and stereotype in the maths and money management domain may translate into a hesitancy to go for leadership roles where financial skills are often needed for budgeting and reporting.

More generally, research that seeks to understand why gender differences exist helps to inform workplaces and public policy of metrics and structures that benefit some but not others. Given public discourse at present on workplaces, the insights are timely. Misconceptions about women’s decisions in the workplace, like opting out of promotion, misleads managers into thinking the women lack merit. In reality, it is more likely that the performance metrics or expectations are not aligned with their key strengths and motivations. Organisations need to recognise and reshape the organisational environment to support women to be their authentic self and make the value of their contributions more transparent.

Further Reading

Riener, G., & Wagner, V. (2017). Shying away from demanding tasks? Experimental evidence on gender differences in answering multiple-choice questions, Economics of Education Review, 59, 43-62. Available at https://doi.org/10.1016/j.econedurev.2017.06.005.

¹West, T., de Zwaan, L. & Johnson, D. (2020). Boosting women: Why they decline to provide responses to financial literacy questions (August 7, 2020). Available at SSRN: https://ssrn.com/abstract=3668705

West, T. & de Zwaan, L. (2020). Financial socialisation of Australian university students: Differences in gender, Consumer Interests Annual, 66, pp1-14. https://acci.memberclicks.net/assets/docs/CIA/CIA2020/WestTraceyCIA2020.pdf

Answers

1.  More than $102

2.  Less than today

3.  False

Dr Tracey West has a strong background in household finance, with several publications on household finance, financial literacy and financial planning issues, including a PhD thesis completed in 2016. Recent work has been published in Economic Notes, Financial Counselling and Planning, Financial Planning Research Journal, Journal of Family and Economic Issues, JASSA, the Consumer Interests Annual. This work contributes to knowledge on investor behaviour, informing curriculum development and guidance for advisors in the financial services industry. She currently teaches Behavioural Finance and Wealth Management at Griffith University, Australia.

Dr Laura de Zwaan is a lecturer in Finance and Financial Planning at Griffith University in the Department of Accounting, Finance and Economics. Laura’s research interests encompass most areas of superannuation, including fund investment policies, member decision-making, gender issues, taxation, and fund governance. In addition, she has a strong interest in financial literacy and capability, especially with regards to vulnerable cohorts. She has published widely in journals such as Critical Perspectives on Accounting, Accounting, Auditing and Accountability Journal, Financial Services Review, and the Journal of Australian Taxation.

Dr Di Johnson is a lecturer at Griffith Business School, with research interests in economics, personal and household finance, retirement, ageing and financial capability. Di has convened and taught financial planning courses at undergraduate and postgraduate level for five years, was managing editor of the Financial Planning Research Journal for three years and is a current member of the Financial Planning Education Council. Prior to academia, Di worked for 20 years in principal positions in policy reform including in finance and economics-related roles. Di is a regular presenter on personal finance on ABC radio and in other media, has a wide range of publications, grants and won funding as recognition for teaching excellence.