Financial Literacy Must Consider Gender Differences

This article was also published in Uruguay’s El País

The statement in the lead of this article, which may seem obvious, becomes a source of concern if we look at the levels of financial literacy in Latin America, where, according to the results of CAF’s financial capacity surveys conducted in Argentina, Bolivia, Chile, Colombia, Ecuador, Paraguay and Peru, less than half of the population knows basic financial concepts such as a simple and compound interest rate, the value of money over time and the relationship between risk and profitability.

Financial literacy contributes to the overall well-being of the economy and relaxes financial markets, as good financial decisions by individuals reduce the chances of a crisis and promote system stability.

On the contrary, bad financial decisions have negative effects on the economy, such as low savings and capital formation rates, low levels of pension savings, and a higher rate of income distribution inequity.

If we look at gender differences in financial literacy, we see significant gaps internationally, which persist even after we consider marital status, education, income level and other socioeconomic characteristics.
These results have important implications, as women tend to live longer than men and to interrupt their professional careers for motherhood, which prompts different savings needs.

In general, CAF’s financial capacities surveys in several Latin American countries show that not only are women less likely to correctly answer questions about basic financial knowledge, but are more likely to answer that they do not know the answers to basic financial literacy questions.

Against this backdrop, gender gaps in financial literacy are related a lower level of financial knowledge, and less confidence of women. An experiment conducted in the Netherlands shows that women know less about financial issues than men, but they know more than they think they know.

Therefore, it is crucial that financial literacy programs focus on increasing women’s self-confidence and that gender focus is incorporated in public policies for national financial literacy strategies of Latin American countries in their coordination and cooperation efforts between the public and private sectors.

These are some of the points we should consider to address public policies on women’s financial literacy:

• Women are less confident than men about their knowledge and skills, which is reflected in less confidence in financial matters and more risk aversion.
  
  • Women and men have different strategies for coping with extreme situations. For example, in a context where income is not enough to cover living costs, women tend to cut expenses, while men prefer to find ways to earn extra money.
  
  • Women tend to save less and therefore, to accumulate less wealth, in a context where their position in the labor market is typically weaker.
  
  • Women are less likely to save actively through formal financial products.
  
  • Women are more likely than men to save cash at home or in informal savings clubs are also less likely to invest in risky and higher-yielding assets.
  
  • Women have more difficulties than men in choosing financial products appropriately.

These reasons demonstrate the need to develop financial products that can operate as a vehicle to convey some of the critical knowledge to improve women’s financial decisions.

In addition, as evidence shows, women who are actively involved in the planning and management of household funds have better financial attitudes and behaviors. This segment of women is less risk-averse, claims to personally monitor their finances and is more likely to plan based on long-term financial goals.

A recent study of Fundación Capital and Universidad del Pacifico conducted in Colombia in two versions of Lista, a financial literacy application designed for tablets that already has rigorous evidence, shows that a higher level of financial literacy in women increases their ability to save and reduces harmful financial habits, reducing financial stress in the couple and improving the relationship.

The results have important policy implications, as women involved in their household financial decision-making can develop better financial capacities.Thus, programs that seek to promote female empowerment through inclusion in productive processes may also have favorable returns on the behaviors and attitudes of families to achieve higher levels of financial well-being for society as a whole.