How can financial literacy programs reduce the gender gap?

This blog is written by Karina Azar and Diana Mejía.

Financial literacy levels in Latin America are low. Based on the results of CAF’s financial capability surveys conducted in seven countries in the region, less than half of the population are familiar with basic financial concepts such as simple and compound interest rate, the value of money over time, and the relationship between risk and profitability.

In analyzing gender differences in financial literacy, we note that there are significant gaps internationally, which are evident even after taking into account marital status, education, income level and other socioeconomic parameters.

These results have important implications, as women tend to live longer than men and to interrupt their careers for motherhood, leading to different savings needs.

In general, CAF’s financial capability surveys indicate that women are not only less likely to answer questions about basic financial knowledge correctly, but are more likely to answer that they do not know the answers to basic financial questions.

Thus, gender gaps in financial literacy are related to a lower level of financial knowledge and to lower confidence among women. An experiment in the Netherlands shows that women know less about financial notions than men, but they know more than they think they know.

The main findings related to gender gaps in financial literacy based on the results of CAF’s financial capability surveys can be summarized as follows:

• 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 dealing with extreme situations. For example, in a context where income is not enough to cover living expenses, women tend to cut spending, while men prefer to find ways to make extra money.
• Women tend to save less, and therefore accumulate less wealth, in a context where their position within the labor market is typically weaker.
• Women are less likely to save actively through formal financial products.
• Women are more likely than men to keep cash savings at home or in informal savings clubs, and they are also less likely to invest in risky and higher-yielding assets.
• Women struggle more than men when choosing the right financial products.

First, as evidence shows, women who are actively involved in the planning and management of household budgets show better financial attitudes and behaviors. These women are less risk averse, claim they personally monitor their finances, and are more likely to plan based on long-term financial goals.

A recent study by Fundación Capital and Universidad del Pacifico conducted in Colombia through two versions of Lista, a financial literacy application designed for tablets—that has already accumulated rigorous impact evidence—, shows that a higher level of financial literacy in women increases their savings capacity and curbs harmful financial habits, reducing financial stress in the couple and improving relationships. Similarly, the participation and involvement of men in women’s financial literacy programs is key to ensuring that household financial decisions are made by the couple. Other key issues include negotiation and leadership skills, power dynamics and family members, and the importance of unpaid work, among others.

The panel “FinEquityALC – Tearing Down Barriers to Women’s Financial Inclusion in LAC: What do we know and what can we start solving today?” was held on November 10, which included a working group that discussed which elements should be included in financial literacy programs for women. The panel discussed that financial literacy programs should be designed considering that, while the main focus is women, they are part of heterogeneous segments.  This implies that, to ensure a greater impact of financial education initiatives, they must consider the different population groups of women: heads of household, leaders of MSMEs and entrepreneurs, indigenous, young women, migrants, women living in rural areas, among others.  Such segmentation allows public and private entities responsible for the design of financial literacy programs to: (i) design content to maximize lessons about access to and use of financial products and services; (ii) contextualize messages; (iii) ensure representativeness through peer learning; and (iv) understand specific needs and problems.

Through financial literacy interventions that incorporate the gender differential, we can provide lessons on financial services delivery mechanisms that are most effective according to the target women’s group and their context. For example, delivering financial literacy content using digital media can be very useful for groups of women entrepreneurs in urban areas with high connectivity, but may face limitations when targeting women in rural areas.

In addition, content has a greater impact if it is contextualized and customized according to the women’s groups covered by financial literacy programs.  Examples include content designed for rural women, which seek to achieve a basic level of financial literacy on products such as savings or credit, to help them eventually join the formal financial system.  In addition, the information that can be collected through customer service and query resolution channels of financial institutions is a key input for segmenting and understanding women’s specific needs based on the analysis of their most frequent complaints and doubts.

This is also related to the use of delivery channels through peer learning, which means that women have role models and can receive knowledge from other women who have already experienced the same needs.  These programs have been very useful in groups of women entrepreneurs, for example, which cover topics such as personal and business finances.

Lastly, it is critical to understand the specific problems and needs of different segments of women.  Thus, programs can focus more on bringing knowledge about women’s “pain points” depending on where they are in their life cycle, as well as the profile of their financial attitudes and behaviors.

While more and more public entities and financial institutions become aware of the importance of implementing financial literacy programs for women, it is important that they also consider the power dynamics and the context of each woman, in order for such programs to have a greater impact on their financial well-being.

These results have important policy implications, as women involved in making financial decisions at home can develop better financial capabilities, and thus, programs that seek to promote female empowerment through inclusion in productive processes can also yield benefits for behaviors and attitudes of families in order to achieve higher levels of financial well-being for society as a whole.

Therefore, financial literacy programs should focus on increasing women’s self-confidence and, at the public policy level, the gender approach should be incorporated into the national financial literacy strategies of different Latin American countries that are advancing coordination and cooperation efforts between the public and private sectors.