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What’s behind the male-female financial-literacy gap? These academics say they’ve found an answer

‘Women have lower financial literacy than men, but they know more than they think they know’

Women are more likely to respond that they "do not know" the answer to financial literacy questions than men. But when forced to pick an answer, in more cases than not they select the right one.

johannes eisele/Agence France-Presse/Getty Images

A slew of surveys suggest that men are more financially literate than women based on their ability to correctly answer questions that test one’s knowledge of concepts such as compound interest.

But financial knowledge only tells two-thirds of the financial literacy story. The remaining third? Confidence.

That’s according to research findings published by Rob Alessie of the University of Groningen based in the Netherlands, Tabea Bucher-Koenen of the University of Mannheim based in Germany, Annamaria Lusardi of George Washington University and Maarten van Rooij, a researcher at the Dutch Central Bank.

Financial literacy tests typically instruct individuals to select a multiple-choice response which typically includes “do not know”. Many more women will select “do not know” if given the opportunity compared to their male counterparts. 

When the ‘don’t know’ option is not made available, women are much more likely to select the correct answer.

But when that option isn’t available, women are much more likely to select the correct answer.

“In other words, women have lower financial literacy than men, but they know more than they think they know,” the researchers wrote in the report, which was distributed Monday by the National Bureau of Economic Research.

The researchers surveyed more than 1,500 Dutch people — 56% of the respondents identified as male and 44% identified as female — twice over the course of six weeks in 2012. 

They specifically chose to study respondents from the Netherlands because the country’s central bank is one of the few that have been collecting financial literacy data, and so the researchers could easily resurvey some of the people who participated in these prior studies.

In the initial survey, respondents could select “do not know” as an answer to the “Big 3” financial literacy questions created by Lusardi and Olivia Mitchell, a professor at the Wharton School of the University of Pennsylvania. But in the second survey respondents could not select “do not know”.

One-third of the financial literacy gender gap can be explained by lower confidence levels among women, the research suggests.

The results: A narrower gap between the share of correct responses among men and women when people are forced to give an answer. (You can find those questions and answers here.)

For instance, in the first round when people were asked a question that tests their knowledge of risk diversification in investing, some 55% of women indicated that they do not know the answer compared to some 30% of men.

Some 62% of men answered the question correctly compared to some 34% of women in the initial survey — roughly a 28 percentage-point gap.

But when forced to pick an answer to the same question on risk diversification, some 82% of men answered correctly compared to some 73% of women — which shakes out to a 9 percentage-point gap.

The researchers partially attribute the shrinking gender gap to a lack of confidence amongst women, who even when selecting the correct response, indicated that they were not confident that they selected the right answer.

Based on a model the researchers created incorporating all the responses, they estimated that one-third of the financial literacy gender gap can be explained by lower confidence levels. The remaining two-thirds of the financial literacy gap, however, is explained by “ lower financial knowledge,” the researchers said.

Taken together, the researchers concluded that boosting women’s financial knowledge through education programs targeted towards them “might not be enough to close the financial literacy gender gap if differences in confidence persist between women and men.”

STEM can be a hostile place for women

Another cultural reason for the gender gap between male and female expertise in finance: Male-dominated college computer science or engineering courses and tech-company offices can be a hostile place for women to work and may offer few opportunities for women to advance.

Others cite a too-small pipeline of women interested in pursuing careers in science, technology, engineering and math (STEM). Whether you blame a lack of women pursuing STEM work or a bias against their doing so, both of these issues are rooted in cultural notions about women’s interest and ability in these subjects.

Earlier research adds to a growing body of evidence that these stereotypes aren’t based in reality. Overall, girls actually outperformed boys on average in a nationwide assessment of eighth-grader technology and engineering skills, according to 2016 data released by the National Assessment of Educational Progress.

Girls may be internalizing societal messages at a very young age that they’re not suited for STEM fields, despite their skills. Even those women who do pursue a passion for engineering or biology can face discrimination — 100% of women of color working in STEM fields report having experienced bias in their careers, such as being mistaken for a janitor, according to a 2014 survey from the Hastings Center for Work Life Balance.

(Jillian Berman contributed to this story.)

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