Ahead of our Spotlight call on June 21st at 4pm ET focusing on how men and women differ in terms of financial decision-making and outcomes, we discuss gender differences in financial literacy. Financial literacy has been linked to positive financial behaviors and outcomes, including preparation for retirement, savings levels, and credit scores. This highlights the importance of understanding key individual differences in financial literacy.
Financial literacy is a form of consumer expertise and skill. It measures how well an individual understands important financial concepts, as well as their ability to manage their own finances. This management means that people are expected to conduct both short- and long-term financial planning while integrating ever-changing market conditions and major life changes.
Both men and women would greatly benefit from the use of an Financial Professional, albeit for different reasons and in different ways.
As with many skills, there is a large degree of variance across the population. While this variance exists at all stratifications of society (i.e., age, socioeconomic status), there are significant differences by gender that have been identified across 25 years of research. These differences between men and women are not highlighted to conclude one gender is superior to the other or to presuppose biological differences as the cause, given all differences presented will pertain to observable outcomes, not evolutionary processes. It is also important to keep in mind that all these conclusions are based on aggregate analyses—no single person will necessarily conform to all of these findings, but men and women will, on average, show these differences.
Spoiler alert: women have been found to be consistently less financially literate than men.1 This is not because they are incapable or lack the ability to learn financial literacy skills, but rather because of gender norms and expectations around who handles household finances (in terms of investing and allocating money, not paying bills and tracking balances).2 Financial illiteracy has been tied to several negative outcomes: increased levels of debt3, lower credit scores4, less savings5, a lower propensity to invest in the stock market6, and less wealth accumulation.7 This means women are increasingly vulnerable to financial hardship8 and experience significantly greater financial distress9, general stress, and financial anxiety.10
Much of the difference in financial literacy between men and women has to do with confidence in financial knowledge and ability. There is a distinction between what is called objective knowledge (what we actually know about a topic) and subjective knowledge (what we think we know about a topic). These two things do not have to be, and rarely are, the same. In fact, most researchers consider these forms of knowledge as distinct (i.e., uncorrelated and attributable to distinct underlying factors). Interestingly, women’s perception of their financial knowledge (that is, subjective knowledge), is 1.6 rating points, or 32%, lower than men’s, despite objective knowledge being unaffected by gender.11
So, what happens when you have an imbalance between objective and subjective knowledge? When subjective knowledge is greater than objective knowledge, a person is overconfident; when subjective knowledge is less than objective knowledge, a person is underconfident. This means men are more likely to be overconfident and women are more likely to be underconfident when it comes to financial decision-making. While both under- and overconfidence can result in clients neglecting or incompletely processing new information, overconfidence is far worse for a client’s financial decision-making.12 Overconfidence results in lower levels of investment profits13, excessive financial losses14, and poor diversification.15 Of special significance to Financial Professionals (FPs), overconfidence results in a client relying less on their FPs’ advice, believing returns are highly predictable, and anticipating higher potential returns.16
Underconfidence is not without its own negative consequences—it can result in financial decision avoidance17, less investment experience18, and less attention paid to one’s portfolio.19 Some of the underconfidence found in women is attributable to the finding that women believe they make decisions more emotionally, but that financial matters need to be assessed analytically and in a manner devoid of emotion.20 It is this mismatch that can lead to underconfidence and avoidance. What is perhaps most interesting about this finding is that while many women believe they make decisions more emotionally, they, in fact, tend to be significantly more analytical in their decision approach than men.21 The cause of this discrepancy between beliefs and reality is likely borne of the stereotype that women are more emotional. In fact, research has shown that when it comes to the likelihood of investing, men are more influenced by their emotions22 than women.23
Ultimately, differences in financial literacy between men and women are not the result of superior skills or ability, but rather psychological processes, deeply ingrained social norms, and sex-based stereotypes. This suggests that FPs can have a significant impact in helping with financial education and creating the most optimal financial plans for their clients.
There are clearly important and impactful differences in terms of financial literacy and financial outcomes between men and women. And both genders would greatly benefit from the use of an FP, albeit for different reasons and in different ways. So how as an FP do you properly utilize this information?
Men have been shown to be more financially literate, but also overconfident, while women tend to be less financially literate and underconfident.
Given the negative outcomes incurred due to reduced financial literacy, a natural response would be to provide education to clients low on financial literacy. However, research has shown that educational interventions have a very small effect on downstream financial behaviors and financial literacy, and this effect decays rapidly over time.24 While educational interventions don’t work—often because they are far from the point of decision—personalized coaching can be quite effective. This suggests that FPs should focus on providing education and recommendations related to the decision at-hand when that decision is being made. In other words, any educational endeavors should be tied directly to the specific behaviors you are seeking to improve.
Relatedly, it is important to keep in mind that women are less inclined towards numerical information, have lower numeracy scores, and have decreased levels of consumer confidence on average. Therefore, coaching and information provision for clients like this should be more visual and intuitive than overly complex or quantitative. You can also change how you frame decisions for clients who believe they are more emotional decision-makers to get them more engaged. For example, research has shown that if you reframe a discussion about retirement savings to be around goals for "lifestyle in retirement" (vs. "investment choices for retirement"), financial decision avoidance is vastly reduced.25
Finally, it is imperative to improve women’s confidence and feelings of efficacy in the financial realm. To counter underconfidence in any client, you must calibrate them to their true levels of knowledge (i.e., increase their subjective knowledge). One way to do this would be to assess objective and subjective knowledge and then compare the two. This can easily be done via our Financial VirtuesTM survey—for clients who are underconfident (subjective knowledge is less than objective knowledge), you can highlight their financial strengths to improve feelings of confidence. This feedback can help the client become more engaged and less avoidant in the planning process.26 To identify overconfidence (in more depth than via Financial VirtuesTM) you can send clients our Overconfidence Pulse CheckTM and go through their results with them.
While the focus of this post is on the differences in financial literacy between men and women, the results need not be confined to gender. As stated above, these findings are based on averages—this means that both men and women can suffer from the same blind spots and downstream financial behaviors. As an FP it is important to apply the general findings (e.g., is a client overconfident or underconfident?) rather than any profiling based on gender. The discussion of differences between men and women specifically is about edification and awareness, not about perpetuating stereotypes.
 Fernandes et al., 2013; Nejad & O’Connor, 2016; Servon & Kaestner, 2008.
 Kiplinger (2008). Within a household, women are more likely to pay bills (60%), balance the checkbook (67%), and maintain the budget (54%). However, only 25% of women buy and sell stocks, bonds, and/or mutual funds for the household (vs. 44% of men). Further, only 46% of women (vs. 64% of men) believe they have any influence when it comes to making decisions about investments (Women, Money, Confidence: A Lifelong Relationship, Bank of America, 2022).
See also Ward & Lynch, 2018. Although responsibility for financial matters may be initially uncorrelated with ability, over time responsibility predicts new financial information acquisition. This means that, as romantic relationships endure, higher levels of fiscal responsibility are associated with significant gains in financial literacy, while lower levels of responsibility are not.
 O’Connor, 2019.
 Fernandes, et al., 2013.
 Dwyer et al., 2002.
 Jianakoplos & Bernasek, 1998.
 Fernandes et al., 2013.
 Financial distress is measured via the Financial Distress Index (FDI), where higher scores indicate greater financial distress. On average, the score on the FDI is 9% higher for women than men. See Fenton-O’Creevy & Furnham, 2021.
 Fenton-O’Creevy & Furnham, 2021.
 O’Connor, 2019.
 Alba & Hutchinson, 2000; Griffin & Tversky, 1992; Barber & Odean, 2001. The latter found that men trade excessively (45% more than women do). This results in men’s net returns being one percentage point lower than women’s on average. These differences are even greater when comparing single men and single women: single men trade 67% more than single women, reducing their relative net returns by 1.44 percentage points.
 Blais et al., 2005.
 Camerer & Lovallo, 1999.
 Malmendier & Tate, 2005.
 Barber & Odean, 2001.
 Park & Sela, 2018.
 Sicherman et al., 2016.
 Park & Sela, 2018.
 Allinson & Hayes, 1996; Löfström, 2008. Research summarized by Adams & Kirchmaier (2016) found that the percent difference in non-routine cognitive skills between men and women is 0.25%, while the gender gap in math skills is 2.6%. This gender gap is attributable primarily to stereotypes and cultural factors rather than innate ability. Since financial decisions involve numerical information and quantitative reasoning, women may avoid such decisions due to these differences in math outcomes.
 Intuition is defined by Epstein (2010) as a “…sense of knowing without knowing how one knows” and that it involves “unconscious information processing.” In other words, it is a decision-making style that does not rely on analytical or logical reasoning. An individual who relies on intuition is relying on gut-level feelings or emotional inputs to determine the right course of action. Reliance on intuition is correlated with naïve optimism, superstitious and unrealistic beliefs, and stereotyped thinking (Epstein, 2011). Further, individuals who rely more on intuition are more likely to be momentum traders and deviate from their financial plans.
 Blaher-Gołębiewska et al., 2019.
 Fernandes et al., 2013. Financial education only explains 0.1% of the variance in financial behaviors. Even very large educational interventions involving several hours of instruction have inconsequential effects on behavior within 20 months.
 Park & Sela, 2018.
 Note that, by its very nature, overconfidence cannot be addressed in the same way. One very effective way to address overconfidence is via a “pre-mortem”—tell the client to imagine that the outcome was not what they anticipated and ask them to come up with reasons as to why that might have been the case.