Managing anxiety and making sense of what can seem like an
endless scroll of bleak statistics have become part of daily life in America
during the Covid-19 crisis, and personal finance is included in that new
paradigm. New data on the financial literacy of women paints a troubling
portrait of the gender gap when it comes to money matters, and at a time of
widespread financial insecurity.
Existing national studies show that women are more likely
than men to say they have difficulty making ends meet, dealing with unexpected
expenses and saving for retirement. They also are more likely to express a lack
of confidence in their ability to achieve financial goals. Now the latest
numbers on financial literacy highlight the difficulties women face in
acquiring the knowledge to overcome these hurdles.
Women are able to answer less than half (49%) of financial
literacy questions correctly, compared to 56% of questions among men, according
to a gender-based analysis of an annual study from the TIAA Institute and The
George Washington University Global Financial Literacy Excellence Center, to be
released later this week. Only 12% of women demonstrate a high level of
financial knowledge, compared to 27% of men.
Confidence is a big issue. Women answered one-quarter of all
questions with an “I don’t know” response.
Gender, age and ethnic gaps
Age, ethnicity, job status, education and income all are
important factors within the gender gap. Among African American and Hispanic
women, 38% of questions were answered correctly, versus 54% of questions among
White women. Overall, financial literacy tends to be lowest among Gen Z women
(37% of questions answered correctly), by a significant margin, and lower among
unemployed women, those with lower levels of education, and those in the lowest
income brackets.
This year’s gender gap data, based on responses from 1,000
women nationwide, was collected in January, before the pandemic, but the
findings take on new resonance given the ways in which women have been
negatively impacted by the crisis. Women are leaving the workforce in greater
numbers than men due to family care challenges, and facing greater child-care costs
related to remote work and school. Federal Reserve chair Jerome Powell has
cited women and children as a particular point of national concern as it
monitors the U.S. economy.
A child stands next to the 'Fearless Girl' after a ceremony
to unveil the statue's new location across from the New York Stock Exchange on
Dec. 10, 2018 in New York City.
If the numbers are to be put to the best use, it’s as an
opportunity to help women take more control of their financial situation rather
than retreat from the challenge. “We don’t want to paint a bleak picture, put
women in a place where they feel stuck. It is more about what can we do to make
a change,” said Annamaria Lusardi, professor of economics and accountancy at
George Washington University and the founder and academic director of GFLEC.
It is important to highlight the data, but focus on the
solutions.
“We need to tell women to be fearless, because we do see
this lack of confidence,” Lusardi said.
Without increased financial knowledge, women can only learn
in the worst way possible, she said.
“To learn by making mistakes is an expensive way of
learning. ... Women with higher financial literacy are better able to shield
against financial shocks, and lack of knowledge makes people more fragile.”
Women lag men in understanding across all areas of finance,
with the gap most pronounced in the areas of investing and saving. Where women
score highest is in the areas of borrowing and consuming. This is not a
surprise, Lusardi said, as women are more likely to make day-to-day money
decisions in a household and less likely to make bigger decisions in the areas
like investing. But women also score lowest on their understanding of risk and
risk management, which translates into a lower likelihood of having emergency
savings.
Lusardi said women spend so much time taking care of others,
it is easy for them to forget about themselves, but the ripple effect of this
thinking is often a lack of precautionary savings, and without that security in
the short-term, it comes harder to plan for long-term financial health.
“Women will be really left behind in this pandemic, and even
more so if they leave the labor market or have to work less because they have
to care for children and relatives, or aging parents or people who are sick,”
she said, adding that the fact her study’s data was collected when the economy
was booming pre-pandemic magnifies the challenges that many women are facing
now. “They are already financially fragile and this crisis has made them even
more fragile. It’s striking how fragile they were in a booming economy. Women
need to better protect themselves and their finances.”
Steps to improve financial literacy
Lusardi said the education needs to begin early and, in some
cases, it will be children who are provided with a personal finance education
curriculum in school who bring home learning to parents never provided with
that opportunity. The number of states offering financial education in primary
schools is growing, but greater emphasis is still needed.
“Education in school is a great place to start and can have
a feedback effect,” she said. “Children can then bring knowledge back to
parents, to their mothers, which we know works.”
Financial advisors who work with women clients noted several
other key actions women should take to gain greater control over their
financial lives.
1. Women need to help each other
One key, according to female financial advisors, is for
women to communicate more openly and formally with each other on the topic of
finance, especially when they were deprived a financial education earlier in
life.
“I am seeing clients with low confidence not having had
conversations in their household growing up and now feeling like they don’t
have anyone to turn to,” said Lauryn Williams, founder of financial firm Worth
Winning and a member of the CNBC Advisor Council, who has been coordinating
conversational circles with women.
“They don’t feel as educated and a collaborative effort is a
way to turn it around, getting women in circles to discuss money,” Williams
said. “Just talk, let’s just talk money stuff, period. Because there’s no space
to be able to do that, ask crazy questions and things on your mind and talk
about it all in a circle, in a friends’ group. ... At the beginning of
solutions, it’s just getting comfortable talking about money.”
Without that conversation, confidence will continue to be
low and feelings of shame and embarrassment high. Williams has learned from
watching the process unfold that, “they want a room full of other people
talking about woes, what they did and didn’t know. It was a collaborative
feeling in the room of ’let’s get this conversation going, we are all in
uncomfortable place. I am not the only one who doesn’t have it all together and
now I can go figure it out.”
2. Don’t let investment jargon scare you away
Stacy Francis, president and CEO of wealth management firm
Francis Financial, and also a member of the CNBC Advisor Council, said the
first step to become more comfortable with investing is to ignore the “huge
myth propelled by the industry that it’s rocket science to build a diversified
portfolio and only the smartest people can do it.”
“It’s just not the case,” said Francis, who also has been
hosting money circles with clients.
“Anyone can learn about adding a mix of stocks and bonds,”
she said. “It’s not about choosing a hot stock or the best investment. It is a
lot more boring than people believe. You choose an ideal asset allocation, and
stick with it.”
She said women should be encouraged by the fact that
long-term data shows women to be better than men at doing this. Staying with a
long-term plan and not making changes when the market is way up, or down, are
the most important behaviors for long-term returns. “Women have all the
behavioral traits to be great investors,” she said. “They just don’t feel like
they are qualified. You don’t have to know all the answers. It is OK to not
know everything about the stock market and everything about S&P 500 and
Russell 2000.”
3. Save, even just a little
Williams said she encourages people, even those facing
financial hardship, to save “just a little” because creating the habit of
saving is more important than the total amount saved.
She said it can be difficult during a pandemic for women who
lost work, and at the same time, have greater expenses related to child-care,
to save anything. “The last thing on their mind is investing when they have to
buy computers for their children for remote school and have no emergency fund
and might be taking on debt to do that. Making ends meet is enough for a lot of
people,” she said.
But it is critical to find a way to save in any situation.
“Mindset is a key part of it,” Williams said.
If women don’t save, even a little, because they think they
don’t have enough to save, they will be stuck operating from a mindset of
scarcity rather than abundance, and are less likely to ever take the actions
that will result in greater financial security. “I’ve had people say putting as
little as $5 in a savings account is not significant, but it is creating the
habit and confidence so when things change, when you income improves, you can
continue to bump up the amount,” she said.
The good news from the Covid crisis
Francis said the current environment is an opportunity for
everyone to learn about what they can live without and that might lead to more
opportunities to save on the margins. She has been eating out and ordering out
less as a result of the crisis and it is daily lifestyle changes like this that
can lead to greater budgeting opportunities to put away money. She has been
increasing her own emergency fund and the emergency fund of her planning
business, as well. After going through the crisis, “I want to make sure, god
forbid whatever happens, we are in a better position going forward.”
Asking an individual who has lost their job and has higher
child-care expenses to put away more money can feel like pouring salt on a
wound, but Francis said in the event it is impossible to put any money away for
the future, women need to at least carry the pain, and learning, from this
experience with them.
“When things do turn around, you can make that commitment,
as many dollars as you can put aside for three to six months of expenses,” she
said. “The biggest challenge is we forget about the painful times and that’s
natural. The thing I tell women is not to forget the pain you are feeling
because you don’t have an emergency fund, carry that with you so it motivates
you to put the emergency fund together.”
There is good news in the sense that more women who need
help are now being proactive, according to Francis. In addition to her planning
firm Francis Financial, which caters to women with a high net worth, she is
involved with the Savvy Ladies nonprofit which helps women with financial
challenges become more financially secure.
During the earlier heights of the pandemic in the spring and
early summer, very few women were reaching out. “It was almost as if they were
more in survival mode ... it’s been more recently we started to see women reach
back out to the help line,” Francis said.
The Covid crisis has brought the message to many women that
“it’s not just them ... it’s not your fault. It’s been difficult for many many
women and that is giving them courage to reach out,” she said. That can be
related to many events: job loss, child-care stress, sickness or death of a
spouse, a spouse losing a job, or a divorce.
“All of a sudden they are being forced to deal with
finances, and finding themselves in the driver’s seat of finances, and they
need more of an operational manual,” Francis said.
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