Annamaria Lusardi is Professor of Economics and Accounting at George Washington University and Academic Director of the University’s Global Financial Literacy Excellence Center. She has done extensive research on the topic of women and financial literacy. Her most recent article is “Fearless Woman: Financial Literacy and Stock Market Participation”.
Based on your research, what is the current state of financial literacy among women? In 2017, we created the TIAA Institute-GFLEC Personal Finance Index to examine financial literacy among American adults in eight areas of personal finance. Women know less about almost every one of them compared to men – and when there is no difference, men also know very little. The domains with the greatest spread invest; insurance, which includes both insurance products and things like emergency savings; and understand risk, for example the risk of investing in a single asset.
What do you attribute the gap to? It is both a lack of knowledge and a lack of confidence. In all of the countries we survey, we see the same pattern: women are disproportionately more likely to respond “don’t know” when we ask a question. Then we ask the same question several months later, remove the “I don’t know” option, and ask how confident they are in their answer. Women are less confident than men, even when they are right. Being careful is very, very good, but there is a difference between being careful and being afraid, which can affect investing in the stock market.
What can we do to bridge the trust gap? A major obstacle is the language. Women don’t speak the language of finance. It is a very sensitive subject. Some are afraid of not understanding it, and for others it is taboo. In addition, people often associate money with problems. We have to change this language. My first personal finance class was mostly men with a small group of women. Then I changed what I do and my class filled with women.
How have you changed your teaching methods? I tell them we’re going to start with simple English, and I use myself as an example. As an Italian, I have the lowest likelihood of being financially literate among respondents in G7 countries. But I reversed the statistics. I also use a lot of humor. I have a funny Italian accent, which isn’t intimidating, so I’m using it to my advantage. And I tell them it’s not just an investment course. It is a “project of happiness”. You will learn the tools you need to make your dreams come true.
How do you adapt this outside the classroom? Talk about what matters to women. They care about others, so tell them how financial literacy can help them take better care of themselves and their families. It’s important to put financial literacy in schools, so that you can reach everyone, including those who are least at home at home. Often girls and women do not talk to each other about finance. The workplace is also important because you need to reach women where they are. There should be a personal finance column in the publications they read, such as those about their children. You need a “Sex and the City” with a touch of financial literacy.
How has the pandemic affected women financially? They were a vulnerable group even before, and that made them even more so. When we consider women as a group, we find great differences based on race and ethnicity. For example, when you look at how people cope with financial shocks, white women might be more likely to use financial instruments, and black and Hispanic women would be more dependent on transactions within the family. But even taking income and education into account, people with higher financial literacy fared better. So we have the opportunity not only to respond to a crisis, but to create a stronger and more resilient group. Financial education is a response to a constantly changing world.