In the United States, Gender Gaps in Financial Literacy and Pay Persist

As we say goodbye to April, I reflect on the month that since 2004 has been recognized as Financial Literacy Month by the U.S. government and that also brings us Equal Pay Day, which was originated by the National Committee on Pay Equity in 1996. To celebrate and learn more about these topics, I attended two events in Boston: a talk hosted by Budget Buddies, a financial literacy coaching program for women, and an Equal Pay Day event hosted by Massachusetts Treasurer Deborah Goldberg. I was struck by a few pertinent themes that ran through both events.

1. Gender Gaps. Financial literacy is low in the U.S. and worldwide according to The Wall Street Journal: “Only 57 percent of Americans passed a basic financial literacy test, according to one recent global survey; in another survey, teens in the U.S. ranked between those of Russia and Latvia. Around the world, meanwhile, just one-third of adults are considered to be financially literate.”

However, there is also a gap between genders in financial literacy – 5 percent on average worldwide (35 percent for men, 30 percent for women) and 10 percent in the U.S., according to Standard & Poor’s Ratings Services Global Financial Literacy Survey.

Budget Buddies, which focuses only on women, makes the case that strong money management skills are especially important for women because:

  • Women still earn about 20 percent less than men and are more than twice as likely to work part-time.
  • Women also spend an average of 12 fewer years in the work force, due to caring for children and older relatives.
  • As a result of their lower lifetime earnings, women have lower Social Security payments in their later years.
  • Lower lifetime savings exacerbate this problem, as women outlive men by 5 years on average.

2. Confidence Matters. A recent Atlantic article presents a theory that a confidence gap between men and women is one reason why wage and promotion inequalities exist in the workplace. Evidence shows that women are less self-assured than men—and that to succeed in the workplace, confidence matters as much as competence. It seems confidence may be one contributor to the fact that, despite passage of the Equal Pay Act in 1963, the gender gap in pay still persists.

Similarly, confidence is a hurdle for women with financial literacy. A study commissioned by the Girl Scouts, Having It All: Girls and Financial Literacy, found “girls are extremely optimistic about their future lives but admit to lacking the financial confidence and knowledge to achieve their dreams.” It also uncovered that about 50 percent of girls feel confident making financial decisions, and only 12 percent would consider themselves very confident.

3. Knowledge is Power. Improved financial literacy might support greater economic self-sufficiency and empowerment. Despite the huge focus on higher education that it is known for, Massachusetts is still one of 12 states in the country that does not require schools to offer financial education courses to students. Financial literacy is especially key in a state where the majority of students take on an enormous amount of student debt, an average of $29,391 in 2014. And where the average annual cost of day care, $17,062 as of this year, is well above the “10 percent” of a family’s income that the Department of Health and Human Services considers affordable.

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However, for many women, perhaps the single most important piece of financial knowledge may be understanding your worth in the market place. And for that, in April Massachusetts released a tool kit for understanding the pay gap, which includes a calculator allowing women to play with the concept of pay differentials in their industry.

A December 2015 Report on Financial Literacy in Massachusetts indicates that there is still a lot of work to be done, and the equal pay website indicates that “at the current rate, the wage gap for women in Massachusetts will not close until 2058.” Some of the keys to improve both efforts include more data, greater transparency, and early education, including education focused on building confidence. Additionally, like the aim of the CFI’s new financial capability innovations project, it’s important for practitioners and stakeholders to widely share ideas that work, especially between domestic and international efforts, which often seem to be disconnected. For example, the microfinance industry has long focused on financial literacy, recognizing it as an important cornerstone to responsible lending, and has long focused on women.

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