By Jason Krupp*
Much is made of New Zealand’s savings culture, or more accurately the lack thereof, which is presumably why the government established the Commission for Financial Capability (CFC).
The Crown-owned entity, formerly known as the Centre for Financial Literacy and Retirement Income (say that three times fast), is tasked with giving financially vulnerable people the skills to become money savvy.
In this the commission largely does an admirable job, either through their own website, or the sorted.co.nz website, which makes a variety of advice, tools and think pieces available to anyone who wants to lift their financial literacy.
However, it appears that there is a glaring omission amid this deluge of information: financial advice that caters specifically to women. Is the CFC gender blind?
Before the question is answered it is worthwhile to consider recent study which found that women, regardless of education, marital status and age, are much less financially literate than men. This is not a statement meant to inflame, but an empirical finding from a recent study published by the National Bureau of Economic Research (NBER), titled “How Financially Literate Are Women? An Overview and New Insights”.
Using nationally representative household surveys in the United States, Germany and the Netherlands, the researchers tested the public’s knowledge of fundamental concepts of economics and finance, expressed in everyday terms that require simple interest calculations and an understanding of inflation and risk diversification.
Here is an example of one of the three questions asked: “Imagine the interest rate on your savings account was 1% per year and inflation was 2%.
After 1 year, how much would you be able to buy with the money in this account: More than today; exactly the same; less than today; do not know; refuse to answer?”
The results on the whole were concerning, but significantly more so for women. In the US, 38% of men answered all three questions correctly whereas only 22% of American women did. Financial literacy among European respondents was comparatively higher, but the gender gap was still notable. In the Netherlands, 45% of men answered all three questions correctly, among women only 38% did.
In Germany, 60% of men scored full marks, while 48% of women achieved a similar result. Indeed, the gap persisted when the number of questions was increased to 18. And not only were female respondents less likely to answer financial literacy questions correctly, but they are also more likely to state that they did not know the answers to the questions. The findings are not a fluke either, and match similar research conducted in Australia, France, Italy, Japan, New Zealand, Switzerland and Sweden.
The gap matters because women are more likely outlive their spouses, earn less in the workplace, and generally live longer. Ideally, women should be saving more and be equipped with the skills to manage their nest eggs appropriately to cope with these issues.
But as this study reveals they are not. You would imagine that some processes have been put in place to correct this imbalance, such as through the education system, with younger women more financially literate than previous generations, but the data appears to pour cold water on this. Among respondents below the age of 35, men in the US were twice as likely to answer all three questions correctly than women, Dutch men more likely by a third, and German men by a quarter.
Alarmingly, the financial literacy gap in this age group was the widest among working age Germans and Americans, while the Dutch gap was pretty consistent across all economically active ages. Unfortunately the study limited itself to quantifying the gap in financial literacy, and did not delve into the causes of the problem.
However, it is clear that what is currently being done to lift financial literacy among women is either not working, is poorly targeted, or is using the wrong message.
This is why it is so important to draw attention to the financial literacy gap in New Zealand, and more importantly, to try and correct it by equipping women (and men too) with the knowledge and tools they need to secure their financial futures. Although this appears to be largely missing from the CFC and Sorted websites, the good news is that it looks to be as a result of omission rather than ignorance.
Former retirement commissioner Diana Crossan was one of the authors who conducted a similar study to the NBER one in New Zealand, which produced much the same results. You can, in fact, find it by searching the CFC’s websites, but you have to know what to look for in order to find it. In other words you need some idea of what you don’t know.
Of course, uploading gender-specific financial advice to the web is unlikely to close the literacy gap anytime soon. We also need to provide groups with information about their specific risk factors at the point they make a financial decision, such as entering KiwiSaver.
But shining a bold spotlight on the financial literacy gender gap is an important first step. After all, it is reasonable to assume that if you make people aware of how poor their financial literacy is, and the risks they are courting as a result of this, they are likely to try and correct this gap or seek professional advice.
Indeed, this resonates with one of the findings from the NBER study, namely that women recognised their lack of knowledge, and rated their personal financial knowledge as low on the whole. The authors noted that "this awareness makes them an ideal target for financial education programmes."
*Jason Krupp is a research fellow at the New Zealand Initiative. This is this week's NZ Initiative weekly column for interest.co.nz.