Economically speaking

Why we need to bridge the gender gap in financial capability

Angela Stevens
April 6, 2022

NB: This article was submitted as an abstract to the AGEW’s 2022 Gender Economics Workshop. The full paper is expected to be completed by the end of 2022.


Why is financial literacy so important?

Financial literacy is a cornerstone of our economic well-being. At its most basic level, being financially literate means that we know how to use our money responsibly and sustainably. Our level of financial literacy dictates our capacity to make sound decisions that allow us to lead secure and independent lives. According to the OECD International Network on Financial Education, financial literacy demands a combination of awareness, knowledge and skills which forms a strong foundation for financial management and capability. Critically, being financially literate, having access to sufficient income alongside a suite of suitable and affordable financial products and services are three vital pillars that govern healthy financial well-being. 

In recent years, public discourse around financial literacy has largely revolved around the rise of increasingly complex financial markets, digital products, ballooning household debt, and greater individual responsibility for saving and investing, particularly among young people. Although our understanding of being ‘financially well’ evolves as we progress throughout schooling, our careers and later into retirement, there are some fundamental behaviours associated with higher levels of financial literacy that guide us through our lifetimes. For instance, being financially literate increases our spending and saving ‘horizons’, allowing us to plan our expenditure up to a year in advance, as compared to planning for the immediate future. Economist Annamaria Lusardi contends that higher levels of financial literacy are associated with being ‘future-oriented’, allowing us to make less impulsive financial choices, and invest and build our wealth over time rather than accumulate credit card debt and other outstanding expenses. By adopting a financially savvy approach to our personal finances, we are more likely to plan for our retirement, secure a higher income from multiple active and passive sources, overcome income shocks and cover emergency expenses, particularly during these uncertain times. 

Adolescence marks the onset of a critical gender divide in financial knowledge

A 2014 survey comparing 140 different economies concluded that Australia ranks within the top 10 countries globally for levels of financial literacy. However, this seemingly favourable performance belies high levels of financial illiteracy nationwide and obscures the stark divide in personal finance skills among men and women, and between older and younger generations. Findings from Wave 16 of the HILDA survey demonstrated that the least financially literate Australians were those under 25 years old, compared to people aged 45 to 55 who are far better equipped to handle their personal finances. 

Crucially, young women are the least financially literate Australians and bear the brunt of society’s financial ignorance the hardest. Wave 6 of the ASIC (Australian Securities and Investments Commission) Financial Attitudes and Behaviour Tracker echoed these results; over 85% of young women under 35 failed to identify and understand basic financial and investment concepts. A sizeable gender gap in financial literacy exists, with evidence to suggest that this knowledge divide manifests during teen and pre-teen years, where parents often reserve conversations about personal finance topics such as investing and wealth managements for their sons. In turn, women are less likely to invest in the share market, hampered by poorer numerical skills, lower risk tolerance and lack of familiarity with complex financial products. 

Previous research examining parents’ teaching and financial behaviour among Malaysian adults found that young boys chart an ‘independence money track’, whereas young girls are placed on a ‘dependence money track’. These ‘money tracks’ reinforce entrenched gender roles that lend men greater control over financial decision-making on behalf of their families. Results from the 2016 BT Australian Financial Health Index underscored the crippling unease that young women feel when their thoughts drift to their finances: over 50% of women do not believe they will have enough money to retire, while 78% do not dedicate enough time to learn about how they can manage their finances and live comfortably throughout adulthood. This apprehension around money management can underpin a young woman’s motivation to abdicate critical financial choices – such as those surrounding investing, superannuation and debt – to others, relegating them to financial inferiority from the start of their working life. 

Worse still, journalist Wendy Tuohy laments that financial abuse rates have escalated to “epidemic proportions”, affecting 16% of women. Financial abuse manifests itself in the restriction of control over one’s personal finances by an abusive partner or ex-partner, allowing them to further gain dominance over their victims and squander their financial freedom and security. A report from a 2018 AusSuper campaign titled The Future Face of Poverty is Female noted that poverty rates among people with lower levels of financial literacy are double those who are highly financially literate. These findings are compounded by the realisation that women need to earn an extra $140 a week to live comfortably in retirement, compared to $45 for men, culminating in a retirement savings gap perpetuated by systemic gender differences in financial literacy levels. There is little wonder, then, why our nation’s gender wealth gap and Australian women’s lack of economic security in retirement can be partially attributed to low levels of financial literacy throughout adolescence and early adulthood. 

Financial literacy in Australia’s schools – the current case

The widespread economic ruin following the 2007 Global Financial Crisis compelled over 35 countries to join a renewed international financial literacy movement. Accordingly, each country developed their own national financial literacy strategy aiming to reinforce the importance of core personal finance concepts, strengthen regulations for financial products and services, and restore consumer confidence. 

Yet Australia faces a financial literacy crisis, where personal finance education is overwhelmingly underdelivered in our nation’s schools. To combat this, ASIC launched the Moneysmart teaching program in 2012 to complement the release of their 2011 National Financial Literacy Strategy. The latest iteration of ASIC’s National Financial Literacy Strategy was released in 2018 and updated in May 2020 to mark a critical shift from attaining financial literacy to building financial capability, with a particular focus on encouraging women and young people to engage in and make informed decisions about their personal financial circumstances. 

Although several curriculum-aligned resource packs and activities are available for teachers to download from the Moneysmart website and incorporate into their lessons, fewer than 40% of Years 7 to 10 teachers feel equipped to teach personal finance content, and few schools have successfully encouraged students to engage with the concepts taught. ASIC attempted to rectify this by introducing the Moneysmart for teachers professional development program but this initiative will cease at the end of 2021. Similarly, Moneysmart’s collaboration with the Australian Secondary Principals Association, which allows secondary schools to each apply for up to $5000 in financial literacy project opportunities, will regrettably come to an end at the same time. In addition, there are currently no compulsory government-based financial literacy programs tailored to tertiary students aged 18 to 25. 

Beyond the Moneysmart teaching program, financial literacy finds its home within a sub-strand of the Australian Mathematics curriculum, where students apply their knowledge of simple and compound interest to basic financial contexts. Some teachers defend this staunch neglect of financial literacy teaching in the early years of secondary schooling by instead choosing to incorporate personal finance basics in senior school Economics classes. Shockingly, overall enrolments in Year 12 economics have declined by 70% in the last 30 years and are overwhelmingly dominated by young men from wealthier suburbs and private schools. This reality serves as a stark reminder of the continued threat to women’s economic and financial literacy levels and is set to exacerbate the gender knowledge and confidence divide in personal finance. 

At its core, financial literacy is an investment in human capital. Early intervention into personal finance education is essential in ensuring that the next generation of young Australians – particularly young women – can develop a healthy and sustainable relationship with money that will alleviate the risks of financial abuse and poverty in old age. In light of the COVID-19 pandemic, which gave rise to Australia’s worst ‘pink-collar’ recession, there has never been a more vital time to tackle this gender knowledge divide – and eventual gender wealth gap – at its infancy by arming young women with personal finance basics. It is equally vital that parents are equipped with helpful strategies to guide their daughters through each stage of their personal finance journeys in a similar manner to their sons. Saheed Pahlevan Sharif, Ashraf Sadat Ahadzadeh and Jason James Turner’s 2020 research similarly stressed the importance of financial literacy education programs uniquely tailored to the needs of young women and their parents. Indeed, the “household transmission effects” of personal finance knowledge between mothers and daughters have been cited as a source of concern and will be explored in this paper. 

Relevance of this research and practical applications

This paper will draw on existing research surrounding the gender knowledge divide in financial literacy and its impacts on women’s ability to attain financial independence throughout life. As such, it will outline the importance of personal finance education, the underlying causes of the gender gap in financial knowledge and evaluate Australia’s existing pedagogical approaches to building financial awareness in school settings, comparing them with other OECD countries. 

The paper is expected to be published in late 2022 and will examine data from the Household, Income and Labour Dynamics (HILDA) Survey sourced primarily from Waves 16 (conducted in 2018) and 18 (conducted in 2020) to quantify the size of the gender gap in financial knowledge, attitudes, and behaviours. In doing so, this paper builds on previous research conducted by Alison Preston and Robert Wright in their seminal paper, Understanding the Gender Gap in Financial Literacy: Evidence from Australia, which identified a 40.8% gender gap between Wave 16 HILDA respondents who scored correctly on all five questions asked in the HILDA financial literacy questionnaire, covering topics such as numeracy, inflation, portfolio diversification, risk versus returns and money illusion. These five questions derive from the framework used to glean rough estimates of financial knowledge outlined in Annamaria Lusardi and Olivia Mitchell’s paper, The Economic Importance of Financial Literacy: Theory and Evidence, based on the ‘Big 3’ fundamental concepts: (i) numeracy and capacity to make calculations using interest rates and compound interest, (ii) an understanding of inflation and (iii) knowledge of risk diversification. Unlike Preston and Wright’s work, this paper will unveil some of the factors that give rise to this gender knowledge divide in personal finance specifically among young people, addressing a previously unexplored area of research. 

This paper also adopts the Oaxaca-Blinder statistical decomposition and OLS regression techniques used by Preston and Wright to decompose the gender financial literacy gap into ‘explained’ and ‘unexplained’ components based on the five financial literacy questions asked in Wave 16 of the HILDA survey. However, these five questions only provide an objective measure of each respondents’ level of financial knowledge. Accordingly, this paper extends Preston and Wright’s model by applying it to subjective measures of financial well-being used in Wave 16 of the HILDA survey, namely the personal financial management capability questionnaire which explicitly addresses attitudes to money and finances and self-assessed financial competence. This paper will deduce the gender gap in financial competence between HILDA respondents aged 15 to 25 based on average scores from this personal financial management capability questionnaire and assess respondents’ overall financial capability using the OECD’s definition. The merits of subjective measures of financial capability were explored in a 2020 article titled Competence, Confidence and Gender: The Role of Objective and Subjective Financial Knowledge in Household Finance, where they were found to be a stronger predictor of sound financial decisions compared to objective measures such as knowledge-based questions, affirming this paper’s relevance. 

The second component of this paper’s methodological approach will compare respondents’ answers to Waves 16 and 18 of the HILDA survey based on other subjective measures of financial well-being, including their response to a financial emergency, reaction to stressful financial events, their self-assessed prosperity, attitudes to risk, savings habits and intra-household decision making. In doing so, this paper will identify any trends in financial behaviours, skills and attitudes specific to male and female respondents aged 15 to 25. The inferences derived from the OLS estimates alongside these trends will be used to derive core focus areas for a comprehensive and holistic financial literacy curriculum tailored to parents and students across Australia’s secondary and tertiary institutions. In this sense, this paper will extend Gustavo Barboza, Chad Smith and James Pesek’s research by highlighting some of the behavioural factors that can be attributed to lower levels of financial capability among young women compared to their male counterparts. 

The paper will conclude with concrete policy recommendations for regulators such as ASIC to craft a compulsory financial literacy curriculum tailored to young Australians aged 15 to 25 and their parents, with a particular focus on young women. It will also draw on the recommendations made as part of Per Capita’s Beyond Inclusion to Impact report prepared for the second stage of superfund HESTA’s Financial Inclusion Action Plan to bolster financial capability among young women aged 18 to 25. All recommendations provided in this paper will be grounded in rigorous economic analysis and will be provided with costings where required. While the costs of improving financial literacy are likely to be high, to echo Lusardi and Mitchell’s grim final remarks, “so too are the costs of being overindebted and poor”. 

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