Making Women Money-Smart

Kiplinger's spoke with Annamaria Lusardi (pictured at left), the director of the Global Financial Literacy Excellence Center at the George Washington University School of Business about a recent study she coauthored, How Financially Literate Are Women?, which looks at financial literacy in the U.S., Germany and the Netherlands. Here's an excerpt from our interview:

You say your study turned up some "striking findings." Please elaborate. In all three countries -- and, in fact, in all 15 countries to which we have extended this research—women are less likely than men to answer the financial literacy questions correctly. And they are disproportionately more likely to answer "do not know." There is a clear gender difference, and it exists regardless of age, income, education or marital status.

Why the gap? I think it's due to access. If financial literacy isn't taught in school, you acquire it through experience and through others around you -- for example, your parents or colleagues. Women are at a disadvantage if parents don't talk to girls about finance in the same way they talk to boys. And women are more likely to be surrounded by other women at work or socially, so there’s less opportunity to learn.

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You say language is also an issue. I think we have made the language of finance foreign to women. For example, we call a mutual fund "aggressive growth," which we know indicates a type of risk, but those words are unfamiliar to women. One thing we ask in our survey is whether it's safer to invest in an individual stock or in a stock mutual fund, and that’s a question with many technical terms. If we asked instead, "Would you spread your money over a lot of investments," my impression is that we'd have a different answer.

What are the implications for financial decisions? In a follow-up study, we asked the same financial literacy questions, but we didn't give the option of saying "do not know" and forced respondents to answer. Women tended to be right, but expressed less confidence in their answers. In yet other research, we show that women are less likely to plan for retirement, and lack of confidence is a big component of that. Their caution is probably a good feature in making financial decisions. But we need a targeted approach to give women knowledge and confidence.

What's the solution? Women are an ideal audience for financial education programs, and they feel more comfortable when there is a peer group they can rely on. All of the financial programs we have conducted have been attended mostly by women, and women are more likely to change their behavior. For example, after attending a seminar on retirement goals, they're more likely to increase their planned retirement age and adjust their saving behavior. We see that when they get the information, they can do quite well.