Women are less involved in the stock market and other financial activities concerning wealth accumulation compared to their male counterparts. This is not only attributable to actual gaps in women’s financial literacy, but also to a lack of self-confidence. Women frequently underrate their actual financial knowledge. These are the findings of a study conducted by ZEW Mannheim in cooperation with the Global Financial Literacy Excellence Center (GFLEC) at the George Washington University School of Business, the University of Groningen, and the Dutch central bank, De Nederlandsche Bank (DNB).

This inequality could be addressed by investing in financial literacy and trust.
A recent study by ZEW Mannheim in cooperation with other institutes shows that women are less active in stocks and financial markets due to self-doubt.

The study is the first to differentiate between the extent to which the lack of actual financial knowledge on the one hand and a lower self-assessment of financial knowledge due to respondents’ lack of self-confidence on the other hand explains the gender gap in financial literacy. For this purpose, the study analyses data from the DNB Household Survey and looks at the ‘Big Three’ questions on financial literacy. The questions relate to knowledge of compound interest, inflation, and risk diversification.

It turns out that only two-thirds of the gender gap in financial literacy can be explained by lower financial knowledge of women. One third of the gap, however, is related to self-doubt regarding their own financial knowledge and decision-making. Women tend to disproportionately often choose the option “I don’t know” when answering questions on financial literacy. However, if the option “I don’t know” is omitted, women then frequently select the correct answer. This implies that there is a gap in self-confidence, rather than in knowledge. “A lack of confidence can lead to considerable differences in financial behaviour and wealth accumulation. Therefore, women should both invest in their financial literacy and have more confidence in their own knowledge,” says Professor Tabea Bucher-Koenen, head of the ZEW Research Department “International Finance and Financial Management” and co-author of the study.

In order to take a closer look at the aspect of wealth accumulation, the study examines in particular the gender gap in stock ownership. It suggests that only 20 per cent of women own stocks; for men it is 34 per cent. The gender difference can only partially be explained by the fact that women have a lower level of financial literacy than men. Rather, the discrepancy in stock market participation would shrink considerably if women had as much confidence in their financial literacy as men. “In order to close the gap between men and women when it comes to stock market participation, women not only have to enhance their financial literacy but also their confidence in their own competence in making financial decisions,” explains Bucher-Koenen. Financial education programmes should therefore be designed in such a way that they close this knowledge gap amongst women and at the same time boost their self-confidence.

Date

08.03.2021

Categories

Contact

Press Officer

Phone: +49 0621 1235-133

sabine.elbert@zew.de