The financial literacy gender gap and what to do about it

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In Australia, more than a third (36%) of adults are financially illiterate and women tend to have less knowledge about financial matters than men, with a bigger gender gap than similar countriesi.

Financial Literacy Gender Gap
(Total Adult - Female Financial Literacy, %)

Source: S&P, AMP

The Household, Income and Labour Dynamics survey Australia (HILDA) in 2018 found a noticeable gap in financial literacy between men and women. Financial literacy was found to improve with education, employment status and marriage status. There was also a statistically significant relationship between financial literacy and retirement savings.

And it’s a similar situation globally, with women around the world tending to have lower financial knowledge than menii. S&P’s Global Financial Literacy Survey in 2014 showed that only about a third of adults are financially literate by answering simple questions around numeracy, compound interest, inflation and risk diversification.

What’s financial literacy?

Financial literacy is the understanding of how financial and economic concepts apply to your personal finances, which can include savings accounts, credit cards, mortgages, share trading and superannuation. Financial literacy tends to increase with age, peak at around middle-age and decline into the older years.

The gender pay gap

The other challenge Australian women face, as shown in the chat below is that they tend to earn less than men for a variety of reasons.

• They take more time out of the workforce if they have children – more women than men work part-time.

• They tend to choose careers that have lower average earnings.

• And even for comparable jobs, they sometimes earn less than their male counterparts.

Australia Total Average Earnings By Gender

Source: Macrobond, AMP

So, women’s financial position tends to start off behind men and gets worse over time, with male super exceeding female super at all ages. The end result is that at retirement age (60-64), the gap is as wide as 21% ($406K for men versus $321K for women)iii, as you can see in the chart below.

Mean Superannuation Balance by Age

Source: ATO, AMP

What this means for Australian women…

Lower financial literacy can lead women to make worse investment decisions, accumulate wealth more slowly and end up with smaller retirement savings.

It can also mean lower confidence, less financial freedom and poorer living standards.

How we can close the gap

Knowledge is power so education is the key to closing the financial literacy gender gap.

• The Government has a big role to play through:

  • offering more financial literacy classes in school

  • providing better access to financial counselling

  • encouraging more women to study economics – men still dominate HSC enrolments and female enrolments have fallen slightly

  • helping parents with childcare costs to help more women stay in the workforce as time out of work can make substantial differences to retirement savings – the recent broadening of paid parental leave to both parents is a step in the right direction but we need a greater societal push for men to take leave and do more unpaid work around the home

  • considering a law change so employers need to pay super during paid parental leave as compound interest means even a short break from work can lead to significant differences in total retirement savings – the Australian female participation rate in the workforce is about average compared with similar countries but could be higher.

• Banks and super providers could be making more education resources available to their customers.

• Employers could offer financial wellbeing as an employee benefit – for example, encouraging staff to know more about their super and offering other incentives to working parents like salary packaging childcare fees.

• And parents could do more to teach their children about their personal finances.

Contact us today to find out more.

This article has been written by Diana Mousina, Deputy Chief Economist at AMP.

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Current as at Sep 2023