Press

Women’s financial capability is worrisome, new research finds

MADISON, WI (June 24, 2015) — New research from the Filene Research Institute, “The Gender Gap: Troubling Financial Capability Findings among Women” explores the unique financial challenges of women. Information on assets, liabilities, knowledge, and advice seeking is analyzed to construct a telling profile of American women. Among the worrisome trends the authors find that among women aged 51–61, only two-thirds report that they (or their spouse) have a retirement account. Additionally, women often engage in expensive credit card behaviors, feel burdened by debt, and are financially fragile, particularly the young and unemployed. All of these issues are exacerbated by low financial literacy and a reluctance to seek advice.

“Private wealth in the United States is estimated to reach $22 trillion by 2020,” said Annamaria Lusardi, Academic Director of the Global Financial Literacy Excellence Center at George Washington University and lead researcher on this project. “Half of that money will be in the hands of women and, like many groups, women overestimate their ability to manage those finances.”

Among survey respondents taking a five- question financial literacy test, only one- quarter of women are able to correctly answer the three simplest questions—about interest, inflation, and risk diversification (indicating a basic level of financial literacy)—compared to 47% of men.

Test your own financial knowledge against the research findings using this interactive quiz.

George Hofheimer, Chief Knowledge Officer for Filene agrees that the findings are worrisome, and offers this advice. “Credit unions have the opportunity to provide advice and products that are specifically tailored to the needs of women. ”

“The Gender Gap” is the final report in a series of Fiserv-sponsored reports on the financial state of four key American demographics—Gen Y, pre-retirees, Hispanics, and women.

Findings from Previous Reports in the Series

The first report, “Gen Y Personal Finances: A Crisis of Confidence and Capability” reveals the struggles Millennials face in regards to personal financial management. Millennials are at critical stages of long-term financial decision-making, poised to make choices that carry serious implications for the future.

As a group, Millennials feel overburdened with debt. Two-thirds (66 percent) of all Millennials have at least one source of outstanding long-term debt, whether student loan, home mortgage, or car loan, and 30 percent have more than one source of long-term debt. To offset this debt, they are relying on expensive borrowing methods such as credit cards, payday loans, and alternative financial services.

“Financial Capability Near Retirement: A Profile of Pre-Retirees” “suggests pre-retirees and Gen-Yers have similar financial needs. In fact, 60% of pre-retirees have at least one source of long-term debt. Pre-retirees’ greatest source of debt is home mortgages (44%).

While 51% of Gen Y respondents reported having retirement accounts, nearly 30% of pre-retirees do not. Baby boomers additionally report using their credit unions less in retirement for a variety of reasons including having retirement assets elsewhere and lack of convenience.

Just as women face unique socioeconomic challenges, so do Hispanics. Hispanics, like many distinct racial groups, have specific financial needs. “Financial Capability among Highly Educated Hispanics” reports that 8 in 10 highly educated Hispanics have at least one credit card, and half of these cardholders report behaviors that can damage credit scores, increase interest rates, and harm their future borrowing capacity.

Thirty-five percent of the respondents in the study indicated they used one or more alternative financial services (like pawn shops or payday lenders) within the five years preceding the survey while 22% reported taking loans or hardship withdrawals from their retirement accounts. Very rarely does this group seek help for their financial struggles as nearly 60% feel that financial advisors are too expensive.

How can credit unions help?

While all four groups face similar challenges related to short-and long-term debt, financial literacy, and retirement planning, consider these promising approaches:

Effective messaging is needed to encourage baby boomers to be mortgage free in their retirement years. But in order to create impact, credit unions should also support that messaging with mortgage products that offer fixed-rates and are designed to ease the mortgage burden in the retirement years.
Debt management tactics will resonate with Millennials.
It will be critical to offer low-cost products and services to eliminate the need for Hispanics to engage in expensive financial behaviors. Spanish-speaking financial advisors can help foster a culture of comfort and trust for Hispanic members.
In light of women’s low levels of financial literacy and the unique challenges they face, channels and counseling should be directed at women. Women differ broadly over demographic categories, like age and marital status. For this reason, customized advice through counselors or remote channels should be provided.