Understanding the Gender Gap in Financial Literacy: Evidence from Australia

Abstract

Using micro‐data from the Household, Income and Labour Dynamics in Australia Survey, and the Oaxaca–Blinder decomposition technique, this paper examines the determinants of the gender gap in financial literacy. The analysis suggests that human capital variables, such as age and education, are not important in explaining the gender gap in financial literacy. Labour market variables, such as sector, occupation, industry, union membership and labour market status, are important and explain around 16 per cent of the gap. This finding is dependent on the assumption that these variables are exogenous. There is a large unexplained gap, suggesting that the main determinants are neither human capital nor labour market factors.

Gender differences in financial knowledge, attitudes, and behaviors: Accounting for socioeconomic disparities and psychological traits

“…We note that in previous studies, it has been important to consider the direction of the causal relationships between observed financial literacy and selected independent variables such as occupation. As Preston and Wright (2019) note, it may be that occupation experience increases financial knowledge or instead that financial literacy shapes occupational choice. In the case of personality traits, there is no theoretical reason to expect that greater financial knowledge might alter traits of “openness” or “neuroticism.”…”

“…As a share of the gross differential in financial literacy and financial capability, endowments account for between 16 and 89% of the gap between men and women when the models include psychological variables (Panel B at Table 7). More specifically, our results (at Panel B of Table 7) find that more than half (0.31 on 0.58) of the gross differential in financial literacy scores between men and women is explained by underlying differences in sociodemographic and psychological characteristics, a share that is substantially higher than previous studies using the same decomposition technique but different sets of explanatory variables (Fonseca et al ., 2012; Cupák et al ., 2018; Preston and Wright, 2019). On the other hand, nearly half of the gender gap in financial literacy scores remains unexplained, with very large effects of the coefficients, moderated by the interaction effect (0.40 and −‐0.14, or 0.26 on 0.58).…”

“…Many studies of financial literacy, defined here as objective knowledge of topics in personal finance, have concluded that men perform better than do women (Chen and Volpe, 2002; Lusardi and Mitchell, 2008; Wagland and Taylor, 2009; Fonseca et al ., 2012; OECD, 2013; Almenberg and Dreber, 2015; Bocchianlini and Ronchini, 2015; Drolet, 2016; Cupák et al ., 2018; Preston and Wright, 2019; Rothwell and Wu, 2019). This gender gap may be among the most reliable findings in the research on financial literacy.…”

“…Moreover, the same study concluded that the gender difference was persistent even when accounting for exposure to financial education. Likewise, a study of financial literacy among Australian adults found that the gap in scores between men and women could not be explained by human capital variables, labor market variables (such as occupation and labor market status) were important but accounted for just 16% of the gap in scores (Preston and Wright, 2019).…”

The Effect of Gender on Financial Literacy

“…It was found that the young boys were better in coping with risks and with regards to financial knowledge compared to young women while the latter were more concerned in money management and spending. Preston and Wright (2019) studied the relation between financial literacy and gender in Australia. In their study, they used the variables including age and education and found that these variables were insignificant to explain the gender difference.…”