ReadingBy Joel Dresang

My wife and I hadn’t known each other very long when we had our first conversation about finances. She was noting how little she was paid at her first job out of college. She disclosed how little her pay was.

I was astonished. It was more than I was earning at the time – three years later, with a few more years’ experience and a master’s degree. To be fair, it wasn’t an apples-to-apples comparison. Mary was a manager at a food manufacturer. I was a reporter at a newspaper.

Over the years, my paychecks gradually caught up to and then passed Mary’s. She later returned to school and switched careers, then stayed home when our daughters were young, then resumed work in another field.

In some ways, ours is part of a broader American tale recounted recently by the most powerful woman in America. In an address at Brown University, Federal Reserve Chair Janet Yellen described how women’s advances in the U.S. economy have benefited economic output and overall well-being in the past 125 years.

Federal Reserve research shows that between World War II and 1990, women’s increased participation in the economy added another half percentage point per year to real growth in the gross domestic product.

Yellen, who has expressed concerns about weak productivity in the United States, cited other research estimating that by raising the labor participation rate of women (57.1%) to that of men (69.2%) the country could boost GDP by 5%.

Yellen said work environments and policies need to better help workers – both male and female – more easily balance aspirations for work and family, which would address some of the challenges holding back women’s economic potential.

Concerns for women’s finances are widespread because even as they have played a greater role in family finances, women collectively have shown less confidence and lower scores than men in financial literacy. For instance:

  • One study found that only 22% of American women surveyed could correctly answer all three questions in a financial literacy test, vs. 38% of men. Other countries had similar results.
  • Further research, using the same three questions, found an even wider gender gap – at an even lower success rate – for adults under age 35, with only 12% of women answering correctly vs. 26% of men.

Consider that even men’s financial literacy is marginal, but the gender disparity persists even as women are playing a larger role as family breadwinners and household money managers. More significantly, women generally continue to outlive men, which means they often are left alone to handle finances that they need to last longer.

A recent report from the Global Financial Literacy Excellence Center at George Washington University showed that between 2012 and 2015, despite an improved economy, American women were no better off in terms of retirement preparation or indebtedness. Two-thirds of those interviewed said they worried about running out of money in retirement.

Test your financial literacy
Researchers at George Washington University and the University of Pennsylvania devised these questions to test financial literacy. Choose your answers and then click here for the correct responses.

  1. Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?
    1. More than $102
    2. Exactly $102
    3. Less than $102
    4. Do not know/Refuse to answer
  2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, how much would you be able to buy with the money in this account?
    1. More than today
    2. Exactly the same
    3. Less than today
    4. Do not know/Refuse to answer
  3. Please tell me whether this statement is true or false. “Buying a single company’s stock usually provides a safer return than a stock mutual fund.”
    1. True
    2. False
    3. Do not know/Refuse to answer

On the bright side, researchers have found that women are more likely than men to recognize their shortcomings in financial literacy, which suggests they’re more open to increasing their knowledge and improving their behavior.

Investment advisors say investors – men and women – can work to improve their financial literacy by getting involved in the process, by attending meetings with advisors and pursuing their curiosity.

“My advice to anyone would be to make an active effort to understand their finances,” says Isabelle Wiemero. “Be part of the conversation, and ask questions. Don’t just rely on a spouse or other family member to take care of everything.”

Dave Sandstrom says he sees greater participation from both spouses among younger clients, but for those husbands who attend reviews alone, he encourages more involvement from their wives.

“I offer to answer questions surrounding the basics of investing for the benefit of the wife,” Dave says, adding, “I am willing to bet that the husband benefits just as much from those conversations.”

Financial matters can get dauntingly complex, but Dave says investors can do well by focusing on the fundamentals of investing.

“As soon as people start hearing about yield curves and CAPE Ratios, they shut down and avoid the conversation,” Dave says. “Having a basic understanding of stocks and bonds and a diversified portfolio is what they really need.”

Together, Mary and I both have become more mindful of our finances over the years. We hope our three daughters will be even more so, even earlier.

Our two adult daughters happened to ace the three-question financial literacy test, but even as they took it, they complained that they have learned too little about finances in school or otherwise. The fact that they don’t feel confident in their knowledge is part of the problem – a challenge that I hope to help them address over time.

Learn more
5 Ways Moms (and All Women) Can Take Charge of Their Financial Futures, from the Financial Industry Regulatory Authority
What Every Woman Should Know, from the Social Security Administration
What Women Need to Know About Retirement, from the Women’s Institute for a Secure Retirement
Managing Money Through Grief: 10 Tips for Widows and Widowers, from the Financial Industry Regulatory Authority

Joel Dresang is vice president-communications at Landaas & Company.

(initially posted June 2, 2017)

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