Project in detail

Financial literacy, confidence, and gender

Members of this project:

The literature documents robust evidence of a gender gap in financial literacy: Women consistently show lower levels of financial literacy than men. The gender gap in financial knowledge persists even after taking into account education, income, and labor market participation. The objective of this project is to systematically examine the mechanisms that lie behind the gender differences in financial literacy for a representative set of adult women and link these differences to financial decision-making. We designed a set of questions that were added to the Dutch DNB household panel (DHS) to understand what is driving the gender gap in financial literacy, and in particular what is driving the gender difference in the “do not know” responses. For this purpose we have devised two surveys to investigate whether this gender gap is the result of lack of knowledge or lack of confidence. We use the data from the two survey waves to disentangle knowledge and confidence and develop an empirical estimation strategy based on a latent class model to consistently estimate whether the respondent knows the correct answer. Our findings show that women are less confident in their knowledge than men. However, about one third of the gender gap is due to differences in confidence, i.e. women disproportionately more often answer “do not know” even if they know the correct answer. The corrected measure of financial literacy is important for the explanation of important household financial behaviors such as stock market participation and planning for retirement. This project is conducted in cooperation with Prof. Annamaria Lusardi, Ph.D. (George-Washington-University, Washington, USA), Prof. Dr. Rob Alessie (University of Groningen, Netherlands) and Maarten van Rooij, Ph.D. (De Nederlandsche Bank, Netherlands). It is financed by the European Investment Bank Research Sponsorship Programme on Financial Literacy. The results have been documented in a discussion paper and are currently being presented at seminars and conferences.

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