Raising the personal financial capability of individuals around the globe is proving to be a difficult proposition. One reason now coming to light: When it comes to financial concepts, people have vastly different learning curves, new research shows.
Males and females absorb different money concepts at a different rate, and age and educational attainment throw in another set of wild cards, according to a presentation from Paul Gerrans, business professor at University of Western Australia.
Women appear better equipped to understand the role of risk in a money decision, and they learn faster when it comes to understanding inflation, Gerrans found. Men appear to be better with raw numbers—a skill gap that widens over time.
Gerrans doesn’t offer an explanation. But such predilections compound well-known financial learning obstacles such as the hesitancy among families to talk about money at home and the confounding disconnect between financial knowledge and poor financial behavior.
“Don’t expect uniform outcomes when we start differently and have different trajectories,” Gerrans writes in a presentation for the OECD-Russia symposium on financial literacy in Moscow earlier this month. This a key concept for financial educators. Young people will either grasp or struggle with certain money concepts in an often-haphazard way. Getting students on the same page is no easy task.
Gerrans’ research into financial literacy in Australia shows a clear overall age-based trajectory: financial know-how trends higher from ages 15 to 55, and then tapers off. At age 75, you are about as adept with money as you were at age 30.
Much of the later life decline owes to fading cognitive function and represents a serious challenge for employers and policymakers. We need programs to help mature adults hold on to the money smarts they acquire through practical experience throughout their life.
But first we need programs to help young people ramp up their know-how faster. Financial education works, Gerrans says. The results may vary with gender, education and income. But financial education improves financial knowledge.
Gerrans looked at college students entering a one semester financial literacy class and followed them for three years. He found…
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…an immediate jump in financial knowledge upon completion of the class, and that level of money understanding remained more or less stable the next three years.
Women showed the biggest gain and the greatest ability to retain those gains for three years. Their knowledge gain significantly narrowed the financial literacy gap with men but did not close it. This suggests that financial education is an effective way to counter the cultural advantage men seem to enjoy as the presumed keepers of family financial affairs.
Women showed the greatest jump in confidence in day-to-day financial decision-making and in managing personal finances. Of note, women with a college degree scored higher in financial literacy than men with less than 12 years of education, further underscoring education as an effective means of offsetting men’s cultural advantages in this area.
The global financial literacy movement traces to the 1990s and has been around long enough to have made important headway into what works and what does not. But as Gerrans’ research shows, we have much yet to learn. For now, it’s helpful to just understand that natural forces make learning about money a difficult undertaking—one that we cannot afford to shy away from.