Gender Gap in Financial Literacy

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1 Executive Summary From Q to Q we have seen a steady widening of the financial literacy gap between men and women, but data from Q shows that this trend may be stabilizing instead of worsening as it had over the last few years. Below are key trends around the gender gap in financial planning and financial literacy: Average Percentage Point Gender Gap on 9 Key Financial Wellness Questions Q Q Q Q Where Gender Gap Is the Largest Money and debt management and general investment knowledge Where Gender Gap Is the Smallest Retirement, college, and estate planning Where There Is No Gender Gap Participating in 401(k) plans and IRAs Key Trends: are gaining ground when it comes to key areas of investing as men appear to be showing initial signs of a backslide. Income has the most significant impact on the gender gap in financial wellness. The gap between men and women is significantly smaller in households with income over $150,000. The overall gender gap is greater among Gen Xers and Millennials when compared to Baby Boomers reflecting a lack of progress educating young women around how to effectively manage their finances. 1

2 s Progress Narrowing the Investing Gap Analysis narrowed the gap in virtually all aspects of investing. The most notable areas where women improved were related to ongoing investment management, and in particular effectively managing risk in the current bull market: The percentage of women who performed a fee analysis on their portfolio increased by a factor of 50%, while the percentage of men who reported the same actually decreased by a factor of 29%. The percentage of women who reported rebalancing their accounts to keep their asset allocation plans on track increased by a factor of 16% while the percentage of men who reported the same decreased by a factor of 12%. The percentage of women who reviewed their combined assets to develop a master asset allocation plan (a way to manage risk by eliminating overlapping investments) increased by a factor of 25%, while the percentage of men who reported the same decreased by a factor of 5%. Difference Fee Analysis % % % % % % Rebalancing % % % % % % Combined Allocation % % % % % % 2

3 We believe, based on our own research and research that others have done in this area, that women actually improve their investing habits and behaviors in a strong market (which we experienced in the first quarter of 2013), while men backslide and begin to ignore the risk management controls they originally put in place to create proper diversification and oversight of their portfolios. Recent neurological studies that looked at the hormone cycles of male traders back this up i. Male traders were much more likely to fall victim to a phenomenon called testosterone overload after a streak of large gains, which caused them to take on progressively more risk until they eventually experienced devastating losses., on the other hand, were much more likely to counterbalance, becoming more diligent when they were on a winning streak, recognizing the market was getting overheated and that they had to protect the wealth they had built. Ultimately, over time, by losing less, women traders end up making more for their firms. This same phenomenon has been studied with retail investors, most notably UC Davis Professors Terrance Odean and Brad Barber, whose studies of over 35,000 male and female investors over 8 years found that women achieved stronger long-term returns than men for this same reason ii. 3

4 Impact of Age and Income on the Gender Gap Average Gap in Financial Wellness between and by Age 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 16% 14% 13% 12% Under Average Gap in Financial Wellness between and by Income 14% 12% 10% 12% 13% 11% 9% 11% 8% 6% 5% 6% 4% 2% 0% 4

5 Responses to Online Financial Planning Questionnaire Q Breakdown by Gender The charts below show how men and women responded to financial planning questions on a personal financial wellness assessment 1. The questions are grouped into 7 key financial planning topics, which are labeled 1-7 and are represented in descending order from the topic with the largest gender gap to the one with the smallest. 1. MONEY MANAGEMENT I have a handle on my cash flow so I spend less than I make each month. 65% 83% I have an emergency fund to cover unexpected expenses or to pay bills for a few months if I lose my job. 45% 64% 82% 95% I am comfortable with the amount of non-mortgage debt I have. 54% 71% I regularly pay off my credit card balances in full. 48% 70% I check my credit report on an annual basis. 52% 54% 1 Users who assessed their own financial situation: January 1, 2013 through March 31, All figures are rounded to the nearest whole percentage. 5

6 2. INVESTING I have general investment knowledge regarding stocks, bonds and mutual funds. 67% 87% I feel confident that my investments are allocated appropriately between stocks, bonds, and cash. 33% 49% I have taken a risk tolerance assessment and am aware of my conservative, moderate, or aggressive investment strategy. 43% 59% I rebalance my accounts to keep my asset allocation plans on track. 29% 43% I have reviewed my combined assets and developed a master asset allocation plan to avoid overlapping of investments or overweighting of certain asset classes. 20% 36% I have done a fee analysis of my portfolio. 15% 20% 6

7 3. TAX PLANNING I know my marginal tax bracket. 15% 25% I adjust my withholding each year so I neither owe nor receive a large refund. 39% 46% I understand the tax implications of my investment and retirement accounts. 37% 52% To my knowledge, I maximize all available federal tax credits and deductions to reduce my tax liability. 47% 52% 7

8 4. INSURANCE I review my insurance coverage on an annual basis and I am confident that I am adequately covered by my health insurance and auto/homeowner's policies. 80% 82% I carry enough life insurance to replace my income, pay for college expenses, and create an emergency fund for my beneficiaries. 46% 54% I have long-term disability insurance in place to replace my salary in case I am ill or have an accident and am unable to work at my current job. 60% 74% I have an umbrella liability insurance policy to protect my assets from lawsuits. 20% 37% I have long-term care insurance in place to protect against the costs of a nursing home stay. 14% 17% 8

9 5. RETIREMENT PLANNING I participate in my company's retirement plan. 91% 92% I capture the company matching funds in my 401(k), 457 or 403(b) plan by saving up to the matching percentage. 80% 89% I contribute to a traditional or Roth IRA. 28% 28% I know I am on target to replace 80% of my income or my goal in retirement. 16% 24% 9

10 6. COLLEGE PLANNING I know how much I need to save for college costs and am on track to meet that need. 20% 28% I currently contribute to a 529 College Savings Plan, a Coverdell Savings Account, or other taxadvantaged account to save for college expenses. 18% 26% I understand the financial aid options that may be available, including grants, scholarships, student loans, etc. 66% 59% 7. ESTATE PLANNING I have made sure beneficiary designations on my insurance and retirement plans are up to date. 84% 85% I have written up legal documents such as a will or trust and made decisions about who should receive my assets and who should raise my children. 26% 32% I have met with an estate planning attorney or financial planner to create an estate plan. 4% 4% 10

11 Breakdown by Demographic Gaps Between and : Under Age 30 2 I have a handle on my cash flow so I spend less than I make each month. I have an emergency fund to cover unexpected expenses or to pay bills for a few months if I lose my job. 72% 85% 48% 63% 85% 92% I am comfortable with the amount of (non-mortgage) debt I have. I regularly pay off my credit card balances in full. I contribute to my retirement plan at work such as a 401(k), 457 or 403(b) plan. 55% 69% 55% 72% 86% 88% I know I am on target to replace at least 80% of my income in retirement. I feel confident that my investments are allocated appropriately based on my risk tolerance and time horizon. I have at least a general knowledge in investing and I am comfortable with the basics. 16% 26% 26% 49% 62% 84% 2 All figures are rounded to the nearest whole percentage. 11

12 Gaps Between and : Age I have a handle on my cash flow so I spend less than I make each month. I have an emergency fund to cover unexpected expenses or to pay bills for a few months if I lose my job. 58% 79% 36% 58% 77% 94% I am comfortable with the amount of (non-mortgage) debt I have. I regularly pay off my credit card balances in full. I contribute to my retirement plan at work such as a 401(k), 457 or 403(b) plan. 46% 66% 39% 65% 90% 90% I know I am on target to replace at least 80% of my income in retirement. I feel confident that my investments are allocated appropriately based on my risk tolerance and time horizon. I have at least a general knowledge in investing and I am comfortable with the basics. 15% 20% 30% 44% 62% 84% 12

13 Gaps Between and : Age I have a handle on my cash flow so I spend less than I make each month. I have an emergency fund to cover unexpected expenses or to pay bills for a few months if I lose my job. 67% 79% 50% 64% 85% 95% I am comfortable with the amount of (non-mortgage) debt I have. I regularly pay off my credit card balances in full. I contribute to my retirement plan at work such as a 401(k), 457 or 403(b) plan. 60% 70% 52% 68% 94% 95% I know I am on target to replace at least 80% of my income in retirement. I feel confident that my investments are allocated appropriately based on my risk tolerance and time horizon. I have at least a general knowledge in investing and I am comfortable with the basics. 16% 24% 36% 50% 69% 89% 13

14 Gaps Between and : Age I have a handle on my cash flow so I spend less than I make each month. I have an emergency fund to cover unexpected expenses or to pay bills for a few months if I lose my job. 75% 93% 60% 81% 93% 98% I am comfortable with the amount of (non-mortgage) debt I have. I regularly pay off my credit card balances in full. I contribute to my retirement plan at work such as a 401(k), 457 or 403(b) plan. 65% 83% 58% 81% 95% 97% I know I am on target to replace at least 80% of my income in retirement. I feel confident that my investments are allocated appropriately based on my risk tolerance and time horizon. I have at least a general knowledge in investing and I am comfortable with the basics. 19% 31% 43% 57% 78% 93% 14

15 Gaps Between and : Income $20,000-$34,999 I have a handle on my cash flow so I spend less than I make each month. I have an emergency fund to cover unexpected expenses or to pay bills for a few months if I lose my job. 46% 71% 18% 35% 57% 73% I am comfortable with the amount of (non-mortgage) debt I have. I regularly pay off my credit card balances in full. I contribute to my retirement plan at work such as a 401(k), 457 or 403(b) plan. 35% 43% 25% 43% 80% 75% I know I am on target to replace at least 80% of my income in retirement. I feel confident that my investments are allocated appropriately based on my risk tolerance and time horizon. I have at least a general knowledge in investing and I am comfortable with the basics. 9% 12% 19% 33% 47% 60% 15

16 Gaps Between and : Income $35,000-$59,999 I have a handle on my cash flow so I spend less than I make each month. I have an emergency fund to cover unexpected expenses or to pay bills for a few months if I lose my job. 54% 73% 30% 43% 76% 87% I am comfortable with the amount of (non-mortgage) debt I have. I regularly pay off my credit card balances in full. I contribute to my retirement plan at work such as a 401(k), 457 or 403(b) plan. 42% 54% 35% 57% 88% 83% I know I am on target to replace at least 80% of my income in retirement. I feel confident that my investments are allocated appropriately based on my risk tolerance and time horizon. I have at least a general knowledge in investing and I am comfortable with the basics. 9% 17% 29% 44% 51% 77% 16

17 Gaps Between and : Income $60,000-$74,999 I have a handle on my cash flow so I spend less than I make each month. I have an emergency fund to cover unexpected expenses or to pay bills for a few months if I lose my job. 63% 82% 42% 57% 81% 94% I am comfortable with the amount of (non-mortgage) debt I have. I regularly pay off my credit card balances in full. I contribute to my retirement plan at work such as a 401(k), 457 or 403(b) plan. 53% 63% 44% 64% 92% 88% I know I am on target to replace at least 80% of my income in retirement. I feel confident that my investments are allocated appropriately based on my risk tolerance and time horizon. I have at least a general knowledge in investing and I am comfortable with the basics. 15% 15% 34% 43% 66% 78% 17

18 Gaps Between and : Income $75,000-$99,999 I have a handle on my cash flow so I spend less than I make each month. I have an emergency fund to cover unexpected expenses or to pay bills for a few months if I lose my job. 70% 77% 47% 53% 87% 95% I am comfortable with the amount of (non-mortgage) debt I have. I regularly pay off my credit card balances in full. I contribute to my retirement plan at work such as a 401(k), 457 or 403(b) plan. 57% 67% 47% 61% 93% 94% I know I am on target to replace at least 80% of my income in retirement. I feel confident that my investments are allocated appropriately based on my risk tolerance and time horizon. I have at least a general knowledge in investing and I am comfortable with the basics. 16% 24% 35% 49% 71% 86% 18

19 Gaps Between and : Income $100,000-$149,999 I have a handle on my cash flow so I spend less than I make each month. I have an emergency fund to cover unexpected expenses or to pay bills for a few months if I lose my job. 73% 85% 56% 70% 91% 98% I am comfortable with the amount of (non-mortgage) debt I have. I regularly pay off my credit card balances in full. I contribute to my retirement plan at work such as a 401(k), 457 or 403(b) plan. 59% 73% 53% 71% 94% 94% I know I am on target to replace at least 80% of my income in retirement. I feel confident that my investments are allocated appropriately based on my risk tolerance and time horizon. I have at least a general knowledge in investing and I am comfortable with the basics. 20% 26% 35% 48% 72% 89% 19

20 Gaps Between and : Income $150,000-$199,999 I have a handle on my cash flow so I spend less than I make each month. I have an emergency fund to cover unexpected expenses or to pay bills for a few months if I lose my job. 80% 87% 75% 78% 97% 98% I am comfortable with the amount of (non-mortgage) debt I have. I regularly pay off my credit card balances in full. I contribute to my retirement plan at work such as a 401(k), 457 or 403(b) plan. 75% 78% 73% 78% 97% 96% I know I am on target to replace at least 80% of my income in retirement. I feel confident that my investments are allocated appropriately based on my risk tolerance and time horizon. I have at least a general knowledge in investing and I am comfortable with the basics. 24% 27% 39% 55% 84% 92% 20

21 Gaps Between and : Income Over $200,000 I have a handle on my cash flow so I spend less than I make each month. I have an emergency fund to cover unexpected expenses or to pay bills for a few months if I lose my job. 85% 95% 81% 89% 97% 98% I am comfortable with the amount of (non-mortgage) debt I have. I regularly pay off my credit card balances in full. I contribute to my retirement plan at work such as a 401(k), 457 or 403(b) plan. 87% 93% 79% 91% 98% 95% I know I am on target to replace at least 80% of my income in retirement. I feel confident that my investments are allocated appropriately based on my risk tolerance and time horizon. I have at least a general knowledge in investing and I am comfortable with the basics. 34% 36% 48% 56% 89% 97% 21

22 About this Research All of Financial Finesse s research is primary based on tracking employees most pressing financial concerns through their usage of our financial education services. Trend analysis research is compiled by tracking questions received by planners through Financial Finesse s Financial Helpline and Ask-a-Planner services. Financial Wellness data is compiled by tracking employees usage of Financial Finesse s Online Financial Wellness Assessment and Learning Center, which provides employees with a personalized financial education plan and analysis of their current financial wellness. Employers and employees are located across the country in similar proportion to the demographics of the national population. About the Financial Wellness Score The Financial Wellness Score is measured on a scale of 0 to 10, with 0 indicating minimal financial wellness and 10 indicating optimal financial wellness. Scores are adjusted to consider age and income and determine how well employees are managing their finances based on these factors and the needs associated with different life stages and income levels. Employees who achieve a Financial Wellness Score within a specified range exhibit financial behavior as outlined in the following chart: Wellness Score Financial Behavior 9.0 or above Employees have excellent financial skills and habits, and have achieved an optimal level of financial wellness. They are on track to meet their goals and fully prepared to weather unexpected challenges that arise. 7.0 to 8.9 Employees have good financial skills and habits, and are in a fairly good position to reach their goals, but there are additional actions they need to take to fully prepare for their goals and protect themselves from challenges that may arise. 5.0 to 6.9 Employees are demonstrating some personal financial skills, but have significant gaps in their overall financial planning and behaviors, and really need education and guidance to make decisions and develop financial habits that will allow them to achieve their goals. 3.0 to 4.9 Employees may be sabotaging their own goals through poor personal financial skills and are in need of more basic information. Below 3.0 Employees are in dire need of guidance around basic personal financial skills to help keep them from experiencing serious financial consequences. 22

23 About the Financial Wellness Assessment The Financial Wellness Assessment is a proprietary tool designed and developed by our Think Tank of CERTIFIED FINANCIAL PLANNER professionals used to measure employees financial wellness. To get a realistic assessment of wellness in each category, planners determined the most important criteria for achieving financial success in that specific category. By asking key questions that determine employees progress on these different actions, we are able to approximate their financial wellness in those areas. About Financial Finesse Financial Finesse is an unbiased financial education company providing personalized and innovative financial education and counseling programs to over 600,000 employees at over 500 organizations. Financial Finesse partners with organizations to reach goals such as reducing fiduciary liability, increasing plan participation, decreasing stress, and increasing productivity through its unique approach to financial education. Financial Finesse does not sell products nor manage assets. For more information, visit Contributors Liz Davidson, CEO, Financial Finesse, Inc. Diane T. Winland, CFP, CPA, Lead Researcher for Gender Issues Gregory A. Ward, CFP, Think Tank Director i Coates, J. (2012). The Hour Between Dog and Wolf: Risk Taking, Gut Feelings and the Biology of Boom and Bust. Penguin Press. ii Barber, B. M., & Odean, T. (2001). Boys will be boys: Gender, overconfidence, and common stock investment. The Quarterly Journal of Economics, 116(1),