Ask yourself this question: Do men have better financial knowledge than women?
There seems to be a general belief in society that, compared with men, women are not as good at finance, and lack the confidence of their male counterparts. There’s much conventional wisdom about how men and women approach money differently. For example, many assume:
- Women are more risk-averse than men
- Women take longer to make decisions
- Female investors are less confident than male investors.
However, a recent study in the US challenged these beliefs. Analysis found that the assumptions are not only condescending and off-putting, they put all the blame on women and exonerate the financial industry of any responsibility. Worse, they’re simply not true.
What then, gives rise to the idea that men are better at finance than women?
If you’re paid more, you’re more likely to believe you’re worth the money. Just ask any chief executive!
Most of us suffer this kind of cognitive bias and this particular one manifests itself in what has been dubbed the ‘paid what you’re worth myth’. Robert Reich says this argument is fundamentally misleading because it ignores power, overlooks institutions and disregards politics.
Speaking of which…
Gender pay gap largest in financial services
You may not have realised it, but equal pay day for women was marked this September.
Monday, September 4, marked Equal Pay Day, as promoted by the federal government’s Workplace Gender Equality Agency (WGEA). This day was chosen because it marks the additional time from the end of the previous financial year that women must work to earn the same as men.
The WGEA notes that across all industries and occupations, women’s average full-time remuneration is 23.1 per cent less than men’s. This means that if you are a woman working full-time, on average, you can expect to earn $26,863 a year less than a man.
Across all industries, financial services owns the shameful distinction of having the largest gender pay gap, at 33.5 per cent.
There are multiple issues contributing to the gross gender pay gap, including types of work done (full-time/part-time/casual), participation rates, time out of the workforce and our society’s conscious and unconscious bias against paying women equally. The results are manifold and affect most aspects of our lives, including superannuation, work/life balance and even how much time we get to spend with our children.
Annabel Spring, the head of wealth management at Commonwealth Bank of Australia (CBA), recently told The Australian that “closing the gap between men’s and women’s pay, superannuation balances and workforce participation could generate an extra $460 billion in savings for the economy”. She said women needed to get better access to information and advice to build their financial capacity.
This real and documented divergence in men’s and women’s pay may affect us more than just financially. It also helps shape how society forms its view of itself.
Are men better at finance than women?
Research on the Australian market by Adviser Ratings indicates there is a statistically significant difference in the way men and women view their financial intelligence.
More than 10,000 financial advice clients were asked to rate their financial knowledge from “very weak” to “very strong”. When their answers were analysed, it was found that, on average, across all age ranges, women rated their financial knowledge at 60 per cent, while men rated their financial knowledge at 66 per cent.
Adviser Ratings data shows a self-reported measure of financial competence – it does not reflect actual financial knowledge or ability.
What it does show, however, is that more men believe that they have a higher financial knowledge than women do.
A mainstream issue, not a gender research topic
In a society that remunerates men, on average, nearly 25 per cent more than women for the same work, it is probably not surprising that men see themselves as having more financial knowledge than women. If men are paid nearly a quarter more than women, it stands to reason that this fact could reinforce a society-wide confirmation bias.
In her Australian interview, CBA’s Spring made a further pertinent point, saying that Australia needs to turn the debate about achieving financial security for women from a “specialist gender research topic into a mainstream economic narrative”.
That point is hard to argue against. Increasing wages for half the population, who are not fairly paid, shouldn’t be a topic specifically about gender. Framing the issue in terms of gender is a great way to get attention but it also brings forward biases against the well-formed social and business arguments promoting pay equity and all the positive (financial and non-financial) outcomes it can achieve.
Rodney Lester, Consumer and Adviser Services Director, Adviser Ratings. Adviser Ratings is an online platform with more than 23,000 financial advisers who have been independently rated and reviewed by their clients.
CORRECTION: An earlier version of this article quotedthe WGEA stating a woman would earn $26,863 a year less than a man for the same role. The disparity is not for men and women performing the same job function and the article has been corrected to reflect that.