Women & financial literacy: why is it so important?

Financial literacy and women 

Even though most women in the US enjoy strong financial autonomy and independence, one limitation persists. Across the country, women report lower rates of financial literacy than men. According to the Unbiased 2023 Financial Confidence Survey, over 4 in 5 people admitted they regularly run into financial terms they don’t understand. 

A Stanford University study found that female baby boomers (57–75-year-olds) were stumped by 49 percent of financial literacy questions, while their male peers answered “don’t know” to just 27 percent of questions.  

It's not just older women who struggle. Around 28 percent of millennial men report having high levels of financial literacy, compared to just 16 percent of the generation’s women.  

Across the board, it also appears women have less confidence in their financial knowledge, which can stop them from building wealth through investments and savings accounts. This higher financial literacy also seemed to correlate strongly with having lower debts and making positive financial decisions, like having rainy day funds and a non-retirement investment account. 

But what exactly is financial literacy – and why is it so important to women? 

What is financial literacy? 

You don’t have to be an accountant to have a basic sense of financial literacy or even be great with numbers. Financial literacy is understanding basic financial concepts like interest, savings, debt, and budgeting. It can make you more resistant to scams and falling into excessive debt and help you manage your money sensibly throughout your life.  

The gender financial literacy gap is impacting women almost across the board. A lack of understanding makes women more vulnerable to financial hardship after a divorce. One in five women live in poverty post-separation, 75 percent of mothers don’t receive their full child support entitlements, and a third would struggle to meet an unexpected $2,000 expense within 30 days. And for single women, far lower IRA and 401(k) contributions leave them far less prepared for retirement.   

Am I financially literate? 

Before we give away the answers, let’s test your financial literacy. The Global Financial Literacy Excellence Center (GFLEC) has put together its “Big Three” questions, which it says all adults should be able to answer to be financially literate.  

1. You have $100 in a savings account with a two percent interest rate. After five years, would you have: 

2. Your savings account has an interest rate of one percent per year, and inflation is at two percent per year. After one year, would this money buy you: 

3. True or false? Buying a single company stock offers a safer return on investment than a stock mutual fund.  

You understand the basics if you chose a, b, and b. But if you couldn’t answer, you’re not alone. Just 30 percent of Americans surveyed got all three answers right, and only 48 percent could answer the first two.  

Why is financial literacy so important for women? 

Financial literacy helps people avoid poor choices that can trap them in a debt spiral.  

Taking out a loan or purchasing an item on credit without checking the APR (Annual Percentage Rate) can cause what initially feels like a manageable loan to become unaffordable.  

While building up savings and avoiding unnecessary debt is sensible, anyone can find themselves in a sticky situation. Financial literacy gives people the confidence and knowledge to access manageable debt.  

Without basic financial knowledge, you leave yourself vulnerable to a debt spiral. Entering a vicious cycle of borrowing to pay off what you’ve borrowed, it can feel almost impossible to get on top of your debts.  

What are the benefits of financial literacy for women?

Understanding your finances can help you make your money go further through savvy savings, investment, and retirement fund choices. You’ll be confident to use tax-advantaged savings vehicles, like IRAs and 401(k)s, keeping more of your hard-earned dollars in your pocket. 

Financial literacy can give you the confidence to build lifelong wealth. Rather than letting your savings sit in a low-interest checking account, you could make sensible investments and give your funds a chance to grow significantly. A savvy investor will also avoid investing more than they can afford to lose rather than sinking their life savings into a high-risk investment.  

How can I improve my financial literacy?

The good thing is that it’s never too late to start improving your financial literacy. Education is key to gaining a better understanding of those key financial concepts. 

Speaking to an advisor is one of the best ways to boost your financial literacy. They can take you through some of the most important concepts and help you manage and consolidate any burdensome debts to put you back in control of your finances. Not sure who to talk to? Find a trustworthy advisor right here at Unbiased.