Insights on Canadian Society
Gender differences in the financial knowledge of Canadians
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by Marie Drolet
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Overview of the study
Using data from the 2014 Canadian Financial Capability Survey (CFCS), this study examines the gap in the financial knowledge of men and women and how the difference varies across socioeconomic characteristics such as age and education. It also provides additional insight into the financial knowledge of Canadian men and women who are married or in a common-law union.
- In 2014, Canadian women had lower financial literacy scores than men. About 15% of women and 22% of men correctly answered five key financial literacy questions related to interest, inflation and risk diversification.
- In 2014, women were less likely than men to consider themselves to be “financially knowledgeable” (31% versus 43%) and were less likely to state that they “know enough about investments to choose the right ones that are suitable for their circumstances” (48% versus 63%).
- Gender differences in financial knowledge were more pronounced among older Canadians, among the university-educated, and among higher-income workers.
- In couples where the male partner is mainly responsible for the long-term financial management of the household, 10% of women answered the five key financial literacy questions correctly, while 33% of male partners did so.
- When couples share the responsibility for the long-term financial management of the household or where women’s contribution to household income is similar to that of their male partner, there is no gender difference in financial knowledge.
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There is increased pressure for Canadians to become more financially knowledgeable. The declining coverage of workers through employer-sponsored pension plansNote 1 and the shift in pension plan types from defined benefit to defined contributionNote 2 has placed more responsibility on individual Canadians to save and invest in order to finance their retirement years.
Decisions about how much to save or spend are often complicated by factors such as inflation, interest rates and financial markets, to name a few. The ability to plan, accumulate and manage financial assets depends on an individual’s financial knowledge.
While the empirical evidence suggests that many people know little about simple financial concepts such as inflation, compound interest and risk diversification, it also suggests that women’s financial knowledge falls behind that of men.Note 3
Women also face different financial challenges than men. Canadian women can expect to live about 4.5 years longer than men and therefore must finance a longer period of retirement.Note 4 Canadian women have higher disability rates than menNote 5 and may incur costly long-term care needs as they age.Note 6 And their cumulative lifetime savings may be lower than men’s given shorter working lives and lower earnings.
Using data from the 2014 Canadian Financial Capability Survey, this study examines the extent to which the financial knowledge of men and women differ, and whether these differences vary across socio-economic characteristics. The article also examines whether such differences are associated to the role played by men and women in the financial management of the household. Lastly, this study addresses whether seeking financial advice is viewed as a complement to, or a substitute for, financial knowledge.
Canadian women have lower financial literacy scores than men, and are less likely to have confidence in their financial skills
The CFCS provides both subjective and objective measures of the financial literacy of Canadians. The “more objective” measure consists of 14 questions to survey respondents related to inflation, interest rates, credit reports, stocks, risk, and debts and loans. The average scores obtained on the quiz can then be expressed as a percentage to provide a measure of financial literacy.
In 2014, men scored 62% and women scored 59% on the 14‑question quiz (Table 1).Note 7 Although relatively small, the difference between women and men was statistically significant. However, women were less likely than men to correctly answer specific questions related to inflation (58% versus 69%) and risk diversification (38% versus 45%).
|Average quiz score||Answered all five questions correctly|
|percent||percentage point||percent||percentage point|
|Overall||62.2||58.6Note ***||3.6||21.5||14.7Note ***||6.8|
|18 to 24||56.1||58.0||-1.9||12.4||13.8||-1.4|
|25 to 34||61.5||58.5||3.0||19.9||14.7||5.2|
|35 to 54||65.1||61.8Note *||3.3||23.7||16.3Note ***||7.4|
|55 to 64||66.7||60.4Note ***||6.3||31.2||15.6Note ***||15.6|
|65 and over||58.5||51.2Note ***||7.3||18.5||11.6Note ***||6.9|
|High school or less||53.9||52.3||1.6||15.6||10.9Note *||4.7|
|University degree||72.6||64.3Note ***||8.3||31.5||18.4Note ***||13.1|
|Canadian-born||64.5||61.2Note ***||3.3||23.6||16.6Note ***||7.0|
|Immigrant||54.3||48.4Note **||5.9||14.4||7.6Note **||6.8|
|Employment status and income|
|Bottom income quartile||57.9||56.1||1.8||17.0||13.8||3.2|
|2nd and 3rd income quartile||63.9||61.1Note *||2.8||22.6||15.0Note ***||7.6|
|Top income quartile||74.8||68.5Note ***||6.3||34.2||20.5Note ***||13.7|
|Current marital status|
|Married or common law||64.5||60.6Note ***||3.9||24.3||16.1Note ***||8.2|
|Separated, divorced or widowed||60.1||54.9Note **||5.2||21.5||13.0Note **||8.5|
|Single, never married||57.9||55.9||2.0||15.5||12.5||3.0|
Source: Statistics Canada, Canadian Financial Capability Survey, 2014.
Another measure, called “5 questions correct,” can be defined as the proportion of those who correctly answered five questions in the quiz that relate to basic financial concepts. The advantage of this method, largely inspired by the international literature on financial literacy, is the identification of individuals who can understand basic financial concepts such as interest, inflation and risk diversification (see Data sources, methods and definitions). According to this definition, 22% of men correctly answered all five key questions in 2014, while 15% of women did so (Chart 1).Note 8
Description for Chart 1
|0||4.3||6.4Chart 1, Note *|
|2||12.3||16.7Chart 1, Note ***|
|5||21.5||14.7Chart 1, Note ***|
Examining more subjective measures of financial knowledge also revealed a gap between men and women. In 2014, 31% of women considered themselves to be financially knowledgeable, compared with 43% of men. Furthermore, women were less likely than men to state that they “know enough about investments to choose ones that are suitable for their circumstances” (48% versus 63%). In addition, women (45%) were more likely than men (32%) to provide at least one “don’t know” response to specific financial questions (Chart 2).Note 9
Description for Chart 2
|Rate themselves financially knowledgeable||43.2||31.4Chart 2, Note ***|
|Answered "don't know" to at least one financial quiz question||32.1||45.2Chart 2, Note ***|
|Know enough about investments to choose ones suitable for their circumstances||62.6||47.8|
There is a sizeable difference between peoples’ self-assessed knowledge and their actual knowledge based on quiz results. Many Canadians are generally confident in their financial knowledge and tend to overstate how much they actually know. For instance, of those respondents who rated themselves as knowledgeable, about 1 in 4 men and 1 in 3 women scored 50% or less on the 14‑question quiz. On the flip side, about 1 in 4 men and women who reported a lack of confidence in their financial knowledge understated the extent of their financial literacy by scoring 79% or more on the 14 questions (or 11 correct answers).Note 10
The more objective quiz questions and self-assessments of financial knowledge measure different aspects of financial knowledge. Objective assessments track cognitive ability and an awareness of common financial expressions that are pertinent to most peoples’ everyday financial decisions. Self-assessments measure the respondent’s perception of their own general financial knowledge and may serve as a proxy for what they need to know for their own day-to-day decisions (see Other differences in financial knowledge for a discussion about additional indicators of the gender gap in financial knowledge).
The remainder of this article uses objective assessments of financial knowledge (based on financial quiz questions) to provide a clearer focus on the extent to which Canadians are equipped to make informed financial decisions.Note 11
Gender difference in financial knowledge more pronounced among older and educated Canadians
Gender differences in financial literacy were not necessarily similar across socioeconomic characteristics (Table 1).
Among those aged 55 to 64, for instance, men were twice as likely as women to answer the five questions correctly (31% versus 16%). In contrast, Canadian men and women under the age of 35 reported similar levels of financial knowledge.Note 12
Financial knowledge follows a reverse U-shaped age pattern for men, whereby low levels of financial knowledge are reported among younger (aged 18 to 24) and older (age 65 and over) individuals. This pattern is less evident among Canadian women (Chart 3). The lower scores reported among older Canadians may reflect the increased complexity of financial markets and available services, while the lower scores among younger Canadians may reflect their inexperience in financial matters.
Description for Chart 3
|18 to 24||12.4||13.8|
|25 to 34||19.9||14.7|
|35 to 54||23.7||16.3Chart 3, Note ***|
|55 to 64||31.2||15.6Chart 3, Note ***|
|65 and over||18.5||11.6Chart 3, Note ***|
University-educated men were more likely to do better on tests of financial knowledge than university-educated women (by 13 percentage points) while there was no significant gender difference in test scores among less-educated Canadians (Chart 4).Note 13 This finding is driven mainly by age—there was no gender difference in financial knowledge among young university graduates (under 35 years of age) but there were significant differences among older university graduates (aged 35 and over).
Description for Chart 4
|High school or less||15.6||10.9|
|University degree||31.5||18.4Chart 4, Note ***|
In general, higher education is associated with higher levels of financial knowledge, but the gradient in financial knowledge by education is smaller for women than men. For example, 11% of women with a high school education correctly answered the five financial knowledge questions compared with 18% of university-educated women. The numbers for men were 16% and 32%. Similar results were obtained with average scores in the 14-question test—the average obtained by university-educated men was 19 percentage points higher than that of their high school counterparts, while the difference was smaller among women, at 12 percentage points.
Immigrant women were particularly more at risk of having lower rates of financial knowledge than both Canadian-born women and immigrant men. For example, 14% of immigrant men and 8% of immigrant women answered all five questions correctly compared with 24% and 17% of Canadian-born men and women.
Lastly, among the working population, the gender gap was more prevalent among high earners than among low earners.
Multivariate analyses confirm that the gender gap in financial knowledge among Canadians remains after taking account of age, education, immigration status, employment status and income. For example, all else equal, Canadian women are still about 7 percentage points less likely to give five correct answers than men.Note 14
Gender difference noted among higher income Canadians in a couple
When the results are examined by marital status, a more nuanced story develops. Although men and women who are in a couple have the highest level of financial knowledge of all marital categories, the gender gap remains. More precisely, women living in a couple (either married or common-law) were 8 percentage points less likely to answer the five financial literacy questions correctly than their male counterparts. A similar gap was found among women who were ever married (i.e., currently separated, divorced or widowed), while the difference was smaller among those who were single, never married—mainly because men in this situation exhibit lower levels of financial knowledge.
Higher household income was associated with higher levels of financial knowledge for both men and women, regardless of marital status (Table 2). In the bottom quintile of the household income distribution, gender differences in financial knowledge were non-existent, both among persons who were not in a couple and among married or common-law individuals.Note 15 In the top quintile of the household income distribution, however, significant gender differences were seen among those who were in a couple, but not among those who were not in a couple.
|Answered all five questions correctly|
|Not in a couple||Married or common-law|
|percent||percentage point||percent||percentage point|
|Overall||16.9||12.7Note *||4.2||24.3||16.1Note ***||8.2|
|Household income (quintiles)|
|Third quintile||22.3||10.2Note *||12.1||26.6||18.1Note *||8.5|
|Fourth quintile||15.3||15.9||-0.6||25.3||17.0Note *||8.3|
|Top quintile||33.5||27.5||6.0||36.0||21.2Note ***||14.8|
Source: Statistics Canada, Canadian Financial Capability Survey, 2014.
In fact, women with higher incomes who were not in a couple were more likely to answer the five quiz questions correctly than married or common-law women in the same income category (28% versus 21%). Such a result among higher-income women may be the result of specialization that occurs within the household (i.e. gender differences in earnings and in the management of household finances). This notion is explored in the next section.
Are gender differences in financial knowledge among Canadians in couples the result of specialization within the household?
The CFCS provides information on the strategies that couples use to manage their activities. The relative contribution of each partner to total household income may be correlated with household economic behaviour. Here, the correlation between “who makes the money” and “who is most financially knowledgeable” is explored.
In single-earner households where the male partner is the sole earner, 28% of men and 14% of women answered the five financial knowledge questions correctly (Chart 5). In dual-earner households, the gender gap in financial knowledge is larger when men contribute relatively more to the couple’s total household income than women. For example, when the male partner’s income exceeds that of the female partner by at least 25%, more than a quarter of men (26%) and 16% of women answered the five financial knowledge questions correctly. The gender gap in financial knowledge lessens and becomes non-existent as the relative economic contribution within couples approaches and goes beyond parity.Note 16
Description for Chart 5
|Single earner: Men||27.9||14.0Chart 5, Note ***|
|Single earner: Women||17.5||11.2|
|Dual earner: Men outearn women by 25%||26.0||16.3Chart 5, Note ***|
|Dual earner: Men and women earn within 25% of one another||23.8||17.6|
|Dual earner: Women outearn men by 25%||18.6||16.4|
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Another issue associated with household economic behaviour is how couples manage their long-term financial planning and investments. It might be expected that the partner with the most financial knowledge would specialize in the financial management of the household.Note 17 Unfortunately the CFCS neither asked the spouse of the respondent if they agreed with the respondent’s perception of “who is responsible,” nor did it ask the spouse of the respondent about the financial knowledge quiz. The closest approximate for comparison would be between respondents who reported that they were mainly responsible for household finances, and those who reported that their spouse was mainly responsible.Note 18
Among those who reported sharing the responsibility for long-term financial management, there was no significant gender difference in the proportion answering all five questions correctly.
On the other hand, among male partners who reported that they were responsible for household finances, 33% answered the five questions correctly—compared with 10% of female partners who reported that their spouse was mainly responsible (Chart 6).Note 19 Lastly, there was no gender difference between male partners who reported that their spouse was mainly responsible and female partners who said that they were mainly responsible.Note 20
Description for Chart 6
|Share responsibility equally||21.1||17.8|
|Male spouses or partners who reported "mainly me" and female spouses or partners who reported "mainly my partner"||32.9||10.4Chart 6, Note ***|
|Female spouses or partners who reported "mainly me" and male spouses or partners who reported "mainly my partner"||19.9||14.6|
In a multivariate model that included controls for who is responsible for the long-term financial management of the household as well as the relative contribution of each partner to the couple’s total household income, the 8 percentage-point gender difference among married and common-law Canadians found in the aggregate was reduced to 6 percentage points, yet remained statistically significant.
Women seek financial advice more often than men
One strategy to compensate for lack of financial knowledge is to seek financial advice. While the percentage of women answering all five questions correctly was 7 percentage points lower than among men, 52% of women reported that financial advisors influenced their decisions regarding financial investments, compared with 44% of men (Table 3). These results hold in a multivariate setting.
|Advice from a financial advisor||43.9||51.5|
|Average quiz score||67.5||62.7|
|Answered all five key questions correctly||25.8||17.6|
|No advice from a financial advisor||56.1||48.5|
|Average test score||58.1||54.2|
|Answered all five key questions correctly||18.2||11.7|
|Source: Statistics Canada, Canadian Financial Capability Survey, 2014.|
However, both males and females who rely on advice from a financial advisor also have higher levels of financial knowledge. For example, men and women who relied on advice from a financial advisor were also more likely to answer the five questions correctly (26% and 18%) than those who did not rely on advice from a financial advisor (18% and 12%). These findings support other empirical research showing that financial knowledge and the use of formal financial advice practices may complement one other rather than be substitutes for one another.Note 21
As financial markets become more accessible and as alternative financial services become more widespread, managing personal and household finances has become more complicated for many Canadians. Financial management may be more of a challenge for women, since they have lower levels of financial literacy and have less confidence in their financial skills.Note 22 In 2014, for example, 15% of women answered five questions related to key financial notions related to interest, inflation and risk diversification correctly, compared with 22% of men.
Along with the increase in women’s economic position within the household as witnessed by the growth in dual-earner families and the increase in the proportion of women outearning their husbands,Note 23 couple households have shifted away from a husband-dominated process to a joint decision-making process. Women now play a greater role in the purchase of large ticket items such as houses, automobiles, insurance and financial services.Note 24
The changing status of families, however, may lead to an increased vulnerability for certain groups of women. Research from Canada shows that separation and divorce is more likely to impact older women’s economic well-being, resulting in increased vulnerability to low income. Similar findings in the United States show that although marital disruption reduces wealth for both men and women, the effects are more profound for women.Note 25 The results presented here show that some Canadian women find themselves vulnerable to financial insecurity, as lower levels of financial knowledge were seen among those living in households characterized by an imbalance of economic resources and not fully participating in the household financial decision-making process.
Empirical evidence suggests that there is a link between financial knowledge and positive financial behaviours and economic outcomes—those with more financial knowledge are more likely to undertake retirement planning and those who plan tend to accumulate more wealth, while those with lower levels of financial knowledge tend to borrow more and accumulate less wealth, and report excessive debt loads, and are more likely to borrow against pension accounts.Note 26 How gender differences in financial knowledge influence financial behaviour and economic outcomes is a subject for further research.
Marie Drolet is a senior researcher with the Labour Statistics Division at Statistics Canada.
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Data sources, methods and definitions
The analysis contained in this study is based on data from the 2009 and 2014 cycles of the Canadian Financial Capability Survey (CFCS). The 2009 cycle was sponsored by the Financial Consumer Agency of Canada, Employment and Social Development Canada and the Department of Finance. The 2014 cycle was sponsored by the Financial Consumer Agency of Canada.
The survey—first conducted in 2009—sheds light on Canadians’ knowledge, abilities and behaviour concerning financial decision making. The survey population includes the civilian and non-institutionalized population, aged 18 and over living in the 10 provinces. The overall response rate for the 2014 cycle was 56%.
Excluded from this article are respondents who did not provide usable responses to the self-assessment of financial knowledge (about 4% of the initial sample). This yields a study population of 6,297 respondents, representing just over 25.9 million Canadians.
Measuring financial knowledge
This article explores the gender gap using three measures of financial knowledge.
The first measure—average test scores—includes a tally of correct scores taken from 14 quiz-style questions. See the "Related information" section to view the questions and the correct responses.
The second measure—5 questions correct—combines the correct responses to five specific questions from the quiz into a single indicator in an attempt to provide significant estimates and minimize measurement error associated with respondent guessing. This indicator can be used to situate the analysis in the empirical literature since it is similar in spirit to the “3 questions correct” used in the literature.Note 27
The topics covered in the CFCS include inflation in the context of purchasing power (Q1); the interaction between amortization periods, principal amounts and interest rates (Q13 and Q14); knowledge of the difference between stocks, bonds, funds and bank accounts (diversification), and the safety factor or riskiness of the investment (Q8); and investment options with an understanding of inflation, again in the context of purchasing power (Q9).
The third, more subjective measure—self-assessment—asks respondents how they would rate their level of financial knowledge on a four-point scale with valid responses ranging from “not very knowledgeable” to “very knowledgeable.”
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Other differences in financial knowledge
Gender differences in financial knowledge are observed across several dimensions. First, men and women differ in their preferences in dealing with financial matters—men are more likely to enjoy dealing with financial matters than women (49% versus 35%). Second, men and women differ with regard to the amount of detail in their approach to financial matters—men are more likely than women to research choices thoroughly before making financial decisions (80% versus 74%). Finally, men and women differ in their interest in various aspects of financial matters—men are more likely to keep an eye on changes occurring in the housing, stock, money and job markets; and in interest rates, inflation, taxation, pensions and sales of consumer goods (65% versus 58%).
The results discussed above may either be a consequence of financial knowledge (because women have lower financial knowledge, women are less likely to enjoy dealing with financial matters) or they may help explain gender differences in financial knowledge (women have lower financial knowledge because they are less interested to deal with financial matters).
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