Earlier this year, the FINRA Investor Education Foundation made a surprising announcement: Women, it turns out, pay higher interest rates on credit cards than men do. It’s just a half-point difference, but the study points out that over a lifetime, women could pay hundreds or even thousands of dollars more to borrow money than men.
The study also finds that women with low levels of financial literacy are particularly vulnerable to credit card mismanagement. They are more likely to carry a balance on their cards, pay only the minimum, and pay late fees than men with low levels of financial literacy. At the same time, low-financial literacy women are also less likely to embrace positive credit card behaviors, such as comparison shopping for cards.
Women face other financial disadvantages, too: An analysis of new Census Bureau data by the National Partnership for Women & Families found that in almost every congressional district in the country, men out-earn women. In Washington, D.C., for example, the median woman’s salary is 90 percent of the median man’s salary, which adds up to a $6,428 annual difference. Across the country, women earn 77 percent of men’s salaries, which adds up to an $11,084 annual difference.
Marie Claire also recently pointed out that women pay more for everything from dry-cleaning to health insurance to shampoo. “We lose out in nearly every transaction we make,” writes Lea Goldman.
The National Partnership for Women & Families urges new legislation, the Paycheck Fairness Act, to help close the gender gap. Marie Claire similarly suggests that women contact their Congressional representatives about fighting what it calls “gender-pricing.”
With credit cards, though, the solution seems to be more routed in education than policy changes. Financial literacy, in fact, appears to trump most of the credit card disadvantage that women face. FINRA found that once you look only at men and women with high levels of financial literacy, the gender differences disappear. (Credit Sesame also analyzes the data in a helpful infographic.)
The conclusion? Increasing financial literacy can help people—and especially women—make better credit card decisions. FINRA states that by improving financial literacy, “women’s credit card behavior will improve by 60 percent more than men’s credit card behavior.” Experts generally agree that improving financial literacy is a priority; after all, higher financial literacy levels are correlated with higher levels of wealth and better retirement planning.
How’s your own financial literacy? Test yourself on these sample questions from FINRA:
1. Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After five years, how much do you think you would have in the account if you left the money to grow?
a. More than $102
b. Exactly $102
c. Less than $102
d. Don’t know
e. Prefer not to say
2. Imagine that the interest rate on your savings account was 1 percent per year and inflation was 2 percent per year. After one year, how much would you be able to buy with the money in this account?”
a. More than today
b. Exactly the same
c. Less than today
d. Don’t know
e. Prefer not to say
3. If interest rates rise, what will typically happen to bond prices?
a. They will rise
b. They will fall
c. They will stay the same
d. There is no relationship between bond prices and the interest rate
e. Don’t know
f. Prefer not to say
Answer key. 1. a, 2. c, 3. b.