Women face multiple challenges when it comes to money: In general, they live longer, earn less, and take more breaks from the workforce to care for children, which contributes to lower lifetime earnings and, as a result, lower retirement savings and benefits. They even pay higher interest rates on credit cards, and higher prices for dry cleaning and personal-care items, such as shampoo. Studies also find that women tend to perform worse on financial literacy tests than men do.
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But a new study from Joanne Hsu, an economist at the Federal Reserve Board, found that women’s financial proficiency starts to turn around as they get older, just as they are most likely to be widowed and need to handle their finances solo.
Her study, which is based on a national financial literacy survey of people age 51 and older along with their spouses, found that men’s financial literacy tends to stay flat over their lifetimes or peak in the middle and decline at the end of their lives. Women, on the other hand, tend to improve their financial literacy levels as they (and their husbands) get older.
Hsu attributes the trend to incentives: When women are married, their husbands tend to take over the majority of financial management, including retirement savings and investments. As a result, women have little incentive to become financial pros themselves. Then, as women anticipate potential widowhood, they are incentivized to become more proficient at managing their money.
Hsu suggests that it is, in fact, the knowledge that widowhood is likely approaching that motivates women to improve their own financial know-how. In fact, as “widowhood becomes more imminent,” she observes, women follow the stock market more closely and rate their own financial skills more highly. “The prospect of many years without the couple’s financial specialist creates incentives for women to prepare by acquiring financial knowledge,” she writes.
Hsu found that at the study’s estimated rate of financial literacy gains, 8 in 10 women in her sample would catch up with their husbands’ level of literacy before they could expect to become widows.
As Hsu points out, high levels of financial literacy are correlated with smarter financial decisions, including planning for retirement, accumulating wealth, and managing debt. “Given these links, having sufficient financial literacy is becoming even more important since the responsibility for retirement planning has shifted to individuals,” write Hsu.
Still, that doesn’t mean younger women’s low financial literacy levels are problematic, at least for those women who are coupled, Hsu says. There’s nothing inherently wrong with each member of a couple specializing in certain tasks, and studies show that at least in the United States, men usually take charge of the money.
But a woman’s secondary role in money management, and lack of financial literacy, does become a problem if she is single or widowed. And as other studies have recently found, fewer people are coupled today than a decade ago. The Census Bureau found that the number of single-person households grew 15 percent between 2000 and 2010, while husband-wife households fell to less than half of the total.
Among those who do marry, those marriages usually end in either widowhood or divorce. Hsu notes that among marriages that don’t end in divorce, three-quarters end in widowhood, and that the average length of widowhood is nine years. That’s a long time to manage money on one’s own.
Hsu also points out that women who experience widowhood earlier than they expected could suffer because they have not prepared by becoming more financially literate, and that women who rely on husbands to manage their money can also suffer if those husbands are not skilled at financial management. “In this case, merely catching up with their husbands … may not equip women with the tools needed to manage their finances alone,” she says.
One option for women who don’t feel equipped to manage money on their own is to enlist the support of an adult child or financial planner, Hsu says, although some amount of financial knowledge might be needed to avoid scams and choose an appropriate adviser. As Hsu writes: “A woman with insufficient financial knowledge may find herself in widowhood without a firm understanding of how much she can afford to spend, what her holdings are, or how quickly to decumulate during widowhood.”