Skip to main content
Home » Closing the Wealth Gap » Empowering Women to Achieve Financial Wellness
Closing the Wealth Gap

Empowering Women to Achieve Financial Wellness

Annamaria Lusardi

Founder and Academic Director, Global Financial Literacy Excellence Center (GFLEC)

Hallie Davis

Senior Research Associate, The George Washington University (GFLEC)

We are quickly approaching the one-year anniversary of COVID-19 being declared a pandemic, yet economic hardship remains pervasive. The economic impact of COVID-19 has exposed and exacerbated deep-seated financial inequality: Some people have experienced much greater financial hardship than others, with women hit hardest.

The causes of wealth inequality are complex. However, research from the Global Financial Literacy Excellence Center (GFLEC) at the George Washington University shows financial literacy is essential if an individual’s financial life is to flourish. 

Financially knowledgeable individuals are more likely to have wealth in retirement, manage their debt wisely, and have higher levels of financial well-being. They are also more likely to be prepared for and able to cope with unexpected expenses. 

Yet financial knowledge remains low nationwide, with women lagging even further behind. Results from the 2020 TIAA Institute-GFLEC Personal Finance (P-Fin) Index, conducted in January of that year, revealed that many women are ill-positioned to handle a crisis and were in that position even before the pandemic. 

Measuring financial knowledge

Through a series of financial literacy assessment questions, the P-Fin Index measures financial knowledge in eight functional areas — such as borrowing, investing, insuring, and managing risk — in which individuals routinely operate. From its inception in 2017, the assessment’s nuanced approach has allowed for deeper analysis into not only how much people know but what they know. Findings from the 2020 index show that women are less financially knowledgeable than men, with men, on average, able to answer 56 percent of the financial literacy questions correctly compared to only 49 percent of women. 

Moreover, among women, there are large differences in financial knowledge, and these differences have meaningful implications in both the short and long term. Financially literate women are less likely to have difficulty making ends meet, feel less constrained by their debt, and are more likely to invest, save, and plan for retirement. They are also more likely to be financially resilient; they report having the ability to cope with an unexpected expense. 

Yet Black and Hispanic women performed significantly worse on the financial literacy assessment and exhibited much lower financial resilience and wellness compared to white women. A majority of white women (77 percent) reported they could cope with an unexpected $2,000 expense, compared to just 55 percent of Black and Hispanic women. 

A path forward

While these statistics can be disheartening, there is good news and an opportunity for a more equitable path forward: financial education. Research increasingly shows that financial education can improve financial knowledge among the young and adult populations. Women who received financial education scored 13 percentage points higher on the financial literacy assessment than those who did not. Additionally, results from the P-Fin Index tell us that the concepts women most struggle with are investing and comprehending risk. 

Comprehending risk is about making decisions amid uncertainty and is key to knowing how to manage risk, which is an increasingly important skill today.

Financial education can help to narrow some of the gaps in financial knowledge. However, financial education needs to address complex topics, such as risk management, and do so with an awareness of the diverse needs of individuals based on their gender, race, and ethnicity. As the economy recovers, we should consider the important role financial literacy and education have in helping ensure all individuals are included in this recovery. 

Next article