A Federal Reserve Governor Examines Financial Myths Concerning Women and Money
A Federal Reserve Bank Governor, Elizabeth A. Duke, delivered a talk at the Consumer Credit Counseling Services of Delaware Valley Financially Hers Program. Part of that talk follows:
Financial Myths Concerning Women and Money
Now that I have shared the reasons I believe financial education is so important for women, let me talk about some common myths about women and money.
Myth 1: Women focus on nonfinancial household roles while men deal with the finances.
This myth is based on the notion of a division of household responsibilities that assumes women have no role in important financial decisions. In truth, women have long had substantial responsibility for family finances. Marketing polls and survey data indicate that American women have a large role in consumption decisions undertaken by the typical household in today's consumer markets. As household managers, women supervise the budget for and purchase of many of the highest-cost items consumed by American families. These items include food, clothing, child care, eldercare, health care, transportation, family communication networks (including cell phone and computer purchases), vacations, and, finally, financial services and products.
One recent market survey reports that women account for 80 percent of all consumer purchasing decisions, making 93 percent of food purchases and 65 percent of auto purchases, for example. Because women engage in more of the family shopping, they are more consistently aware of price changes and inflation. Women running households know just what it takes to make the budget stretch and how to navigate changing market prices, and they are engaged in more financial and consumer decisionmaking than at any other time in our social history.
Myth 2: Women are emotional about money.
It is true that women often face important financial decisions as a result of emotional life events, such as divorce or widowhood. But those emotions do not necessarily carry through to the financial decisions themselves. Just as women are more likely to ask for directions when they are physically lost, women are more likely than men to admit they do not know how to proceed and to seek out advice regarding the best financial path. In fact, in studies and surveys conducted with large groups of women, the emotion most often cited as accompanying a financial decision is uncertainty or worry about being unwise with money or possibly investing in something too risky. This is born out in study after study: women are more risk averse than men. Given that women have higher probabilities of outliving their partners, facing eldercare duties, and saving for their own retirement rather than being part of an employer-sponsored plan, it isn't hard to understand this aversion to risk.
One upside of being risk averse is that women incur fewer transaction fees and costs because they tend to invest more conservatively than men and hold onto stocks longer. So, while women are demonstrably more cautious than men and are often experiencing transformational life events and investment decisions simultaneously, I would not conclude that they are more emotional than men regarding money.
Myth 3: Women are impulsive shoppers and equally impulsive with financial decisions.
Underlying this myth is the notion that anyone who purchases something on impulse does not have the self control to save in an organized, regular way. Evidence does not necessarily support the vision of women as impulsive shoppers. And impulse purchases, especially small ones made within the parameters of an overall budget, do not necessarily indicate a lack of discipline about financial matters.
For example, Internet shopping data indicate that 51 percent of online shoppers are mothers, and 92 percent of women shopping online share information about bargains with friends and family. This picture of women searching out information online, thoughtfully comparing bargains, and then sharing the information with their circle of friends does not support the image of impulsive shoppers.
In addition, women have demonstrated their ability to save, especially for items related to family milestones or the advancement of opportunities for their children. Nonetheless, women also need to recognize that saving for themselves, whether to continue their education or provide for their own retirement, is as important as saving for and investing in their children. Saving is an activity that has several important dimensions for the stability of women and their families.
Myth 4: Women don't have the math skills necessary to make successful financial decisions.
The notion that girls are not good in math has been around for a long time. Somewhere in the K-12 educational experience the rumor that girls aren't good at math inevitably circulates. I am not sure anyone has any real evidence that women are genetically less able to grasp math concepts. But beyond the debate about whether or not women are good at math, I have seen too many women who believe this myth and avoid financial decisions out of a fear of math. As you have hopefully discovered in your coursework, financial decisions do not necessarily involve any more math than other everyday life activities. Everything from making meals to making the leftovers stretch involves math. If anyone here knows a young girl who doesn't have confidence in her math skills, remind her of all the math know-how acquired in watching--or better yet--assisting with household duties or shopping.
When I was in school, girls took a home economics class and boys took wood shop. I still remember the three projects required in my home economics course. I had to make a dress. I had to cook a meal. And I had to make a budget for living on my own that included finding and furnishing an apartment. That third lesson has stayed with me for life. Over the years, those home economics courses have morphed into consumer economics courses featuring significant lessons in practical mathematics. And more states are now requiring financial education for boys and girls as part of the mandatory curriculum.
More important than the actual math is the increasing complexity of financial services, products, and instruments. In a world where decisionmaking involves not just making a choice between two types of savings instruments or investment products, but dozens, the issue is less about being able to do the math and more about being able to decipher the terms and conditions of financial instruments. Being able to find good information and reliable advice is a key component of good outcomes. This is an area where I am pleased to say the Federal Reserve can be of some assistance. At the Federal Reserve, we have responsibility for designing many consumer disclosures, and we have made great strides recently to make those disclosures more understandable. In addition, we have written rules banning many of the confusing practices in financial services that could not be adequately explained in disclosures. We also provide helpful tools and information on our website, www.federalreserve.gov. I hope you remember to take advantage of our resources whenever you need information concerning credit and savings products, financial planning, and investment decisions.
Read the entire speech at the Federal Reserve's site.