Gender Savings Gap: Financial Literacy is Only One Factor. The saying “men are from Mars, women are from Venus” is the title of a popular self-help book written by psychologist John Gray. That book is about the differences in how men and women communicate in relationships, but its title could just as easily apply to their retirement savings behaviors. Despite having access to similar benefits in the workplace, the way men and women approach saving for their post-career years is worlds apart.
A recent paper from the Center for Retirement Research at Boston College examines whether or not financial literacy can help close the gender gap when it comes to retirement savings. Specifically, the paper’s authors ask the question — can financial knowledge empower women to save more for retirement?
Our question: Is retirement saving due to lack of financial knowledge really a gender issue? Frankly, we’re skeptical. Generally, women tend to save less for retirement than men, for myriad reasons. The Center for Retirement Research study looked at women in the public sector, where female workers are likely to save less of their income and choose lower-return investments. The researchers wrote that one potential explanation was that the women they studied may have had lower levels of financial literacy and engagement in household financial decisions.
They found that financial education in the workplace, along with motivation from their peers who were also saving for retirement contributed to improved savings behaviors for women in this context. The key words here are “in this context.”
It’s important to note that the Center for Retirement Research paper looked at women in the public sector, in one state (Wisconsin), at one snapshot in time. So is it fair to conclude that lack of financial knowledge contributed meaningfully to their lack of retirement savings? Perhaps, in that instance. But does that conclusion apply to female workers across the board? Again, we’re skeptical.
Don’t misunderstand: we are fully supportive of financial education in retirement programs. In fact, we view financial literacy as a necessity to help bolster retirement readiness and increase the likelihood of successful outcomes in workers’ post-career years. Moreover, it’s not a costly solution for employers to implement. “Financial literacy and engagement could be improved at relatively low cost, relative to changing lifetime earnings, labor supply, or health,” according to the Center for Retirement Research paper.
Personal finance isn’t a skill that’s taught in schools, nor is it learned in most households. So America’s workers end up mis-prioritizing their expenses and living beyond their means. As a result, they get caught in a never-ending cycle of over-spending and debt.
This leads to stress, which carries over into the workplace. Many employees report decreased productivity and anxiety on the job due to personal financial stressors. In fact, 46% — nearly half — of those who are distracted by their finances at work say they spend three hours or more on the job every week worrying about or dealing with issues related to their personal finances, according to PwC’s 2017 Employee Financial Wellness survey. Accounting for two weeks of vacation, that’s a whopping 150 working hours each year!
As such, the majority of American workers believe they can’t afford to save for retirement, when the reality is, they can’t afford not to. So are financial literacy programs as a component of retirement plans necessary to help employees better manage their day-to-day expenses and set aside adequate savings for retirement? Yes. Can it empower workers of both genders to save more for retirement? Absolutely. Is a lack of financial knowledge responsible for the gender gap in retirement savings? Doubtful.
Women face unique retirement savings challenges — some of which men do not. And in fairness, the Center for Retirement Research paper acknowledges this. Women have longer life expectancies than men, therefore, they need to save more for their retirement years, many of which they may end up spending alone. However, creating adequate savings for those circumstances is difficult for women, because they typically earn less than men during the course of their careers. In addition, they may choose lower-paying occupations, and end up taking more time off or working part-time during their working years to care for children or elders. Moreover, women often don’t demonstrate the same investing confidence as men, which leads them to choose less risky, lower-return investments.
Surmounting these obstacles requires women to set aside an even greater percentage of their income during their working years, however, high medical costs and student loans also stand in their way.
All that said, plan design changes like auto enrollment are shrinking the gender gap in savings, according to the Center for Retirement Research. The paper cited a study that measured wage and salary workers age 21-64 who participated in an employer-sponsored retirement plan. Between 1987 and 2013, the gap between men and women closed from 10.3 percentage points to 0.5 percentage points, respectively.
We agree with the Center for Retirement Research that the decision to save requires some level of financial knowledge. However, we are skeptical that gender accounts for as significant a gap in financial literacy as it purports, and we have further doubts that the differences in savings behaviors between men and women are impacted as much by financial knowledge as other factors that are unique to women and their ability to set aside adequate savings for retirement.
Plan sponsors can and should promote financial literacy — it’s critical to reducing monetary stress in the workforce, and to increasing retirement readiness. However, sponsors should also keep in mind that a lack of financial knowledge is not the only, or even most significant, reason why an employee may not be saving for retirement. There are other factors involved, and it’s important for sponsors to make sure they understand employees’ motivation for their decisions to participate in the retirement plan or not — and how best to reach them so they can make informed choices to improve their future prospects for their post-working years — regardless of their gender.
