It should come as no surprise that there is a direct link between financial literacy and financial well-being. But a recent report suggests that bad credit card behaviour is worse in women compared with men when financial literacy is poor.
The U.S.-based Financial Industry Regulatory Authority (FINRA), which oversees U.S. securities firms and their advisers, found that when it came to missed or late payments and going over credit limits, women who were not financially literate reported higher rates of incidence than men. This type of behaviour leads to higher fees, higher interest rates, and lower credit scores.
Further, anyone who is less financially literate is less likely to seek a credit card with the most appropriate features and lowest rate, which could then lead to them having higher overall borrowing costs.
Data was gathered from 28,000 respondents from across the United States in 2009. One of the initial findings was that while 23 per cent of men were charged a late fee, that figure was 29 per cent for women. Relatively speaking, that means women were 26 per cent more likely to have paid a late fee.
Across a variety of negative behaviours, from carrying a balance to only paying the minimum payments, women consistently reported poorer performance. The only exception was for cash advances, which women were 20 per cent less likely than men to use.
Men even reported advantages in positive behaviours such as paying the balance in full and comparison shopping for credit cards.
The study found that as levels of financial literacy increase, not only did credit-card behaviour for both sexes improve, but the gender-based differences were eliminated. You can read the report yourself, but the study concluded that increasing financial literacy would improve credit card behaviour 60-per-cent more for women than men.
Further study is needed to determine what factors led to the gender differences at lower rates of financial literacy. One might surmise that the financial-literacy test – a very simple five-question multiple-choice assessment – isn't sophisticated enough to draw conclusions from. Of all the people who scored zero, there are still varying degrees of financial literacy, or rather illiteracy, that when controlled for might show there are no actual gender differences at all. But the findings of the study cannot be entirely dismissed.
One final interesting note about the report: No matter the rate of financial literacy, and after controlling for income and other demographic variables, women still reported paying 0.5 per cent more in credit card interest rates than men, right across the board.
An earlier online version of this article suggested an inverse link between financial literacy and financial well-being. It should have suggested a direct link. This online version has been corrected.