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Financial Illiteracy: Educated Women Too?

June 20, 2012. Financial Illiteracy: Educated Women Too?. by Mahnaz Mahdavi Professor of Economics Ann F. Kaplan ‘ 67 Faculty Director, Center for Women & Financial Independence. Demographic Statistics. Demographic Statistics. Demographic Statistics. Demographic Statistics.

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Financial Illiteracy: Educated Women Too?

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  1. June 20, 2012 Financial Illiteracy: Educated Women Too? by Mahnaz MahdaviProfessor of EconomicsAnn F. Kaplan ‘67 Faculty Director, Center for Women & Financial Independence

  2. Demographic Statistics

  3. Demographic Statistics

  4. Demographic Statistics

  5. Demographic Statistics

  6. Demographic Statistics

  7. Demographic Statistics

  8. Demographic Statistics Formal = Education, Employment, Financial Advisors/Institutions, Financial Press, Internet/Media Informal = Friends, Parents, Spouse/Partner, Other Family, Colleagues

  9. Demographic Statistics Any Formal = Includes education and employment No formal = Parents, Spouse/Partner, Non-Professional Affiliation, Society/Politics/Religion, Particular Event

  10. Financial Knowledge Index • Q1(F) Which one of the following types of assets has earned the lowest average annual return over the past 80 years? • US. Treasury bills • Small-company stocks • Large-company stocks • Corporate bonds • Don’t Know

  11. Financial Knowledge Index • Q2(M) Suppose you invest $1,000 in an account that earns 10% simple (non-compounding) interest annually. After 5 years, how much money will you have? • $1,150 • $1,500 • $2,100 • Don’t Know

  12. Financial Knowledge Index • Q3(F) When agencies such as Standard & Poor’s assess corporate bond risk, the rating is paid for by • the government • the investors • the bond issuers • Don’t Know

  13. Financial Knowledge Index • Q4(F)Suppose that a corporate bond has a rate of return of 6% and a similar municipal bond has a rate of return of 4.2%. If you are in the 30% tax bracket, which of the following statements is correct? • After-tax corporate bond rate of return is actually 4.2% • After-tax municipal bond rate of return is actually 2.9% • After-tax corporate bond rate of return is actually 6% • Don’t Know

  14. Financial Knowledge Index • Q5(M)Suppose that you invested $100K in an asset that earns 10% compound interest annually. If you earn 10% in the first year and lost 10% in the second year, at the end of year 2 how much money will you have? • More than $100K • Less than $100K • Exactly $100K • Don’t Know

  15. Financial Knowledge Index • Q6(F) Which of the following states about load versus no-load mutual funds is correct? • Load mutual funds usually earn higher returns than no-load mutual funds. • Load mutual funds usually do not charge management fees. • Load mutual funds cost more than no-load mutual funds. • Don’t Know

  16. FKI Summary Statistics

  17. FKI Summary Statistics

  18. FKI Descriptive Statistics

  19. FKI Descriptive Statistics

  20. FKI Descriptive Statistics

  21. FKI Descriptive Statistics

  22. FKI Descriptive Statistics

  23. FKI Descriptive Statistics

  24. FKI Descriptive Statistics

  25. Regression AnalysisMain Effects Model (MEM)* • FKI score increases with Age: 60s know the most, 70+ have higher FKI scores than those in 20s and 30s • FKI score increases with HHI: impact is greater than Age for incomes $200K+ • Respondents with MBAs have the highest FKI score followed by JDs Reference group: Age = 20s, HHI = <$40K, Degree Type = BA

  26. Regression AnalysisMain Effects Model (MEM) • + Marital Status and Children • No statistically significant impact on FKI scores Reference group: Age = 20s, HHI = <$40K, Degree Type = BA; Marital Status = Single; No Children

  27. Regression AnalysisMain Effects Model (MEM) • + Employment Status • Combination of Employment Status and HHI impacts FKI score • Combination of Employment Status and Degree Type impacts FKI score Reference group: Age = 20s, HHI = <$40K, Degree Type = BA; Employment Status = Student / Unemployed

  28. Example of Employment Status Impact • 65 year old +$145,000 HHI + PhD + Employed+ Combined impact of Employed / $145,000 HHI+ Combined impact of Employed / PhD • Predicted FKI Score = 50.78% • 65 year old + $145,000 HHI +PhD+ Retired+ Combined impact of Retired / $145,000 HHI+ Combined impact of Retired / PhD • Predicted FKI Score = 64.14%

  29. Regression AnalysisMain Effects Model (MEM) • + Parent’s Education • Father’s Education has statistically significant impact on FKI score • Combination of Father’s Education with Respondent’s Degree Type impacts FKI score Reference group: Age = 20s, HHI = <$40K, Degree Type = BA; Parents’ Education = High School/Some College

  30. Example of Father’s Education Impact • 34 year old +$82,000 HHI + JD + Father with HS/SC+ Combined impact of JD / Father HS/SCPredicted FKI Score = 42.43% • 34 year old +$82,000 HHI + JD + Father with BA/MA+ Combined impact of JD / Father BA/MAPredicted FKI Score = 53.83%

  31. Regression AnalysisMain Effects Model (MEM) • + Sources of Financial Information(Formal/Informal) • Statistically significant impact on FKI score • Combination of Sources and Age impacts FKI score Reference group: Age = 20s, HHI = <$40K, Degree Type = BA; Sources = Informal only

  32. Example of Sources of Information Impact • 43 year old +$210,000 HHI + MD + Informal Only+ Combined impact of 43 year old / Informal only • Predicted FKI Score = 32.89% • 43 year old +$210,000 HHI + MD + Formal Only+ Combined impact of 43 year old / Formal only • Predicted FKI Score = 51.81%

  33. Regression AnalysisMain Effects Model (MEM) • + Influences on Money Attitudes(Formal/Informal) • Statistically significant impact on FKI score • Combination of Influences and HHI impacts FKI score • Combination of Influences and Degree Type impacts FKI score Reference group: Age = 20s, HHI = <$40K, Degree Type = BA; Influences = No formal

  34. Example of Influences on Money Attitudes Impact • 52 year old + $54,000 HHI + MA + No Formal+ Combined impact of No Formal / $54,000 HHI+ Combined impact of No Formal / MA • Predicted FKI Score = 38.76% • 52 year old + $54,000 HHI + MA + Any Formal+ Combined impact of Any Formal / $54,000 HHI+ Combined impact of Any Formal / MA • Predicted FKI Score = 48.56%

  35. Some Concluding Thoughts • FKI score increases with Age • Young women need financial education: 20s / 30s average score on FKI is 39% • Yet…the highest mean FKI score for educated women in 60s is only 57% • Financial education needs to be continuous

  36. Regardless of Age, Educated Women are Worried About Their Financial Security

  37. Other things matter • FKI score for HHIs under $40K is 34% compared to HHIs over $200K at 61% • Education: type of degree and using educational sources of information • Any type of degree that has a financial component improves financial knowledge • Formal sources of financial information can significantly improve financial knowledge

  38. Regardless of HHI, Educated Women are Worried About Their Financial Security

  39. Regardless of Degree, Educated Women are Worried About Their Financial Security

  40. Educated women need education … financially speaking

  41. Thank You. Visit us the next time you are on campus or visit our website: www.smith.edu/wfi Neilson Archway  Smith College  Northampton, MA 01063 T: 413.585.3653  E: wfi@smith.edu

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