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Mastercard Measures Women’s Financial Literacy

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In view of recent studies showing U.S. women to still lag men in financial literacy, an assessment of financial literacy conducted among women in the Asia-Pacific region has also turned up surprising results.  Intuitively it would seem that women in the most developed economies such as Japan, Korea, Australia or Singapore would have the highest level of financial savvy would be found in. But MasterCard Worldwide’s inaugural Index of Financial Literacy among women in the Asia-Pacific region shows this not to be the case.

The Thais Have It

The most financially savvy women were, in fact, found by MasterCard to be in Thailand, with an overall index score of 73.9 out of 100.

MasterCard’s overall index is made up of three components:

  • Basic money management weighted at 50%. This is to determine the level of basic money management skills in terms of budgeting, savings, and responsibility of credit usage;
  • Financial planning weighted 30%. This is to assess the level of knowledge of financial products, services, and concepts and the ability to plan for long-term financial needs; and
  • Investment weighted 20%. This to determine basic understanding of the various risks associated with investment, different investment products and skills required.

Notably, Thai women also had the highest scores in financial planning (87) and investments (69.3), outshining their peers in the other 12 Asia-Pacific markets surveyed by MasterCard.

Of the three components that make up MasterCard’s survey, women across the 13 Asia-Pacific countries as a whole scored the best in financial planning (average score 74.6), followed by basic money management (63.9) and investment (56.7). The overall average score across the 13 markets was 66.3.

Vietnamese Do Well Too: Also of significance was that women in another early-development stage market, Vietnam, also performed well to take sixth place with an overall index score of 70.1. Women in three other developing markets surveyed were also in the MasterCard’s index’s top-10: The Philippines (overall score 68.2), Indonesia (66.5) and Malaysia (66).

Georgette Tan, vice-president, communications for MasterCard, Asia-Pacific, Middle East and Africa, said of the strong performance of Thai and Vietnamese women in the rankings:

These are markets where rapid socio-economic advancement has given women vital and valuable first-hand entrepreneurial experience and exposure to financial planning and money management concepts.

Women in Singapore were in third overall place with a score of 72.4, thanks to good scores on basic money management (70) and financial planning (80.4). But they fell short in terms of investment skills and knowledge, scoring of 51.5, well below the regional average.

Women in Key Developed Markets Surprisingly Lag

Bringing up the rear in the survey were women in the developed markets of Korea, with the lowest overall index score of 55.9, and in Japan with the third-lowest overall index score of 59.9. Women in Korea and Japan were also the only ones in the region with financial literacy index scores of below 60.

Women In Other Developed Markets Excel

Women in New Zealand had the second highest overall index score (73.8) followed in fourth position (71.6) by Australian women, leading the field in basic money management with scores of 76.7 and 75.8 respectively. However, they both fared poorly on financial planning – coming in under the overall survey average – and on investments with scores of 58.3 and 55.2, respectively.

Indian and Chinese Women Lag

In the most populous developing markets, India and China, women had overall index scores of 62.5 and 60.1, respectively. This ranked Indian women fourth lowest and Chinese women second lowest. MasterCard found that Indian and Chinese women are particularly weak in basic money management, scoring 58.8 and 54.4, respectively.

Counter Intuitive Findings on Korean Women Yield Cultural Insights

Women are the Household Financial Decision Makers: Mastercard found that the majority of Korean women polled were the household financial decision makers. This was certainly true during my 15 years in Korea. I spent some years serving as General Manager of Marketing at Samsung Life, Korea’s leading insurer, where the traditional Financial Consultant channel was  female.

Yet Financial Literacy Remains Low: Ironically, Korean women had the lowest financial literacy scores:

  • Lowest financial literacy score (55.9)
  • Lowest in basic money management (51.1)
  • Lowest in financial planning (65.7).
  • In investing, only 22% of Korean women had a basic understanding of inflation and its impact on the future value of money.
  • Only 40% said they understood the concept of compound interest rates.
    • 36% did not understand the concept; 24% were unsure or did not know.

Japanese women had the lowest investment score (38.4).

Why? Traditional Societies Have Strong Cultural Differences

1. Little Experience With Equities Based Products: It is important to note that there are strong cultural differences that can largely account for these findings. Korea doesn’t have a long history with equities-based products. Traditionally,  investor clubs, called kae are used to raise seed money for businesses. The first recipients cede some of their cumulative periodic investment for the privilege of being the first to have access to a lump sum for investment. Later recipients receive back earnings as a result. But the pool is based entirely on monthly contributions of the members and there is no actual appreciation or interest on that pool.

2. Fixed Investments and Real Estate Are King: A second important Asian trend is a traditional emphasis on fixed income investments vs. equities. As highlighted in my article, The Declining Role of Equities, while investors in Europe, the United States, and wealthier parts of Asia, such as Hong Kong, hold 30% to 40% of their financial assets in equities, new investors in emerging economies keep 75% in deposit accounts.

General Observations and Conclusions

Women Need to Round Out Their Financial Skills: As an overall observation, while it is a broad generalization, women from traditional societies where they are the household decision makers tend to excel in money management, yet fall short in  investment skills and knowledge.

By contrast, research on U.S. women shows them still lacking confidence in money management skills, although their long-term family-oriented focus equips them to do better than U.S. men in long-term planning.  In comparison, the more transactional quantitative decisions such as budgeting or investing are typically more appealing to U.S. men who enjoy the “game” of it, than to U.S. women.

Financial Literacy Education Is Invaluable: The high scores of the women of Thailand, New Zealand, Singapore, Australia and Taiwan show that, regardless of cultural differences,  empowered women anywhere are a force to be reconed with.

One finding of the MasterCard research that can be generalized to all women was a close correlation between financial knowledge and planning – women who exhibited higher levels of financial literacy were more likely to be proactive in planning for their future. This shows that financial literacy training can be a potent tool for women financial consumers.

At Samsung Life, we invested heavily in educating the Financial Consultants in principles of financial planning that they could pass on to their clients, while introducing variable life, annuities and mutual funds to the product mix. The results were highly successful. This shows that an investment in female financial literacy is an invaluable investment for financial firms.

Financial planners have a receptive market with U.S. women, who have an advantage over U.S. men in long-term planning skills, and one way to reach them is to recruit and develop more female financial planners.  Helping women to round out their money management and investment knowledge will make them more confident consumers for investment products. In particular, women’s lower risk tolerance would make them a natural market for today’s Equity Indexed life insurance and annuity products, as well as Variable Annuities with living benefit guarantees that lock in gains and guarantee an income base for future annuitization.

Related Articles

Study: Gender Gap In Financial Literacy Grows

Seven Steps to Overcome Women’s Top Money Fears

The Declining Role of Equities

Equity Indexed Universal Life Insurance: Enticing New Alternative

Indexed Annuity Sales Excel in Low Interest Rate Environment

More Wealth, More Challenges

Prudential Financial’s latest biennial study of women and money released this month shows that women are becoming a greater economic force:

  • 53% of women are now financial breadwinners.
  • Womens’ median income has grown 63% in the last three decades.
  • They are expected to control $22 trillion in wealth by 2020.

Special Financial Challenges

However, women face a specific set of financial disadvantages that make it increasingly important for them to be responsible for their own long-term financial health:

  • Women are more concerned than men about household expenses, debt and their ability to save for retirement.
  • Women are more afraid of becoming burdens to their families.
  • With an average widowhood age of 56, but an 80.8 year life expectancy, women need to plan for their long-term futures.
  • Women are more risk-averse when it comes to investing.

Takeaway: Women need to do more to plan for their economic well being.

Women’s Top Money Fears

Michelle Matson, author of Rich Chick and vice president of Matson Money, an investment advisory firm managing over $3.1 billion, was interviewed by Jenna Goudreau in Forbes about women’s top money fears and how to overcome them
She  says that women’s biggest fear of failure due to not knowing enough. She says that women often become overwhelmed by the information proliferation, and feel they have to be smarter than everyone else to succeed.
Bearing in mind that, while men may be motivated by the thrill and challenge of investing, women are typically more concerned with the long-term results, Matson recommends 7 small changes that can make a big impact in helping women becoming more confident about their finances planners.

7 Small Steps to Confidence

1.Start Today

“Bag lady syndrome” is Matson’s term for the fear women often suffer of being penniless, homeless and alone. This fear may escalate small money concerns into visions of total destitution:

It can paralyze you. You don’t know what to do, so you don’t do anything.

To conquer the fear, face it. Express to your partner that you’d like to learn more about your finances, or schedule time to review where you currently stand.

2. Wade In Slowly

Instead of trying to do too much right away, Matson suggests moving slowly to learn and understand your finances and consider a financial plan. Locate and read all of your financial statements to get a snapshot of your current accounts. A good place to start is with financial books written specifically for women like Matson’s Rich Chick, or Women & Money by Suze Orman pr Does This Make My Assets Look Fat? by Susan Hirshman.

3. Identify Goals

Establishing a vision of the future helps to set realistic goals to achieve it. Perhaps your goal is to buy a home or own your home outright. Once you understand where you are and identify where you want to be, you are ready to create a plan for getting there.

4. Learn And Understand Your Strategy

Matson finds that many women get comfortable once there’s a strategy in place and fail to take the time and effort to understand and review it.  But the more you understand it, the better you can make it work long term. More understanding leads to more confidence and generally better results. She points out that men don’t necessarily make better investing decisions, but are more likely to seek out the information that will guide their decisions.

 

5. Keep Interviewing Your Financial Advisor

The Prudential survey finds that 35% of women use a financial advisor and a significant portion also would consider doing so. This is a good trend, but  women must also take responsibility for this relationship and ensure they understand all actions and communications. Since a good advisor will act as a coach and take the time to explain and answer questions, consistently ask questions and know the reasons for recommendations.

6. Take A Financial Class With A Friend

Woman can feel like they’re not alone and turn learning about money from a chore into something fun by joining a program with a friend. Discussing the knowledge with your companion can help you reinforce it and give you incentive to stick with it.

7. Teach Money Basics To Your Kids

Learning through teaching is a powerful way to reinforce your knowledge and confidence. Discussing the basics of money, your financial philosophy and your long-term plan with your children not only provides them these tools, but can help you clarify the concepts for yourself. These conversations can occur seamlessly in your daily life— for instance,at the register  or at home when paying the bills.

Considering that the Society for Human Resource Management‘s report 2012 Gender Gap in Financial Literacy Research shows women still lagging men in in key areas of financial planning with the gap between the genders widening in nearly every area of financial planning, simplifying and reinforcing can be an important means of boosting women’s financial understanding and confidence.

Significantly, women have an important advantage over men as well, since the report showed that woment tend to do better with long-term planning, taking small steps can go a long way to helping women secure their family’s and their own financial future. In fact, while short-term, more transactional quantitative decisions such as budgeting or investing appear to be more appealing to men who enjoy the “game” of it, women bring a long-term focus to the process that men often lack.

Related Article

Study: Gender Gap In Financial Literacy Grows

Financial Literacy Gender Gap

According to the Society for Human Resource Management, a report by workplace financial education provider Financial Finesse, 2012 Gender Gap in Financial Literacy Research, shows women still lagging in in key areas of financial planning. The report identified that the gap between the genders is widening in nearly every area of financial planning.

The data was compiled by tracking the use of Financial Finesse’s online financial wellness assessment and learning center by employees located across the U.S. in similar proportion to the demographics of the national population.

2 Areas of Concern

According to the findings, the gender gap is most pervasive in two areas that are critical to achieving financial security.

Basic money management:

• 43% of women reported having an emergency fund to cover unexpected expenses, vs. 63% of men.

• 52% percent of women said they were comfortable with the amount of nonmortgage debt they had, vs. 71% of men.

Investing knowledge and confidence:

• 37% of women said they have taken a risk tolerance assessment and were aware of their conservative, moderate or aggressive investment strategy, vs. 57% of men.

• 25% of women reported rebalancing their investment accounts to keep their asset allocation plans on track, vs. 49%  of men.

Area of Parity: Planning

However, in two areas that tend to be proactive in nature,  women showed virtual equality with men – participation in:

  • Retirement planning
  • Estate planning.

Area of Advantage: Long-Term Planning

Women “tended to do better with long-term planning, which is about securing their family’s future. Short-term, more transactional quantitative decisions such as budgeting or investing, however, appear to be more appealing to men who enjoy the “game” of it.

Women Face Greater Challenges

The findings highlight certain challenges that women face that are not being adequately addressed:

  • Women should be the ones putting more focus on improving their finances because they face more challenges than men in financial planning.
  • Women Have Longer Lives: Women live approximately five years longer than men on average, and 9 out of 10 women will be solely responsible for their finances at some point in their adult lives because of divorce or the death of a spouse, according to the National Center for Women and Retirement Research (NCWRR).
  • Women generally make less throughout their lifetimes than men, making it difficult to become financially secure.
  • Women have lower average Social Security payments and higher health care costs, putting them at a disadvantage financially.

Women Are Open to Improvement

The good news is that women are seeking financial education and information at very high rates:

  • Women typically seek financial education about 2 to 1 compared to men.

As employers continue to deliver financial education programs that effectively reach women, we should start to see this gap narrowing. However, the financial services industry needs to focus on this issue more to help women see the importance of closing the gap to creating financial security for themselves and their families.

Related Articles:

Challenging Retirement Realities for WomenSHRM Online Benefits Discipline, May 2012

Encourage Employees to Defer Adequate Pay to Their 401(k)SHRM OnlineBenefits Discipline, May 2012

Women and Men Differ on Retirement Plan Investments, SHRM OnlineBenefits Discipline, February 2011

Women are Underrepresented in Financial Services

If women account for 85% of all consumer purchase, including 89% of all bank accounts, 80% of healthcare and 91% of new homes, they are an important consumer demographic for financial services.  Yet, as Mary Zimmer, Head of International Wealth RBC U.S. Wealth Management, points out in her article in the March 2012 issue of Investment AdvisorInvestment Advisor, women made up less than one-third of personal financial advisors in 2010. Additionally,  women comprise less than a25% of all senior officers in the financial services and insurance industries, according to the 2010 Catalyst Census of Women Executive Officers. And a study  by American Express showed that just 20% of finance and insurance firms are owned by women.

One disconnect is that the number of small businesses owned by women is exploding. In December 2009, a report from The Guardian Life Small Business Research Institute estimated that women small business owners will be responsible for creating over half of the 9.72 million new small business jobs and about one-third of the 15.3 million total new jobs the Bureau of Labor Statistics believes will be generated by the year 2018.

The industry needs to develop new strategies to attract and support women professionals. Some strategies include:

  • Increasing the number of experienced women financial advisors through mentoring, succession planning and leadership opportunities;
  • Helping internal associates grow into higher-profile roles;
  • Retaining women corporate employees;
  • Recruiting the next generation of industry leaders;
  • Growing female client bases by focusing on women investors.

At this challenging time in the financial services industry, an underserved market is waiting to be served.

Snap principle of underserved markets:

Represent your markets.