Financial Illiteracy: Educated Women Too?

- 1 - © Mahdavi & Horton, 2011

by Mahnaz MahdaviProfessor of EconomicsAnn F. Kaplan ‘67 Faculty Director, Center for Women & Financial Independence

Financial Illiteracy: Educated Women Too?

June 20, 2012


Demographic Statistics

Age Groups Percentage (%)

20s (n=970) 22.33

30s (n=870) 20.03

40s (n=717) 16.51

50s (n=737) 16.97

60s (n=624) 14.36

70+ (n=426) 9.81



Household Income Groups Percentage (%)

<$40,000 (n=687) 15.81

$40,001- $80,000 (n=953) 21.94

$80,001- $100,000 (n=467) 10.75

$100,001- $150,000(n=741) 17.06

$150,001- $200,000(n=526) 12.11

$200,001- $500,000(n=755) 17.38

>$500,000 (n=215) 4.95



Degree Types Percentage (%)

BA (n=1,870) 43.05

MA (n=1,282) 29.51

JD (n=389) 8.95

MBA (n=347) 7.99

MD/PhD (n=456) 10.50



Marital Status Percentage (%)

Single (n=1,001) 23.04

Married (n=2,727) 62.78

Divorced/Widowed (n=616) 14.18

Children Percentage (%)

Don’t Have (n=2,084) 47.97

Have (n=2,260) 52.03



Employment Status Percentage (%)

Student/Unemployed (n=362) 8.33

Employed/Self-Employed (n=3,013) 69.36

Retired (n=969) 22.31



Parents’ Education Percentage (%)

Mother HS/SC (n=1,583) 36.74

Mother BA/MA (n=2,414) 56.04

Mother PhD/PD (n=311) 7.22

Father HS/SC (n=1,072) 25.26

Father BA/MA (n=1,875) 44.18

Father PhD/PD (n=1,297) 30.56



Sources of Financial Information Percentage (%)

Formal Only (n=943) 21.73

Informal Only (n=285) 6.57

Both (n=3,112) 71.71

Formal = Education, Employment, Financial Advisors/Institutions, Financial Press, Internet/Media

Informal = Friends, Parents, Spouse/Partner, Other Family, Colleagues



Influences on Money Attitudes Percentage (%)

Any Formal (n=2,104) 48.50

No Formal (n=2,234) 51.50

Any Formal = Includes education and employment

No formal = Parents, Spouse/Partner, Non-Professional Affiliation, Society/Politics/Religion, Particular Event


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?

a) US. Treasury bills

b) Small-company stocks

c) Large-company stocks

d) Corporate bonds

e) Don’t Know



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?

a) $1,150

b) $1,500

c) $2,100

d) Don’t Know



Q3(F) When agencies such as Standard & Poor’s assess corporate bond risk, the rating is paid for by

a) the government

b) the investors

c) the bond issuers

d) Don’t Know


Financial Knowledge IndexQ4(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?

a) After-tax corporate bond rate of return is actually 4.2%

b) After-tax municipal bond rate of return is actually 2.9%

c) After-tax corporate bond rate of return is actually 6%

d) Don’t Know



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?

a) More than $100K

b) Less than $100K

c) Exactly $100K

d) Don’t Know



Q6(F) Which of the following states about load versus no-load mutual funds is correct?

a) Load mutual funds usually earn higher returns than no-load mutual funds.

b) Load mutual funds usually do not charge management fees.

c) Load mutual funds cost more than no-load mutual funds.

d) Don’t Know


FKI Summary Statistics

Number of Questions Answered Correctly

Percentage (%)of Respondents

0 (n=355) 8.171 (n=726) 16.712 (n=889) 20.473 (n=799) 18.394 (n=732) 16.855 (n=520) 11.976 (n=323) 7.44


FKI Summary Statistics

Correct (%)

Don’t Know (%)

Q1(F): Historical Rates of Return 38.14 55.80

Q2(M): Multi-period Simple Interest 83.72 10.20

Q3(F): Bond Ratings 36.88 55.43

Q4(F): Tax Implications on Bonds 34.39 61.12

Q5(M): Multi-period Compound Interest 55.25 20.63

Q6(F) – Mutual Funds 38.31 56.56


FKI Descriptive Statistics

Mean (Standard Deviation)

Overall FKI 47.44 (28.39)

Age Groups

20s 34.66 (25.48)

30s 43.68 (26.61)

40s 51.19 (28.16)

50s 55.04 (28.16)

60s 57.37 (27.99)

70+ 50.31 (27.82)


FKI Descriptive StatisticsMean (Standard Deviation)


Household Income Groups

<$40K 31.76 (23.82)

$40-80K 42.01 (26.96)

$80-100K 45.61 (27.17)

$100-150K 50.47 (27.51)

$150-200K 52.47 (27.68)

$200-500K 58.54 (27.31)

>$500K 64.03 (29.02)





Degree Type

BA 43.06 (27.42)

MA 43.46 (27.73)

MD/PhD 48.10 (26.45)

JD 57.80 (27.48)

MBA 73.39 (22.05)





Marital Status

Single 40.74 (28.02)

Married 49.69 (28.07)

Divorced/Widowed 48.43 (28.75)

Children

Don’t Have 42.67 (28.01)

Have 51.85 (28.04)





Employment Status

Student/Unemployed 37.80 (25.98)

Employed/Self-Employed 46.18 (28.18)

Retired 55.01 (28.24)





Parents’ Education

Mother HS/SC 47.60 (28.29)

Mother BA/MA 47.82 (28.35)

Mother PhD/PD 44.48 (28.57)

Father HS/SC 44.51 (28.37)

Father BA/MA 49.38 (28.32)

Father PhD/PD 47.19 (28.13)


FKI Descriptive StatisticsMean (Standard Deviation)


Sources of InformationFormal Only 51.75 (28.52)

Informal Only 28.54 (23.79)

Both 47.90 (28.046)

Influences on AttitudesAny Formal 50.94 (28.73)

No Formal 44.17 (27.68)


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


+ Marital Status and Children

• No statistically significant impact on FKI scores

Regression AnalysisMain Effects Model (MEM)

Reference group: Age = 20s, HHI = <$40K, Degree Type = BA; Marital Status = Single; No Children



+ 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


Example of Employment Status Impact

1. 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%

2. 65 year old + $145,000 HHI + PhD+ Retired+ Combined impact of Retired / $145,000 HHI+ Combined impact of Retired / PhD



+ 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


Example of Father’s Education Impact

1. 34 year old + $82,000 HHI + JD + Father with HS/SC+ Combined impact of JD / Father HS/SC


2. 34 year old + $82,000 HHI + JD + Father with BA/MA+ Combined impact of JD / Father BA/MA




+ 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


1. 43 year old + $210,000 HHI + MD + Informal Only+ Combined impact of 43 year old / Informal only


2. 43 year old + $210,000 HHI + MD + Formal Only+ Combined impact of 43 year old / Formal only


Example of Sources of Information Impact



+ 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


1. 52 year old + $54,000 HHI + MA + No Formal+ Combined impact of No Formal / $54,000 HHI+ Combined impact of No Formal / MA


2. 52 year old + $54,000 HHI + MA + Any Formal+ Combined impact of Any Formal / $54,000 HHI+ Combined impact of Any Formal / MA


Example of Influences on Money Attitudes Impact


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


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

AgeGroups

Percentage (%)

20s 85

30s 86

40s 81

50s 78

60s 68

70s 55

80+ 55


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


Household Income Groups

Percentage (%)

< $40K 88

$40-80K 83

$80-100K 79

$100-150K 78

$150-200K 75

$200-500K 68

$500-$1,000K 64

> $1,000K 55

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


Degree Type

Percentage (%)

BA 79

MA 78

MBA 76

MD/PhD 73

JD 81

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


Educated women need education … financially speaking


Thank You.

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Financial Illiteracy: Educated Women Too?