The 1 key area where women have better financial literacy

Research has shown that men outperform women on nearly every financial question — except how long they will live.

A study by the insurance company TIAA found that on average, women have significantly better longevity literacy than men, meaning they more accurately estimate their own lifespans. Though this knowledge is not inherently financial in nature, it is crucial to retirement planning, which involves building an income to last the rest of one's life.

Researchers were surprised by the finding, because in other areas men consistently outpaced women in financial knowledge.

"If you measure financial literacy — do you know the difference between a stock and a bond, those kinds of things — women's financial literacy lags men's," said Surya Kolluri, head of the TIAA Institute, the insurer's research division. "But when we tested the same population on longevity literacy — meaning, do you understand how long you're going to live — the script flipped."

The study asked 3,582 American adults a series of financial questions, including one about longevity. Men were asked what the life expectancy is for a 60-year-old man (correct answer: 82), and women were asked the same question for a 60-year old woman (85). Only 32% of men answered correctly, compared to 43% of women.

And this inaccuracy was not due to macho overconfidence — in fact, men were generally too pessimistic about their lifespans. Only 11% of men overestimated life expectancy; 31% underestimated it.

"It wasn't necessarily this bravado," said Paul Yakoboski, a senior economist at the TIAA Institute. "It's a lack of understanding or even misinformation about how long 60-year-old guys tend to live."

Other research has repeatedly found that men hold an advantage in financial literacy. An earlier TIAA study found that on average, men correctly answered 54% of a set of finance questions, while women only got 49% right.

And this isn't just an American phenomenon. A study by the National Bureau of Economic Research found the same gender gap in both the U.S. and Europe. In the Netherlands, for example, 55% of men got a perfect score on a three-question financial quiz, compared to 35% of women.

Retirement

What makes Generation Z such good retirement savers?

April 27, 2023 3:47 PM

So why is it that women performed so much better on longevity literacy? Kolluri believes it may have something to do with the roles women often — though not always — play in a two-gender couple.

"Who's the caregiver in the house?" Kolluri asked. "Who takes care of the medical decisions in the house? Who, anecdotally, knows grandma outlived grandpa or mom outlived dad, etc., etc.? So you can begin to come to a reasonable conclusion as to why women have better longevity knowledge than men."

This research offers multiple lessons for financial advisors. In general, TIAA found that Americans' longevity literacy is low — just 37% of U.S. adults answered the lifespan question correctly. So it's crucial for wealth managers to discuss life expectancy with clients as they prepare for retirement. This can be a tricky subject, but many advisors feel that they — and their clients — can handle it.

Read: How to talk to clients about their life expectancy

"I actually don't find it difficult to talk to clients about mortality," said Anna Sergunina, a CFP and president of Main Street Financial Planning in Los Gatos, California. "I explain to them that we need to have an ending point to their financial plan, to make sure we've estimated properly how long their money will last."

The other lesson, Kolluri said, is that when advising a married couple, wealth managers should bring both members to the table. Statistically speaking, men and women have different insights to offer in a financial discussion, and both are key to forming a sound plan for the future.

"Proper retirement planning is a combination of financial knowledge and longevity knowledge," Kolluri said, "which means you need both spouses in the conversation."