Research shows that women are more vulnerable to poverty in old age than men for several reasons, including their longer life spans, shorter and interrupted working careers, and lower earnings.
Another contributor to vulnerability may be a lack of retirement planning, which seems related to women's levels of financial literacy.
A study by Annamaria Lusardi of Dartmouth College in Hanover, N.H., and Olivia S. Mitchell of the Wharton School of the University of Pennsylvania in Philadelphia showed that older women have a lower level of financial literacy than the older population as a whole.
In fact, the study, which was reported in a National Bureau of Economic Research working paper, showed a relatively low level of financial literacy among a sample of women 50 and older.
By contrast, the research also showed that women who are financially literate are more likely to devise a retirement saving plan.
The implication is that financial planners and advisers may have an important role in helping improve the retirement income levels of women approaching the last 15 years of their working lives.
The industry could do so by offering them seminars about the basics of finance and investing. These seminars, the authors suggested, should be tailored to particular situations and needs, as "one-size-fits-all programs are unlikely to successfully address saving shortfalls among different groups."
To gauge the disparity in knowledge, the study asked 785 women three very simple financial questions.
In the first, women were asked about a $100 savings account earning 2% interest.
Would the amount in the account at the end of five years be more than $102, exactly $102, or less than $102?
Just 61.9% of the women gave the correct answer.
The results were similar for the other equally simple questions.
The study also showed that less than one-third of the respondents had ever attempted to figure out how much their households would need to save for retirement; only 58.5% of those who had made the calculation actually had developed a retirement savings plan. Just 17.4% of the group said they always or mostly were able to stick to a plan.
However, the researchers found that there was a strong positive correlation between those who answered the financial-literacy questions correctly and success at developing and sticking to a financial plan.
The researchers found strong evidence that "literacy causes planning, not the reverse."
The message is clear: The
financial planning and investment advisory community could make a large contribution toward the financial well-being of older women by providing basic financial education. The material covered should include concepts such as compound interest, inflation, the cost of credit and the basics of investing in stocks, bonds and mutual funds.
This will involve reaching out to groups where these women are found, such as women's service organizations, charities, and churches and synagogues.
While this should be done for altruistic reasons, there also may be a payback. The best prospects for advisers are likely to be financially literate women who recognize their need for advice.
