Early Causes of Financial Disquiet and the Gender Gap in Financial Literacy: Evidence from College Students in the Southeastern United States

Financial literacy, a cornerstone of family economic well-being, is surprisingly low in the United States. The literature has established that financial literacy is lower among women than among men. As sound financial decision-making among both male and female household heads is of paramount importance to well-being, we look to identify the underlying causes that may initiate and perpetuate this differential. We found that a gender-based gap in understanding develops by early college age, before individuals have had the opportunity to develop financial skills through experience or specialization in household roles. The literature indicates that women tend to underestimate their abilities relative to men, particularly in areas of math and financial decision-making. Math ability, financial confidence, and financial and math education have been found to enhance financial literacy, and so we focus on math self-efficacy as an early indicator of financial assurance and literacy. Using an ordered probit model and data from a sample of 529 college students across three institutions in the southeastern United States, we extend the current literature to find that for men, objective math ability drives financial literacy. For women, on the other hand, self-efficacy—and not objective ability—is predictive of financial literacy. Understanding the underlying causes of the gender-based financial literacy gap can inform the creation of better education, family, and cultural intervention methods by which to close this gap in financial literacy, decisions, and outcomes.