DP15913 Fearless Woman: Financial Literacy and Stock Market Participation

Author(s): Rob Alessie, Tabea Bucher-Koenen, Annamaria Lusardi, Maarten Van Rooij
Publication Date: March 2021
Keyword(s): confidence, financial decision making, financial knowledge, finite mixture model, Gender Gap, latent class model, Measurement error
JEL(s): C81, D91, G53
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15913

Women are less financially literate than men. It is unclear whether this gap reflects a lack of knowledge or, rather, a lack of confidence. Our survey experiment shows that women tend to disproportionately respond "do not know" to questions measuring financial knowledge, but when this response option is unavailable, they often choose the correct answer. We estimate a latent class model and predict the probability that respondents truly know the correct answers. We find that about one-third of the financial literacy gender gap can be explained by women's lower confidence levels. Both financial knowledge and confidence explain stock market participation.