I recently read an interesting study in The Journal of Finance titled “Who Wears the Pants? Gender Identity Norms and Intra-Household Financial Decision Making” by Da Ke. Ke examined microdata from the Annual Social and Economic Supplement (ASEC) of the Current Population Survey (1988-2018), the 5% sample of the decennial census (1980-2000) pooled with the American Community Survey (2006-2015), and the Health and Retirement Study (1992-2016) to investigate how households make decisions about participating in the stock market (excluding retirement accounts). Particular emphasis was placed on households in which either the husband or the wife worked in the finance industry, which was used as a proxy for having more knowledge about finances in general.
What did the study find?
Unsurprisingly, households in which one or both spouses worked in finance were much more likely to own stocks compared to the general public, based on the ASEC sample. 50% of households in which both husband and wife worked in finance owned stocks or mutual funds compared to 28% of households in which neither spouse worked in finance. 50% still seems quite low to me for a family with two finance professionals, but it is almost double the general public. This just shows how there is still work to be done to educate people, even those who work in finance, about the benefits of investing in the stock market. However, what’s interesting is that there was a big difference between families in which only the wife worked in finance and in which only the husband worked in finance. 48% of households owned stocks or mutual funds when the husband worked in finance, but only 37% of households did when the wife worked in finance. Ke suggested that this discrepancy is best explained by gender identity norms that hinder women’s abilities to influence the financial decisions made by their households.
To back up that assertion, Ke examined the impact of five measures of traditional gender roles. (1) He found that the difference was larger when husbands were raised by a stay-at-home mother vs. a working mother. (2) It was larger when either the husband or the wife was the descendant of a society that traditionally practiced plough agriculture, which required more physical strength. (3) It was larger when the husband was from the south, which is generally considered more traditional. (4) It was larger when either the husband or the wife was more actively religious, which generally is associated with more conservative views towards women. And (5) it was larger when the husband and/or the wife thinks the husband has the final say over major household decisions. All of these support the hypothesis that traditional gender roles help explain the lower levels of stock ownership among households in which the wife works in finance compared to households in which the husband works in finance.
What do the results mean?
The results suggest that women are often not given an equal seat at the table when it comes to making financial decisions, even if they are more knowledgeable about finance than their husbands. This appears to be due to longstanding gender roles in society, in which men are responsible for a household’s finances and have the final say on important household matters. This means that even when women have higher financial literacy than their husbands and are better positioned to make beneficial financial decisions for their households, they are often overridden by their husbands who have less understanding of financial matters.
What can we do about this problem?
Clearly this is a significant issue that can negatively affect household welfare. Unfortunately, the study makes no attempt to offer potential solutions for this issue, so I will attempt to do so instead.
1. Listen to the experts
First of all, we should make an effort to listen to the experts. This is true both in relationships and in society at large. Everyone has different levels of knowledge about different things, and no one is an expert at everything. For instance, some people know more about repairing cars and others know more about gardening. You shouldn’t assume that you are more of an expert than other people. Even the most well-educated and experienced individuals still have a lot to learn. If one spouse is more knowledgeable about something, such as finance, then the other spouse should respect their knowledge and listen to their opinions.
2. Work on communication/negotiation skills
If you are having trouble convincing your spouse to make or go along with a good financial decision, try explaining your reasoning in more simple terms and providing examples, particularly of people your spouse trusts and respects. Open communication is important to a healthy relationship to make sure everyone is on the same page. Often, poor financial decisions are the result of misconceptions.
3. Improve overall financial literacy
If all else fails, we should make an effort to improve overall financial literacy of the general public. While this doesn’t address the underlying issue of gender norms, it can help to raise up the baseline of financial knowledge of society as a whole, leading to better financial decisions overall. It may also help to avoid resentment from men feeling like they are being targeted or shamed. Oftentimes, men do not want to listen to their wives because they are embarrassed that their wives are more knowledgeable about a subject than they are. This gets back to my first solution, to accept that it is okay to not know everything and to make an effort to listen to and respect people who are more knowledgeable. But to avoid these tricky feelings, educating everyone may be more easily accepted.