Are women more financially vulnerable than men? A tale of missed economic opportunities from Latin America

Abstract

Motivation

Women are especially vulnerable to not being able to cover the costs of living or meet sudden demands for funds to pay for emergencies (financial vulnerability). The COVID-19 pandemic put additional stress on household incomes and the ability to meet emergency expenses, thus bringing into sharp relief the lack of inclusion of women in formal financial systems and the gender gaps between them and men.

Purpose

How financially vulnerable are women in Latin America? What causes vulnerability? How do financial inclusion, personality traits, cognitive characteristics, and financial literacy affect financial vulnerability?

Methods and approach

Using Financial Capabilities Surveys, we use regression to model the determinants of an index of financial vulnerability for eight countries in Latin America: Argentina, Bolivia, Brazil, Colombia, Chile, Ecuador, Paraguay, and Peru. We use Oaxaca-Blinder decomposition to establish the extent to which the gender arises from the different characteristics of men and women, or from the way in which such characteristics affect groups.

Findings

We find a gender gap in financial vulnerability in most of the eight countries. Individual characteristics that often explain this gap are socioeconomic, such as belonging to a low socioeconomic class and not having a regular income. In addition to gender and socioeconomic characteristics, the use of savings products, some personality traits (ability to plan, self-control), economic preferences, and numeracy skills also drive financial vulnerability.

Policy implications

Interventions to reduce financial vulnerability need, first and foremost, to address socioeconomic conditions. People on low incomes will always be financially vulnerable. In addition, programmes to expand financial inclusion and educate people on finances can help. Given the significant gender gaps, more effort must be made to reduce such gaps in education, employment, and social norms.