Women have low levels of financial wellness despite better control of their day to day money

9th June 2016

Women consistently show poorer levels of financial wellness despite a more diligent approach to money management, according to the Momentum UK Household Financial Wellness Index.*

The Index revealed that even after controlling for other variables, such as age, that gender is a significant predictor of Financial Wellness; with men scoring on average 1.1 index points more than women.

The index created by the University of Bristol’s Personal Finance Research Centre is the first research of its kind to look at the overarching financial wellness of the UK.

Women struggle to make ends meet

The disparity between men and women’s financial situation is underlined by the index’s findings which suggest that women are 43 per cent more likely to feel their current income doesn’t cover the cost of their everyday outgoings than their male counterparts. Women are also 54 per cent more likely to feel that they could not meet a major expense without borrowing money. Over a quarter of all women (28 per cent) have also made no provision for their retirement.

However, despite the apparent material differences between men and women, the findings also indicated that attitudes to finances differ greatly. Men are 29 per cent more likely than women to show high levels of confidence about their short term financial situation. Perhaps more alarming, women show a lack of faith in their long term planning, with men 33 percent more likely to demonstrate confidence in their long term finances.

Ferdi Van Heerden, CEO, Momentum UK said: “It is evident from our research findings that women are overall, less well financially than men. While women show superior money management skills compared to their male counterparts, the Financial Wellness Index indicates they still struggle to find the necessary funds to be comfortable financially especially in the medium and longer term.

“The gender pay gap on earnings for full-time employees currently stands at 9.4 per cent, according to figures from the Office for National Statistics. The fact that we still have to address gender-based financial inequality in the UK is incredibly disappointing, and more must be done to address this issue.”

Women take steps to address their finances

The inequality between the financial wellness of men and women is particularly pronounced when you take into consideration the different approaches of men and women to managing their finances. A third of women feel they are in complete control of their day-to-day money management (32 per cent vs. 28 per cent of men). They also are far more likely to plan their monthly outgoings (23 per cent of men vs. 32 per cent of women) and monitor their spending on a day-to-day basis (25 per cent of men vs. 33 per cent of women). Women are also more likely to make sacrifices to stay within budget.

The Momentum UK Household Financial Wellness Index brings together macro- and micro-level data to paint a picture of individual and household finances in the UK. The Index runs from a scale of 0 to 100, where higher scores represent greater Financial Wellness. 70 per cent of the Overall Index score is based on a Micro Index, calculated from the results of a UK-wide survey of approximately 2,000 individuals (conducted in late 2015). The remaining 30 per cent consists of a Macro Index that is constructed using the results of three key national economic indicators: the unemployment rate, annual change in GDP per capita, and the Gini coefficient of income inequality. The Overall Index score is calculated by summing the Macro Index results with survey respondents’ individual Micro Index scores. The results are weighted so that they are nationally representative. Financial Wellness is best viewed as a latent construct that is measured indirectly and holistically through a range of measures or indicators.

Overall Index Score: 67.4

Overall Micro Index Score

Overall Macro Index Score

46.2

21.3

Financial confidence and satisfaction

Financial capability: short-term planning

Financial capability: long-term planning

Savings, assets and security

Steering clear of financial difficulty & debt

Financial inclusion

Avoiding deprivation and hardship

Unemployment rate

GDP per capita

Income inequality

7.0

6.7

6.2

3.9

9.0

5.9

7.5

7.3

7.3

6.7

Micro Index includes measures of:

Financial capability: short-term planning – this domain considers how well respondents manage their money on a day-to-day basis, including how closely they keep track of their money and how well they budget.

Financial capability: long-term planning – this domain considers how much money people have saved for a rainy day, as well as provisions for their retirement.

Savings, assets and security – this domain takes into account the number of savings products and other assets respondents have, as well as the total amount of money they have saved. It also includes a question on the number of different insurance products respondents have.

Steering clear of financial difficulty and debt – this domain looks at use of alternative credit, whether respondents have been able to make the minimum repayments on credit commitments, and whether or not they have been able to pay household bills at final reminder.

Financial inclusion – this domain looks at respondents’ access to various banking, savings and insurance products.

Avoiding deprivation and hardship – this domain looks at respondents who have had to ‘cut back’, ‘go without’ or find extra sources of income to make ends meet. Scores are also affected by respondents’ ability to pay their bills and by common problems in their home, such as damp, mould or a leaky roof.

Macro Index includes measures of

Unemployment Rate – the proportion of the economically active population aged 16+ that is unemployed. A low unemployment rate of 4 per cent scores 10 on the Index (very financially well), while an unemployment rate of 9 per cent scores 0 on the Index (very financially unwell).

Gross Domestic Product (GDP) per capita – a measure of average income per person in the country. This is adjusted for Purchasing Power Parity, which takes into account the cost of living in different countries. The specific data used, taken from the World Bank, is also held in constant 2011 international dollars to ensure that different years are comparable, regardless of exchange rates. As GDP per capita in the UK tends to only rise in the long-term in absolute terms it was deemed necessary to use the annual percentage change in GDP per capita in the construction of the Index. This means that the Index looks at the pace of growth (or decline) with annual growth of 5 per cent scoring 10 Index points and annual decline of 5 per cent scoring 0. A static economy, with no annual growth or decline, therefore scores 5 on the Index.

Gini coefficient of income inequality – an internationally used measure of income inequality within a country. It is based on how equally or unequally income is distributed across a population and is calculated by comparing the actual distribution of income with a theoretical perfectly equal distribution of income. A Gini coefficient of 0 represents perfect equality (in which 10 per cent of the population receive 10 per cent of the national income, 50 per cent receive 50 per cent, etc.) whilst a coefficient of 100 represents perfect inequality (in which just one person receives 100 per cent of the income). Based on the coefficient’s highest and lowest values since 2000 (±10 per cent), it was calculated that a Gini coefficient of 39.6 (relatively high inequality) should score 0 on the Index, while a coefficient of 28.9 (relatively low inequality) should score 10.