While financial literacy helps both men and women overcome the long-term economic shocks of divorce, the positive impact for women is significantly higher according to a new Griffith Business School study.
Researchers used 16 years (2002-2018) of wealth data from the Household, Income and Labour Dynamics in Australia (HILDA) survey to investigate the effect of gender gaps on men and women’s net wealth post-divorce and whether financial literacy mitigated negative impacts.
They found that for both genders, having above average levels of financial literacy was a beneficial long-term factor in maintaining net wealth after divorce, but the effect was about double the magnitude for women.
After 16 years on from a divorce, women’s net wealth increased to about $238,330 compared to only $104,614 for men.
Co-author Dr Tracey West from Griffith Business School says the study is the first to quantify the financial impact of divorce on wealth in Australia and identifies the pathways for gaining and losing wealth over time.
“Over time, both genders experience increasing net wealth losses that peak eight years on from a divorce,” she said.
“Even though women experience the highest loss in net wealth overall, they recover much faster after 12 and 16 years compared to men with the same level of financial literacy.”
She said it was important to recognise that it takes at least 12 years to start financially recovering from divorce.
“During that time affected people are likely to be quite financially stressed, with men more adversely affected than women. These people will need help to set goals and plan for a better financial future.”
Free, unbiased financial counselling needed
Dr West said their findings also provides practical wisdom for policy makers, financial educators and workplaces to encourage good financial literacy, particularly for people living hand to mouth.
“People on lower incomes don’t have the capacity nor the opportunity to make, practise and learn from investment decisions compared to people on higher incomes which is strongly associated with higher financial literacy.”
“Investing in financial education programs is an investment in financial resilience, particularly for women.”
“These programs also need to be available over the life cycle, at school, at university and in workplaces.”
The study also identified that women with good levels of financial literacy preferred to invest in the family home, property and superannuation over other investable assets like stocks.
“More research is needed to increase women’s confidence with equity investments, but there’s an opportunity for banks and superannuation funds to give personalised support and education to assist women in actively choosing beneficial long term investment options.”
Australian women with good financial knowledge fare better in divorce is published in the Australian Journal of Management and co-written by Dr Tracey West and PhD candidate Elizabeth Mitchell.