Aging and Strategic Learning: The Impact of Spousal Incentives on Financial Literacy

In the U.S., women tend to have lower levels of financial literacy than men. This is consistent with a household division of labor in which men manage finances. However, women also tend to outlive their husbands, so they will eventually need to take over this task. Using a new survey of older couples, I find that women acquire additional financial literacy as they approach widowhood. At an estimated increase of 0.04 standard deviations per year approaching widowhood, 80% of women in my sample would catch up with their husbands prior to the expected onset of widowhood. I also demonstrate that these findings are due to actual increases by women and are not merely an artifact of cognitive decline among older men. These results are consistent with a model in which the household division of labor breaks down when a spouse dies. The model shows that women have an incentive both to delay acquiring financial knowledge and also to begin learning before widowhood. This paper represents the first empirical examination of the financial literacy of both members of couples and provides a life-cycle interpretation of the gender gap in financial literacy.