The negative spiral of low financial self-confidence in women

A common thread that runs through much of women’s financial lives is their low level of self-confidence. As an example, see my earlier posts here and here. And yet, does it really matter for the “hard stuff”, i.e., real financial outcomes, that their self-confidence in financial matters is lower? Is it just a quaint gender-based personality quirk that can be safely ignored while we get to the hard business of helping women grow their assets?

Not so fast. Research now shows that this “soft” factor has quite a “hard impact” on financial outcomes for women, and not in a good way either. But before we dive into the details, a quick tutorial: in this post, I am using the term “financial self-confidence” as a loose synonym for the more accurate term “financial self- efficacy”.

Self-confidence vs. self-efficacy: belief in one’s power to act

Self-confidence is a looser term that connotes a broad positive view of one’s own self-worth, including the belief that one will succeed at an endeavor. But self-efficacy in behavioral science is a more precise construct: it denotes the perception of one’s own ability to reach a goal.

What does self-efficacy entail? It entails your belief that you have the capability to act on your own behalf to achieve the goals you have set for yourself: it is the belief that you have control. In other words, you might be fully aware that you don’t have all the skills or capabilities in the present to achieve your goal, but you believe that you can acquire them over time to do so. Why does this matter? This belief in your ability to bridge the gap is key because it is the driver that spurs action. Without this, you’d simply give up any time you are not already where you need to be, and lack some skills to get there. After all, if you don’t think you have what it takes and cannot get it, why bother?

Self-efficacy is also specific to a domain: for example, you may have high self-confidence in general, but low self-efficacy in financial matters because you don’t believe that you have the ability to reach your goal when you don’t have all the pieces in place right now.  The rest of this post will use the term “financial self-confidence” interchangeably with this more accurate technical term.

Photo by Samuel Clara

The data speaks: the real impact of financial self-efficacy in women

Three researchers at the School of Economics at RMIT University in Australia wondered whether financial self-efficacy matters. They wanted to know if financial self-efficacy matters more than financial literacy. Their findings: It does, and by a lot.

In their interesting study, they discovered that :

  • Financial self-efficacy is one of the strongest predictors of the type and number of financial products that a woman holds.
  • Women with higher financial self-efficacy – that is, with greater self-assuredness in their financial management capacities – are more likely to hold investment and savings products, and less likely to hold debt-related products.
  • Even in comparison to other important factors such as education, financial risk preferences, age and household income, financial self-efficacy is found to be a significant predictor of women’s wealth-related product holdings.

The risk here is obvious: low financial self-efficacy is associated with behaviors that result in lower asset accumulation, further cementing negative self-beliefs. The cycle continues unbroken, with unfavorable or even tragic results over the long-term for women.

The bottom line? Whether for yourself or for any female clients or customers you serve, increasing financial self-efficacy is likely to have a powerful impact on the things that matter – including an increase in wealth, and greater use of investment and other accumulation products and services. And what’s even better is that investing in self-efficacy doesn’t have to cost a lot.

How to increase self-efficacy: guidance from science

So what can be done to increase financial self-efficacy? Is it a fixed attribute?

Albert Bandura was a trailblazing researcher at Stanford University, and the father of the science behind self-efficacy.  His most impactful contributions to the field of behavioral science included not only his findings on the attributes of self-efficacy, but also insights on how self-efficacy in a domain can be enhanced. Here, then are the four proven methods,  according to Bandura, that increase self-efficacy in any domain, including managing money:

  1. Personal experiences of success: In simple English, experiencing  early wins. Simply starting with baby steps and personally experiencing successful accomplishment is one of the simplest and most powerful ways to increase financial self-efficacy. From a provider’s viewpoint, this can be easily accomplished, for example, by offering starter checklists or action plans even within their marketing materials, or early in the engagement with clients or customers, so that the user immediately starts experiencing wins, and associating them with the provider (in addition to the subject matter).
  2. Vicarious experiences: Next to experiencing successes personally, the next best thing is to see the success of others, especially those that resemble oneself most closely in demographics or other important aspects of self-identity. For example, if women see stories, case studies or examples of other women just like them experiencing successes, overcoming challenges, and accomplishing the goals that they have set for themselves, it can go a long way in improving their self-efficacy without huge individual-level effort or cost. This effort has the potential to reap rich rewards by focusing on key demographics or segments even in providers’ marketing messages, an expense they are already incurring today.
  3. Verbal persuasion:  Also known as the “pep talk”. Simply receiving constructive and encouraging verbal messages that urge the user towards action and success will help drive self-efficacy higher.
  4. Mood and psychological states:  The state of mind at a given moment is likely to impact self-efficacy. So an individual in a state of anxiety will have lower self-efficacy than someone who is not in an anxious state. Given that finances are an area that are likely to trigger anxiety in many individuals, and perhaps more so in some women, efforts to consciously engender feelings of optimism and hope are likely to pay rich rewards and create positive outcomes for all parties at the table.

Specifics of the application will vary, but the overall message is clear: pay attention when women demonstrate low financial self-confidence. Investing in improving financial self-efficacy is a win-win for everyone.


  1. Wikipedia entry on self-efficacy:

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