Gender differences and measurement error in financial literacy

Abstract

We study gender differences in stock market participation and financial resilience, appropriately controlling for financial literacy, as suggested by Almenberg and Dreber (2015). Financial literacy is very difficult to measure accurately, and our proxies generally contain a random error that spills over to other correlated variables, such as gender. Our main results show that after addressing measurement error with the instrumental variable approach proposed by Gillen et al. (2019), the gender gap in financial resilience is substantially reduced and becomes statistically indistinguishable from zero. This evidence suggests that financial literacy surveys should be carefully designed to reduce measurement error, for example by including multiple elicitations of the same item and providing a panel component.