Debt matters: Women use credit to bridge income gaps, while men are less cautious

When it comes to attitudes about money matters, gender often makes a difference. Take high-risk investments — research shows women tend to be more cautious than their male counterparts.

With debt, however, little is known about how gender plays a role. A new study on attitudes about debt shows that men have greater tolerance for using debt to buy luxury items, while women are more accepting of debt used in appropriate ways, including to bridge income gaps. The study is published in The Journal of Consumer Affairs.

"We found that gender absolutely influences attitudes about debt," said Mary Eschelbach Hansen, a study author and American University economics professor. "When women observe others facing financial troubles or unemployment, or when women themselves have these experiences, they come to view debt as a tool to help smooth consumption. And, in general, they are less tempted than men to use debt to buy luxuries."

Using consumer survey data from 2004-2013, the researchers examined whether women and men had differing tolerances for debt and if economic events, both recent and in the past, affected their feelings about taking on debt. The researchers chose to focus on analyzing the survey data of women and men who had never been married.

Hansen and her colleagues Erin E. George, assistant professor of economics at Hood College, and Julie Lyn Routzahn, associate professor of economics and business administration at McDaniel College, measured the difference in men's and women's responses to questions about their attitudes towards borrowing money for luxury purchases and towards covering living expenses when income is cut. They also considered whether people taking the survey had recently been unemployed or had difficulty making debt payments. The researchers used changes between the annual surveys to measure how living through the Great Recession affected women and men.

The Great Recession and women

During the Great Recession, a period of global economic decline that began in 2007, women in the U.S. lost jobs early on. Declining tax revenues led to austerity measures that disproportionately affected women working in the public sector and those who received public benefits. The Great Recession is the only recession since 1973 during which women experienced substantial job loss. The subprime mortgage crisis was also gendered, as women were more likely to be targeted by lenders to receive subprime loans.

"As women observed the negative effects of the mortgage crisis and the Great Recession on other women, it reinforced their beliefs to use credit to bridge gaps in income. But perhaps more importantly, the experience of the Great Recession made women more cautious about taking on debt for non-essentials. This attitude of caution is a central reason why their financial position improved relative to the position of men," Erin George said.

For example, the researchers note that in the 2010 survey, the monthly debt burden of never-married men was higher than the burden carried by the typical never-married woman.

Study implications

The findings are good news for women, the researchers contend, because if women mainly use debt to smooth consumption, they can safeguard their well-being. If personal difficulties reduce women's willingness to borrow for luxuries, then there may be improvement in their financial stability. They have greater potential to acquire assets, thus reducing financial insecurity in old age. As the main findings concern women who have never married, improved financial stability increases the bargaining power of women entering marriage, thus reducing domestic abuse and divorce, while improving outcomes for children.

The findings also suggest that education about debt management should be spread across adulthood and that gender-specific education may be more effective than a gender-neutral curriculum.

"Lifetime financial education is important," Julie Routzahn said. "People's attitudes change over time as things happen to them and in the wider world. Women, in particular, tend to have lower wages and assets. Focusing on financial education for women at critical junctures in their lives, when they may benefit from such education, should be considered. Critical junctures could include, for example, when women are applying for unemployment insurance. That would be a good juncture because we know women are strongly affected by those experiences."

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American University is a leader in global education, enrolling a diverse student body from throughout the United States and nearly 130 countries. Located in Washington, D.C., the university provides opportunities for academic excellence, public service, and internships in the nation's capital and around the world.

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Rebecca Basu
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