Why do men and women make different financial choices? CBS researcher receives prestigious EU grant to find the answer

Differences in financial behaviour between genders are well-known. For example, women are generally less likely to invest in stock markets. Additionally, women on average have lower pension savings than men, while men often have larger debts with the exception of student loans.

But why do these differences arise? Arna Olafsson, Associate Professor at the Department of Finance at CBS, has just received a ERC Starting Grant to find the answers.

Understanding what drives gender differences in financial choices is urgent and important because financial decisions impact every stage of life

- Arna Olafsson, Associate Professor at the Department of Finance at CBS

The grant of approximately DKK 11 million are intended to foster the next generation of leading independent researchers in Europe. These grants are awarded to outstanding scientists who have demonstrated significant maturity and promise shortly after completing their doctorate, and whose projects are expected to yield groundbreaking results.

Together with a research team, Arna Olafsson will examine the underlying reasons why men and women make different financial decisions. The goal is to create a unique data set and use it to identify key contributing factors to the financial gender gap.

“Understanding what drives gender differences in financial choices is urgent and important because financial decisions impact every stage of life,” says Arna Olafsson.

Will uncover the hidden causes behind gender inequality in economic decisions

Although the topic has been widely debated, there is still a lack of evidence-based knowledge about what causes the significant differences between men’s and women’s financial decisions.

“The existing literature on the financial gender gap has been limited to investigating a narrow set of potential drivers at a time. This has made it difficult to assess whether the differences are due to these factors alone or if there are unobservable confounding elements at play,” explains Arna Olafsson.

For example, existing research suggests that a large part of gender differences in labour market success can be attributed to women becoming mothers, rather than solely due to their gender. However, it has not yet been investigated how parenthood might affect financial choices. Furthermore, it has been previously established that men and women differ along various dimensions that may influence financial choices and that their financial choices are different, but it has been difficult to establish a causal relation so far.

Economic pitfalls hit women particularly hard

Knowledge about how both gender and parental identities influence financial choices is very important, both for individuals and society, Arna Olafsson points out.

“Many people make financial decisions that can have significant consequences for their economic welfare, and it often turns out that these choices are not optimal.”

For example, many fail to invest in stock markets, and when they do, they often choose a too-low proportion of stocks in their portfolio. Additionally, their investments are often characterised by an excessive focus on the domestic market and a lack of diversification, with many having too much of their savings in their own employer's stocks. Moreover, many do not refinance their mortgages, even though it could be financially advantageous, and young people generally save too little for retirement. At the same time, it turns out that many retirees spend their savings slower than what might be necessary.

These challenges particularly affect women. Research shows that women are often more hesitant to take risks in their investments, which can result in lower returns and less robust savings for the future. This amplifies the economic differences between genders and makes women particularly vulnerable in terms of their long-term financial security.

“As the responsibility for retirement savings increasingly shifts from employers to individuals, understanding these differences becomes even more urgent. It is well-known that women generally save less for retirement, and this gap could widen if the financial choices women make result in lower returns,” says Arna Olafsson.

Essential knowledge for policymakers in the fight for gender equality

The project has the potential to revolutionise our understanding of how gender influences financial decisions and could provide important inputs for policymakers working towards gender equality

- Arna Olafsson, Associate Professor at the Department of Finance at CBS

To find answers to the underlying reasons why men and women make different financial choices, Arna Olafsson will use detailed banking data combined with experimental methods.

“Gender is associated with many factors, and it is impossible to answer these questions without combining detailed administrative data, experimental data, and natural experiments. This will enable the identification of the factors that truly contribute the most to the financial gender gap,” she explains.

The project, which is based on collaboration with Landsbankinn, the largest bank in Iceland, starts in 2025 and is the first of its kind to investigate how both gender and parental identities influence financial preferences and decisions. Arna Olafsson hopes that the results will form the basis for both future research and policy initiatives.

“At the moment, it would be difficult for policymakers to reduce the differences since we do not yet have a clear understanding of what drives them. However, my results will make evidence-based methods a feasible option,” she says. She thus expects that the new insights will lead to significant improvements in the methods that may be used to combat the financial gender gap.

“The project has the potential to revolutionise our understanding of how gender influences financial decisions and could provide important inputs for policymakers working towards gender equality,” she concludes.

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Contact:

Arna Olafsson, Assosiate Professor, ao.fi@cbs.dk

Martine Mengers, journalist, CBS, mm.slk@cbs.dk