The gender gap in financial distress

Abstract

ABSTRACT In this study, we investigate the gender gap in personal financial distress within the United States. Our study commences with a rigorous quantification of the gender disparity in financial distress, employing Logit regressions. Additionally, we perform a standard meditation analysis to dissect potential channels of income shocks and financial choices as well as their relative contributions to the gender disparity in financial distress. Leveraging data from the NLSY79 CYA panel, we empirically uncover that women are associated with a higher likelihood of experiencing financial distress than men. Furthermore, we provide evidence that women’s susceptibility to adverse income shocks and tendency towards making suboptimal financial choices are two potential mechanisms, with the latter accounting for a higher proportion in the identified gender gap than the former. Our findings are confirmed by various robustness checks including exploring other financial distress dimensions, accommodating additional personality traits, employing targeted subsample analyses, performing heterogeneity tests, using clustered standard errors at the regional level, and switching to an alternative sample. Our study sheds light on the effect of gender in personal financial fragility and the role of gender gap in economic outcomes.