Photo by Brooke Lark

A common thread that runs through much of women’s financial lives is our general low level of self-confidence. Are you guilty of this too? Do you feel you don’t quite know enough and aren’t smart enough to understand all “that complicated financial stuff”? If yes, listen up, because it could be costing you real money.

Does your low self-confidence in the financial domain really matter for the “hard stuff”, i.e., real financial outcomes, you might ask. Is it just a quaint cultural or gender-based personality quirk that can be safely ignored while we get to the hard business of earning, safeguarding and growing our money?

Don’t write it off quite 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, here’s a quick but interesting psychology primer for you: in this post, I am using the term “financial self-confidence” as a loose synonym for the more accurate term “financial self- efficacy”.

Self-efficacy is the belief in your power to act towards your goal

Self-confidence is a looser term that connotes a broad positive view of our own self-worth, including the belief that we will succeed at an endeavor. But self-efficacy in science is a more precise concept: it denotes our perception of our ability to reach a goal we’ve set for ourselves.

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 that doesn’t prevent you from believing 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 an area of your life: 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. In the rest of this post we will use the term “financial self-confidence” interchangeably with this more accurate technical term.

Photo by Samuel Clara

How do we know that financial self-efficacy matters?

I’m a bit geeky so I love to dig into research studies that shed light on things we can do in the here and now on matters that have great practical importance. So I was delighted to find a research study that answers this question.

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.

Here’s what they learned in their interesting study:

  • Financial self-efficacy is one of the strongest predictors of the type and number of financial products that a woman holds. We all know that in general, we need to have at least a minimum number of financial products, particularly those relating to investment and wealth accumulation, if we are to have any shot at future financial security. So if you have low financial self-confidence, the chances are that you won’t be likely to find and get these investment products — you’ll potentially be shooting yourself in the foot as you seek greater financial security
  • 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. This is self-explanatory. If you want to get wealthy you need to have less debt and more tools that help your money grow. Increasing your financial self-confidence will predispose you towards having the kinds of instruments that will increase your wealth potential
  • Even in comparison to other important factors such as education, financial risk preferences, age and household income, the researchers found that financial self-efficacy is a significant predictor of women’s wealth-related product holdings. In other words, it doesn’t matter if you are well-educated or have high literacy about financial matters. If you don’t have financial confidence, it’s unlikely that you’ll go out and get the kinds of tools you need to grow your wealth and ensure your security.

The risk here is obvious: if you have low financial self-confidence, you are likely to do things that result in lower asset accumulation, further cementing your negative self-beliefs. The cycle continues unbroken, with unfavorable or even tragic results over the long-term.

The bottom line:

If you want to increase your wealth and chances of a secure financial future, taking steps to slowly increase your financial confidence is likely to pay rich rewards, for very little effort, cost and risk.

How to increase self-efficacy: guidance from science

Now that we have that out of the way, there comes the all-important question: if you do experience low confidence in financial matters, does that mean all is lost for you? Is it a fixed attribute, like your height for example, that you are pretty much born with?

Not at all — this is where the best of science comes in.

To find out how we can increase our self-confidence in any area of life, including financial self-confidence, let’s turn back the pages of time to visit a lab on the West coast of the USA in the later part of the twentieth century.

Albert Bandura was a trailblazing researcher at Stanford University, and the father of the science behind self-efficacy. Bandura was interested in the question of how to help people get over their fears and build confidence.

One of his most fascinating experiments had to do with helping people who had a fear of snakes get over that fear. The way he accomplished this magical feat gives us the secrets that we can apply to any area of our own lives: simply stated, he had the subjects start with the tiniest of steps, for example, seeing a photograph of a snake in an adjoining room. He continued this for many days until the subject had, unbelievably, gotten over that fear.

Once that became “normal”, he progressed them one tiny step , for example, bringing the photograph to the room they were in. Naturally, they were terrified at first. But after being exposed to this for several days, he continued this journey of progression until he had a live snake in an adjoining room. Finally, the subjects made so much progress that they were able to stay calm without fear when the live snake was brought into the very room they were in.

Can you imagine the power of that transformation? Yet, in that experiment lie the seeds that we can all plant within our own lives to master anything we fear that is important to us.

Bandura found that there were four sure-fire ways that can reliably increase your self-confidence in any area of life — and they are not that hard to implement:

  1. Small, continuous wins: Personally experiencing tiny, almost microscopic wins, and establishing a pattern of winning is the surest bet to increasing confidence. How can you do this with money? It’s simple. Rather than taking on your entire portfolio or this broad nebulous burden of your “finances” , try starting with one very concrete, simple, laughably easy and non-threatening action. For example, if you avoid looking at your 401k statements because it’s all Greek and Latin, your first step may be to just open each of the next 4 months’ statements and just look at it. That’s it. You’ll still not understand what all that means, but you will have established a pattern of continuous wins.
  2. Seeing others like you succeed: Next to experiencing successes personally, the next best thing is to see the success of others, especially those that resemble yourself most closely in demographics or other important aspects of self-identity. For example, can you seek out stories of people just like you (women, stay-at-home moms, whatever factors you use to create your own identity) who have mastered money, then the chances that you will see yourself as being capable of the same become much higher. Seek out stories, podcasts, magazine articles, YouTube videos of anyone who has experienced financial success. You’ll be amazed at both how much you find, and also at how much of a positive difference it makes on you.
  3. Pep talks: Simply hearing the words “you can do it” can have a powerful impact on your perceived and actual ability to master something. Find a friend or buddy who would love to give you these messages on a regular basis. Or write your own and stick them prominently where you see them often. Or better still, write out a highly positive and encouraging script that describes how you will ideally handle your money, record it on the memo app of your smartphone, and play it everyday when you drive or have dead time. I have personally done this for everything from losing weight to succeeding at work, and it worked wonders!
  4. Elevate your mood: How you feel at a given moment matters, a lot. So when you tackle financial matters, for example, when you are about to enroll in your annual health insurance plan, or make your 401k allocation, take an extra 10 or 15 minutes to get yourself in a positive and upbeat mood. Pet your favorite puppy or kitten, talk to your friend, read an inspiring story, or do aromatherapy: all that matters is that the method you choose puts you in an upbeat mood. Then, get down to your task and see how much better you fare, rather than if you had jumped right in, full of anxiety, with corrosive cortisol coursing through your veins.

Specifics of the application will vary, but the overall message is clear:

Pay attention to notice your own level of financial self-confidence. And take a small step today to improve it. The rewards will surprise you.

(Originally published on