What determines the financial decisions we make throughout our lives—like choosing a mortgage, saving for retirement, or deciding whether to invest? In the latest episode of Talking Economics, we explore these questions with Marta Cota, a CERGE-EI PhD alumna and Assistant Professor of Finance at Nova School of Business and Economics in Lisbon.
Why Financial Literacy Matters
One of the key insights from Marta’s research is how financial literacy—especially among women—evolves throughout life. While men tend to maintain relatively steady financial literacy levels, women often experience significant learning gains over time, particularly following major life events such as divorce, widowhood, or inheriting money or a business. These milestones tend to trigger greater financial awareness and independence.
However, women who remain married are less likely to show similar improvements. U.S. data reveals a common division of financial responsibilities within households: women usually manage everyday expenses, whereas men tend to handle longer-term investments. This division can limit women’s exposure to crucial skills like financial planning and investing—skills that are essential for building wealth.
Confidence is another critical factor. Even when women answer financial literacy questions correctly, many report low confidence in their knowledge, which discourages them from taking more active roles in managing and investing money.
Mortgages and Financial Literacy
Marta’s work also uncovers important patterns in mortgage borrowing. Borrowers with low financial literacy tend to search less extensively for mortgage options, considering fewer lenders. This limited search behavior often results in higher interest rates and a greater risk of delinquency.
“Financially illiterate borrowers don’t explore as many options. They face a cognitive cost when searching, which reduces the effort they invest in shopping around. As a result, they often end up paying more—even when better deals are available.”
To capture this dynamic, Marta developed a model incorporating the “cognitive cost of search,” which is closely linked to financial literacy. In the U.S., mortgage markets include many lenders—especially non-bank lenders who operate under looser regulations. These non-bank lenders bundle mortgages into securities and sell them on secondary markets, reducing their incentive to focus on borrower outcomes, which adds complexity to borrowers’ decisions.
In Europe, mortgage market structures vary widely by country. Some countries favor fixed-rate mortgages, while others—like Sweden, Spain, and Portugal—primarily use variable-rate loans closely tied to monetary policy. In countries with fewer lenders, such as the Netherlands with around eight major banks, the search dynamics differ considerably from the U.S. scenario.
Marta emphasizes the importance of understanding who chooses fixed versus variable-rate mortgages, particularly because variable rates can pose significant risks without clear expectations of future interest rates. She is keen to explore this further using European Commission survey data to shed light on mortgage search behavior across countries.
Gender Gaps in Savings and Investment
Marta’s research also highlights the persistent gender gap in retirement savings. Beyond earning less, women tend to invest more conservatively, favoring lower-yield financial products due to greater risk aversion. Over time, this results in slower growth of women’s retirement savings, potentially leaving them financially disadvantaged in retirement.
Her findings show that men, on average, achieve better returns on their retirement contributions—not only because they contribute more but also because of different investment choices. This underscores that improving women’s financial outcomes requires more than closing the wage gap; it also means empowering women to make confident, informed financial decisions.
When Education Works Best
This leads to a critical policy insight: timing matters. While financial literacy education in schools is valuable, Marta argues that education is most effective when delivered at moments of real financial decision-making. Key life events—such as buying a first home, going through a divorce, or immigrating to a new country—create natural motivation to learn and make sound financial choices.
Research shows that traditional financial literacy courses often have only short-term effects. Although people might retain test knowledge immediately after a course, applying that knowledge in real-life situations is challenging. Well-timed, context-specific interventions can therefore have a greater and longer-lasting impact than broad, one-size-fits-all programs.
Looking to Europe
While much of Marta’s research focuses on U.S. data, she is increasingly turning to Europe, where countries like the Netherlands and Italy are beginning to collect detailed data on household finances and financial literacy. This opens new opportunities to understand local financial behaviors and challenges.
Marta sees particular potential in tailoring financial education for immigrants, who often face unique hurdles related to cultural or religious beliefs—for example, views on interest or debt that may influence how they interact with financial systems. Culturally sensitive financial education could help close these gaps, promote better integration, and improve financial health.
Tune in to the episode on Spotify, Apple Podcasts, or YouTube.
Marta Cota is a tenure-track Assistant Professor at the Finance Department at Nova SBE in Lisbon. She holds a Ph.D. degree in Economics from CERGE-EI. Marta’s research sits at the crossroads of macroeconomics and household finance. Her work focuses on the everyday decisions households face and the long-term effects these choices can have. She offers insights into how financial literacy and expectations influence outcomes, and what we can do to improve them.
