This battle of the sexes has no winner

This post is from staff writer Richard Barrington.

Information services company Experian recently released a study comparing the debt status of men and women. The angle Experian highlighted for their press release was that the study demonstrated that women are better at handling their finances then men, and indeed, the numbers bear this out to some degree. But that’s not the most striking thing about the study.

Actually, a couple things struck me when I looked at the numbers. The first thing is how surprisingly similar the credit status of men and women actually is. The second thing is that neither set of numbers looks especially good.

Credit differences between men and women

Here are some of the contrasts highlighted by the Experian study:

• Men tend to opt for larger mortgages than women, with an average origination amount for men of $187, 245 compared to $178, 140.
• Men also carry larger non-mortgage debt balances than women. Between credit cards, auto loans and personal loans, men owe an average of $26, 227, and women owe an average of $25, 095.
• Men use more of their available credit card limits, at 31 percent of available credit compared to 30 percent for women.
• Men are more likely to be more than 60 days late with their mortgage payments. This delinquency rate is 5.7 percent for men, compared to 5.3 percent for women (these figures include mortgages issued independently to men or women, and not joint mortgages).
• Men’s credit scores are a little lower on average than women’s. Men had an average score of 674, while women had an average of 675.

Now, I look at financial data almost daily, and I’m used to discerning the significance in fairly subtle numerical differences. Still, I have to say, most of the above differences do not strike me as significant at all — especially the single point differences in credit scores and credit utilization ratios.

Even the apparently larger differences in mortgage size and consumer debt outstanding amount to less than 5 percent. To put that in perspective, as Experian points out in its press release, women working full-time earn 23 percent less than men. You could argue, then, that men tend to take on lower debt burdens than women relative to their respective incomes.

On the other hand, women should get credit for having lower mortgage delinquency rates despite their lower incomes. The point is, as I parse these numbers, I find more similarities than differences, with some mild advantages on either side. What bothers me, though, is what the numbers say about the financial management of both men and women.

Why nobody wins

While you can argue about whether or not the Experian survey shows that women really do manage their money better than men do, what’s clear from the data is that neither sex does a particularly good job. Just think about some of the numbers posted above.

First of all, there’s that personal debt burden of $26, 227 for men and $25, 095 for women. Remember, that doesn’t include mortgages. People with debt burdens like that will take a long time to climb out of the hole; it will likely be even longer before they can start to amass some serious retirement savings.

Second, large as those debt totals are, both men and women have only used about a third of their available credit. That means that credit card companies are content to let these people go even more heavily into debt.

Finally, there are those average credit scores of 674 and 675. These are both well below the threshold of 700 which Experian defines as an indication of good credit management. In other words, the average American, whether man or woman, does not show good credit management and is likely to have to pay higher interest rates as a result.

A good time to pay down debt

One of the obstacles to advising people to pay down debt is that by lowering interest rates so drastically, the Federal Reserve has done everything in its power to make borrowing attractive and saving unattractive. However, a closer look at interest rates shows that not all interest on debt is particularly attractive.

For example, since the end of 2008 credit card rates have fallen by an average of just 0.56 percent. That’s not such a good deal, and in a world of 3.5 percent mortgage rates and 0.10 percent savings account rates, 13 percent credit card rates seem out of step.

Besides that, with interest rates rising lately, this is an especially good time to pay down variable-rate debt. Those who don’t will see their debt burdens become more difficult to manage.

Higher expectations

When men and/or women start showing more reasonable debt burdens and higher credit scores, we can start arguing about whether one sex is better than the other when it comes to financial management. In the meantime, both get a failing grade, so arguing about differences seems relatively trivial.