The history of women and loans

Financial equality for women in the U.S. has come a long way, but there’s still progress to be made. According to an analysis by the Pew Research Center, the pay gap between men and women has been narrowing in recent years, but women still earn about 82 percent of what men earn.

This gender pay gap can make it harder for women to secure competitive rates when applying for loans and impact their ability to repay them. To fully understand how gender affects borrowing for women, it helps to look back at some key milestones in the history of women, money and credit.

1848: Married women can control their own property

Until 1848, married women couldn’t own any real estate — a woman’s husband had control over any piece of property that she owned. In addition, women could not acquire property when married. Only single women were allowed to own real estate.

These laws began to slowly change in 1848 when New York passed the Married Women’s Property Act, which allowed married women to own property. Most states had adopted this law by 1900.

Impact on women using loan products

The right to own property was a significant leg up in a woman’s ability to build wealth and opened the door for married women to start to gain financial independence. While women would eventually begin participating more in the financial world and the lending market, financial progress for women remained relatively stagnant in the U.S. for decades, and women would not gain fair access to loan products until much later.

The 1960s: Women can open bank accounts

Women in the U.S. began to have legal access to banking products in the 1960s. However, many banking institutions still wouldn’t let women open a checking account, get a credit card or apply for a loan or mortgage without a male co-signer.

Impact on women using loan products

Having access to banking institutions technically gave women the right to access loan products, but lender discrimination largely prevented women from participating in the market. This was, however, the start of women being able to actually build credit under their names.

1963: The Equal Pay Act

The Equal Pay Act of 1963 prohibits employers from paying men and women differently for comparable work. This law coincided with women beginning to have access to their own bank accounts for the first time.

Impact on women using loan products

The gender pay gap was and still is a significant barrier for women in building wealth and participating in the financial market. While the Equal Pay Act improved payment practices among employers, gendered differences in wages still exist today. This not only affects women’s access to more affordable loans, but also how they use the funds.

1972: The Equal Rights Amendment

The Equal Rights Amendment was approved by Congress in 1972 and would have formally recognized “equality of rights under the law” for men and women at the federal level. An amendment must be ratified by 38 out of 50 states to become law, and it was ratified by only 35 states at the time. Virginia became the 38th state to ratify this amendment in January 2020, but whether the amendment will be formally recognized is still under debate.

Impact on women using loan products

The Equal Rights Amendment would have formally recognized sex as a suspect classification like race, religion and national origin. This would have opened up many institutions and structures to increased scrutiny in order to ensure that gender-based discrimination is not taking place.

This law has always been widely debated, and its future remains uncertain. Since this amendment has not been made law at the national level, gender-based inequity in the financial world and in the lending market remains.

1974: The Equal Credit Opportunity Act

The Equal Credit Opportunity Act (ECOA) of 1974 was a turning point for women in America and their financial futures. Before the ECOA, women generally could not take out loans without a male co-signer, and lenders often saddled female borrowers with higher interest rates and larger down payment requirements. This law prohibited lenders from requiring male co-signers or treating women differently in any way during the loan process.

Impact on women using loan products

The ECOA was instrumental in opening the lending market to women and giving them a better chance to gain equal footing with men. In the years since the ECOA was passed, women in the U.S. have come a long way building credit.

Now, data from Experian shows that the average credit scores for women and men are nearly identical. Men and women also take comparable amounts of debt through personal loans, student loans, auto loans and home equity lines of credit.

2007: The Great Recession

Women were among the first to lose their jobs during the financial recession of 2007 to 2009, and they were disproportionately impacted by the ensuing mortgage crisis due to being more likely targets for subprime loans.

Women are slightly more likely to be targeted by predatory lenders, especially lower-income women and women of color. These lenders tend to prey on people during times of economic downturn, such as the recession.

Impact on women using loan products

The Great Recession and ensuing mortgage crisis left many Americans strapped for cash and drowning in debt. For American women, who were already behind financially and were amongst the first to lose jobs, this crisis elevated the risk of predatory lending and falling into an endless debt cycle.

The present day

Today, the way in which men and women use loans differs significantly. Research from American University found that women are generally more likely to use loan funds for emergency and practical expenses, while men are more likely to use these funds for luxury expenses. This could be why, on average, men have 20 percent more personal loan debt than women.

Student loan debt is the one area where women borrow more than men. According to a study by the Federal Reserve Bank of St. Louis, a larger number of women borrow money to pay for college (47 percent) compared to men (40 percent). Not only that, but women also take longer to pay off their debt, while borrowing larger amounts.

This is due to several factors, including the fact that women-dominated occupations tend to come with lower wages and gender discrimination in the workforce. What’s more, that same study  found that parents save more for their sons’ college education than for their daughters’.

Another report by the Federal Reserve Bank of Philadelphia found that banks tend to give higher credit card limits to men than women — a gap that has been consistent over time and has widened since the Great Recession.

On the bright side, research by the Pew Research Center shows that in the last couple of years, the wage gap between men and women has been decreasing. There’s also been a surge in platforms to help women get ahead in the financial world.

Platforms like Ellevest and Clever Girl Finance offer access to courses, coaching and other resources to promote financial literacy and growth amongst women, despite the challenges they may face.

The next steps

There are several things that can be done to further promote gender equality in lending. For one, research shows that there is a direct correlation between the labor force participation and financial inclusion — meaning that the more women participate in the labor force, the more they can participate in the financial world.

Opening doors for women to senior- and executive-level positions will also help shrink income disparities in the U.S. and make it easier for women to access affordable credit.

Some government offices have also started launching new programs and initiatives to support women in their financial journey, as a way to help bridge the gender gap. However, these are just baby steps — more needs to be done to bring women closer to achieving financial equality in our country.