June 28, 2011
Hubris Hampers Education Efforts
Most people think they’re above average when it comes to financial knowledge. And it’s not easy to educate people who think they know more than they actually do.
But hubris – or something like it – is what financial educators are up against, indicates research by professors Annamaria Lusardi at the George Washington School of Business and Olivia Mitchell at the University of Pennsylvania’s Wharton School. Their paper used data from 1,200 respondents to a survey they conducted for the Investor Education Foundation or FINRA, the self-regulatory agency for the securities industry. It may be the most comprehensive study on Americans’ financial literacy.
Seventy percent of the survey’s respondents believe they know more about basic financial concepts than most other people. But they scored poorly on the survey’s three rudimentary financial literacy questions. One-third to one-half of them answered the questions incorrectly or indicated they didn’t know the answers.
The results “paint a troubling picture of the current state of financial knowledge in the United States,” the authors said.
Further, this low level of knowledge, when combined with overconfidence about that knowledge, does not bode well for attempts to educate people about money and their personal finances.
Before I provide more detail about Lusardi and Mitchell’s findings, take the quiz yourself. Here are the questions1:
May 11, 2011
High School Influences Life Knowledge
It’s been well-established that most people have low levels of financial literacy and struggle to manage and plan their personal finances. Now two Wisconsin researchers have taken the conversation to the next level by trying to explain why.
According to their study, featured in a webinar posted online today, the financial literacy of people entering retirement is significantly determined by high school IQ level or by whether the individual took high-level math classes in school.
University of Wisconsin professors Pamela Herd and Karen Holden arrived at this finding by analyzing 6,000 individuals from a unique longitudinal data set of people who graduated from Wisconsin high schools in 1957 – and were in their mid-60s at the time of the study. …Learn More
May 5, 2011
Choosing Financial Products:
Looks Do Matter
We like to think we’re rational about money. We go for the credit card or mortgage that has the lowest interest rate.
Think again. Our moods, emotions, and other reactions to aesthetic cues play a decisive role in financial decisions, according to innovative research by Suzanne Shu at UCLA and Claudia Townsend at the University of Miami.
“Everybody expects that it [aesthetics] is not going to influence them, so it’s extra surprising when it does,” Shu said in a recent interview.
The marketing professors’ results carry a message for anyone interested in financial literacy. Their research subjects thought twice about their decisions after receiving very subtle references to aesthetics. In other words, when people are alerted to their unconscious reactions to how something looks, they adjust their thinking to guard against being overly influenced by the aesthetics. …Learn More