You see the news stories all the time. Researchers at a prestigious university or think tank have studied a financial issue and found ways to benefit consumers. All consumers have to do is heed the advice and alter their behavior.
But do we? Often we don't, not because we don't want to reap the benefits but because the news about this particular study doesn't crack through our wall of consciousness. And a lot of that has to do with the way consumers consume news and information these days.
Not long ago consumers got their news from an evening television newscast or by reading their local newspaper. If the news of the study happened to be covered that day, maybe we would see the story and become aware of the study. Things are different today.
News Smörgåsbord
Matt Ragas, as assistant professor of communications at DePaul University, says consumers today pick and choose the news they want to consume, often based on their interests and current set of opinions. If we aren't looking for information about this particular issue, we might ignore the story. And then, sometimes we might not quite understand what we're reading.
“The biggest issue I see is that the advice contained within is less likely to be heeded if the implications and repercussions aren't fully understood,” Ragas said. “For me, this comes down to the lack of financial literacy among the general public. This is a major issue that many are trying to address. ”
For many of the experts we queried on this topic, financial literacy emerges as an overriding issue. The lack of it, they say, has placed millions of consumers with mountains of credit card debt. It may have been responsible for some buying houses they couldn't afford, leading to the wave of foreclosures that nearly brought down the banking system.
For Lisa Cook, an economics professor at Michigan State University, the problem starts with the basics.
Working Without a Budget
“Consistent with other studies, I find that only 62% [of consumers] have budgets, a summary of at least expenditures,” Cook said. “Most states offer financial education in high school, and most, if not all, such courses suggest the adoption of a personal or household budget.”
But knowing what to do and actually doing it are not the same. And sometimes the results can be disastrous.
“For example, it is lamentable that respondents in the survey I used drew down their retirement savings for 401k's and similar plans in 2010 for purposes unrelated to retirement, ” Cook said.
Suzanne Shu, an assistant professor at UCLA's Anderson School of Management, thinks it may, in fact, come down to follow-through. The financial study may get their attention, tell them what they should do and make a persuasive case. But behavior doesn't change.
“We know, for example, that this has traditionally been the case for encouraging people to save more for retirement – workers regularly reported an intention to save more but then found it difficult to actually make the change,” Shu said. “For example, Choi et al. (2004) report a survey of workers who admit that they are under-saving for retirement: 35% express an intention to increase their savings rate in the next few months, but 86% of this group have made no changes to their savings plan four months later. ”
Online Tools
Are there ways to make better use of these studies, to help consumers implement their lessons? Cook believes there are. She has worked with colleagues to develop online tools for consumers to evaluate their financial fitness. They have concluded that social media and online resources in conjunction with in-person courses and coaching maximize consumer impact.
Gulden Ulkumen, an assistant professor at the USC Marshall School of Business, says the information needs to be presented in a simpler form, making it accessible to the largest number of consumers. After all, with mounting debt and declining incomes, consumers need to be armed with the best financial information. Making mistakes with money is now more costly than ever.
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