« Freakonomics Radio

58. What Do Hand-Washing and Financial Illiteracy Have in Common?

2012-01-19 | 🔗
Education is the surest solution to a lot of problems. Except when it’s not.
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in the MID Nineteenth century Vienna, General Hospital, considered a world class research center, but the hospitals maternity word didn't have such a good reputation. came known throughout the city of Vienna that if you went on to the doctors, division or the doctors clinic, you were much more likely to die. That's Sherwin, Newland he's a prick serve medicine at Yale. You wrote a book called the doctors plea about the situation at Vienna General Hospital in the early eighteen forties, one in ten women whose baby was delivered by a doctor. There died from was called child bed fever. Child bed fever is in section primarily of the the direction it spreads out through the tubes into the abdominal cavity of
and immediately after they have given birth in eighteen, forty, seven one in six women die. and that was a year- a young hungarian born doktor named ignites, some always joined the staff. He was horrified by the situation and he went digging in the numbers for a clue now here with something strange. There were two separate maternity wards in the hospital one staffed by doctors who are all male and the other by midwives, who were female. The death rate in the midwives ward was far lower. So was it a guy thing that was causing all this death? One theory at the time held that Birthing mothers were such fragile creatures that being seen naked by male doktor was enough to kill them. Some Alois didn't buy it. He also discovered that women who delivered their own babies on the street haven't you
lower rate of child dengue fever in those days. It would occasionally happen that woman out of wedlock would deliver herself terms in the streets. The Germans had a word for it Garson you border. They were street births and He was hard put defined. Anybody who died when a woman self delivered in Some always came to suspect the likely cause. These thousands of deaths, his fellow doctors, but how the answer came in the form of a tragedy, a colleague of some always as a doctor. He admired died after Then gangrene hid pricked his finger with a knife while giving a lesson in autopsy and so
why she was away on a brief occasion when this happened. When he came back, he began to study scrupulously the autopsy findings of his friend and noted that they were just like the autopsy findings of women with child that favour who were die. His conclusion doctors were carrying what he called invisible. Cadaver particles into the maternity wards. Better known today is back Terrier, but remember this is the mid. Eighteen, hundreds pre germ theory consider a typical morning of a student or a young doktor and training the very first. saying he would do in the morning was to go to the dead House, as it was often call, and to do an autopsy on one of the women who had died today before and when the abdomen is open
there is a sea of pass around the EU The surround the tubes, the young doktor, we'll put his head Hence in this he then probably wiped his hands on a towel, goes up to take on his regular duties, as obstetrician in train it. Some I am sure, have one hand beyond the patient's admin. Another movie vagina and he'll be feeling uterus with the two hands You can see all the opportunity for, in fact the inside of a woman's body with the cadaver particles invisible today. Particles made obvious only by their smell, some always figured you could get rid of the smell, he could get rid of the dangerous particles, so he or
every medical attendant who entered the doctors ward to submerged. his hands in a cloth greenwash before seeing patients within six months? The death rate of women in the doctors, Ward had Committed- and that was it- it was a simple- is that it was a dollar piece of medical detective work. Some always not only found the cause of death, but he figured out how to prevent it. So you know the rest of the story. It became standard seizure for doctors to disinfect their hands and they see, passing germs along the patient's right. Well, not exactly. Consider the results of a nineteen ninety six study from a pediatric hospital in Australia, doctors, self reported their hand, hygiene rate at seventy three percent, but great the still considering how busy doctors are could have been.
One problem them during the same time that those docks reported there rate at seventy three percent. The nurses were spying on to see what their actual handwashing rate was, and it turns out it was a pathetic nine, percent. Similar studies show that doctors are consistently worse at washing their here. Any other medical staff so what's going on here, doctors are human, Michael Lang, Burg is the chief medical officer at sea, sign a medical center in LOS Angeles sewers. something in the human condition that somehow disconnects what is really good evidence from personal choices and I dont know why that is I'm not a psychiatrist. My feelings, internal medicine- I just have the observation: physicians are no different, was disturbing about physicians,
since their human. You would expect them to have the same rate as everybody else, if not even greater rates without undue percent than other health care providers and at Cedars Sinai. I regret to reply so that the lowest rate, from W. Why see? An ATM american public media? This is Reaganomics radio. Today what you have washing and financial illiteracy having common here's, your house, Stephen Double, so even at an excellent hospital like Cedars Sinai in LOS Angeles. It's the doctors who have the lowest rate of hand. Hygiene now is that bizarre with most problems in society. We subscribe to the belief- that education is the answer, especially when you talking about risky behaviors like
drunk driving, more risky sex or what not. But here the doctors are the most educated people in the hospital. And the worst washing their hands. So how- hospital like Cedars Sinai supposed to solve that problem? we'll save that answer for later. First, let's take a look at another point another instance of where knowing the right thing isn't always connected to doing the right thing. Another problem that has really big consequences for society bigger even than deadly germs, yeah, I'm talking about money our quiver spent most of my career as a professor of economic sectors, I am currently on leaves the chairman of the peasants, powerful economic adviser, very good the Council of Economic advisers to be the chair of the CIA means at you
in the White House talking to the President daily just about Ellie about economic policies that right, that's what I call Krueger to talk about the state of our nations financial literacy. What we know about handling money, whether we act on what we know and what the country would look like if people did better. I think, first and foremost, we probably have a greater savings. People are often in a situation where they have to pay check the paycheck. That's something I think we need It is a country to work to improve. Most importantly, I think we can improve income growth for the for the broad middle class, but men the people who seem to have the wherewithal to save for the future, find it difficult to save. So, for example, they don't take advantage of some of the tax benefits from savings plans.
Which is really important because they're they're leaving money on the table and when it comes to time too retirement or when it comes time to needing meeting those savings, they have a very thin cushion. I think that the biggest difference would be if we can improve financial literacy and as a result of people act based on their own personal interest to a greater extent. I think we would see higher savings, which would in the long run, translate the greater investment and by higher income growth for the country all right, but what stakes here it. We should worry too much about all those people who choose to be financially illiterate. Their problem right today is pretty important and at most
times, but we saw in this last financial crisis, it can become unbelievably import. That's Austin rules be he was Kroger's predecessor as Obama's top economist, which meant that he was around for the darkest days the great recession. So, just for your own sake, you know your own retirement or your own, making sure you can send your kid to college in this sort of thing you ve gotta at least, know the basics of how to save money. If you're gonna invest the money where you put in it that you're not taking crazy risk that you don't understand and things like that. But then, in a week we saw through the two thousands as we in some ways, ripped up the rules of the road and took away some of the restrictions that that financial institutions had in offering financial products to consumers. There were,
people with limited financial literacy who got into extremely complicated mortgages and those mortgages blew up and the magnification of those explosions essentially caused the financial crisis and the worst recession of most any of our lifetimes wow? That's quite a claim Financial illiteracy, individuals, not knowing what they were doing with their personal finances, helped cause the great recession. I think that financial literacy is an essential skill in today's society. My research shows that is not possible to live and work efficiently in today's society, eighty, without being financially literate, that's Anna Maria Loose Saudi, a professor of economics at the door, Washington, university, school of business, she's, finally from ITALY, but has spent the past ten years looking into
Americans financial literacy, it's not a pretty picture on a scale of one to ten describe it as a for. If I have to give a number, I would describe it as insufficient in deeply insufficient in a sense now. The good news is that other countries aren't necessarily better than us. The bad news is that Saudi, isn't just guessing how bad we are. She knows it from the data She is collected, It began with a survey administered by the National Institutes of Hell then the University of Michigan called the health and retirement study. Sorry and a colleague, were alive to stick in a few questions designed to see what people knew about money. So we were only three and they were very simple. They were one simple questions about: can people do at two percent calculation here's the actual question safe. You know the answer
suppose you had one hundred dollars in a savings account and the interest rate was two percent per year after five years. How much do you think you would have in the account if you left I need to grow more than one hundred and two dollars we one hundred and two dollars in less than one hundred two dollars. We wanted to testing threats compounding, but we end up really asking people. You know how much do you get on your saving? A current issue invest in a hundred dollar and the interest rate is to pursue The answer is more than one hundred two dollars. That's the miracle of compound interest. I hears a second question that the interest rate on your savings account was one percent per year and inflation was two percent per year after one year. Would you be?
well to buy more than exactly the same as bore less than today with the money in this account. The answer is less than today: that's what inflation does and here's a third question: do you think that the following statement, true or false. Buying a single company stock usually provides a safer return than a stock mutual fund. The answer is false a single stock, is more volatile than a mutual funds? I how'd you do. Did you a sum turns out that only fifty percent of respondents got both of the first two questions right and only a third of the people at all three answers right and no offense, but is a pretty basic
questions. It was a surprise in a sense that we were expecting people not to know very much, but we were surprised by our little people know, given that we work even this interview to people who were fifty So they are the right to engage in project, probably a lot of financial transactions. Lose Saudi, was so struck by the sad state of our financial literacy, not just among older people, but she discovered in leader surveys among young adults, women and minorities that she's become an advocate for fixing. This problem, the obvious solution as she sees it, is to make financial literacy part of our educational curricula. Highschool would probably be the best place because we all know that educating people about risk is the best way to
the problem. Is it Nick? It's like saying? Well, we should start teaching body to be their own doktor teaching everyone to be their own mechanic not only is inefficient, but it has a sort of culture. Of blaming the consumer. That's coming up red after this, We're gonna radio sponsored by wonder is business movers podcast when Coca COLA changed their recipe to what they called new Coke in nineteen. Eighty five: the backlash was swift and severe, and yet the man who drove the change Chairman Robert, always wetter, pulled nuke,
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on the porch. Anyone no matter which way you rose. They they have the shade to match with more than Eight thousand wines, four thousand spirits and twenty five hundred years to choose from you can always expect the unexpected what'll it be today explore or in store or at total line dot com. From W and Y see and eight p M american public media. This is free economics, radio, here's, your host Stephen governor. So what we're looking at today is a peer of problems that need to be solved. The first is getting doctors to do a better job washing their hands. The second is to fight financial illiterate Now, in each case, it's an open question of whether education alone is the solution, and
real loose Saudi. A leading scholar in financial literacy research argues that education is the answer hands down, but another scholar, argues that not only is financial education, ineffective can actually be harmful. I'm Lauren Willis. I am allowed Professor Loyola LAW School LOS Angeles. I teach contract then consumer law and some related courses, and research. How people actually make their decisions out there in the real world I am curious to know when you tell people that yes, consumers aren't well equipped to make the right kind of financial decisions, but that you don't think that education, financial education, is the answer. How do they respond flow tending to very different responses? One
sort of anger that actually I must be running. I've gotten hate mail from people about this. They say it's gotta work, it's gotta work. You have to be wrong. Not the data must be wrong. That shows that it's not, king and then I also get folks particularly people who do work in the financial industry and give financial advice or study consumer behaviour in the financial industry, and they tell me you know you're exactly right, but you can't use my neighbour tell anyone. I said that Firms official position is that we support financial education before academia, Willis, worked in the justice department and the Federal Trade Commission. Lately she's, argued in a couple of law journals against widespread financial education. She has come to believe that a little bit of it patients can give people be illusion, better than they are making financial decisions and an overcome
but since it can lead to reckless behaviour, she first developed this position after reading a speech by FED Reserve Chairman Ben Bernanke about the need for financial literacy educate. The evidence suggests the financial counselling can improve consumers managing their credit. I written testimony describes a number of other studies document, the positive effect a financial education and knowledge on financial outlook and he cited some papers that he said supported the idea that this would work, and I went and looked at those papers hopeful that I would find something that worked, and I was appalled, They absolutely did not prove that financial literacy education was effective. They prove that people liked the classes they take a survey and people say I liked it at least the people's stuck around us throw out the survey and people. You know people are very polite.
they would say yes, sure I'm gonna do all those things you told me to do when I get home, but there was no real evidence that people actually change their behaviour and had changed outcomes. So we ve got a puzzle here, don't wait, you ve got the fetch. Women and one weeding scholar saying that Egypt This is the way out of our widespread financial illiteracy, and you ve got their scholar saying hold everything now would be a disaster, so we do so They get these two scholars together for a chap Anna Maria loose tardy in favour of financial education in Lauren Willis against. We began with something they agree on. There are tens of millions of financial illiterates in this fine country of ours, and that is not a good thing.
So that does sound bad. The fact that you both think that Americans are quite financially illiterate, but you know, maybe we should just think you know too bad for those people, those those are dumb people and that's what you know. That's what evolution is foreign capitalism takes care of them. So you know anyone who chooses to smarten up. All of you know it's a big advantage for them. What's wrong with thinking like that, I don't like they say, Thank you very much. I have to say actually seen that people are very smart and they tried to do the best of what they can do, but I think, is very expensive to acquire financial education and that's why You know for the normal literacy in we have set ups, All imagine a world where you know we don't have school and people laughed all today, turn themselves, it's very expensive and very inefficient and cities are extraordinarily. There is a cost to society of what other people do so Lauren.
Sounds as though you have a lot of respect, for our memory is research. But what do you think when you hear her describe this new curriculum that should be taught in schools throughout the land of teaching children and then older, teenagers and adults to be financially literary thing. That's a good idea! The problem is, we are just not gonna commit the resources that we would need to do that. As you know, we currently Thompson. Teach people how to do math terribly well for an end. I actually think math makes a difference. Just plain old math. There are studies that show that folks, with basic math skills do better financially later in their life There is no evidence that people who know the difference between a stock in a bond due to do better later in their lives, as well as a consequence of being taught that it sort of like saying well, we should dart teaching everybody to be their own doktor teaching everyone to be their own mechanic
You know something like that. It's terribly inefficient to do that not only is inefficient, but it it has. Of culture of blaming the consumer. You know you're the one who didn't fit this all out you didn't go to the classes are didn't pay attention or whatever, and that's not gonna help in the long run. So you're position, then, is what so, if you say Lauren that ANA Maria understands the problem quite well, but that really she's attacking the demand side. And really sounds to me, like you, identifying a big set of problems on the supply side. So if that's the case, what do you propose a few things? One is, I think we ve moved to up
points where financial decisions are complex because they are complex products out. There is not just a fool people. I mean there really are good, complicated products out there and good complicated decisions that need to be made. We need to train, and regulate a car, Dray financial advisers, neutral financial advisers that are not going to be conflicted by so being salespeople in and so then eyes and these people are employed by whom he then well. It would have to work in a similar way to other professions, and so there have to be some folks. It we're doing pro bono work as well as it simply would need to be calm, also something that people expected to pay some kind of flat fee for to get financial advice. I am not advocating people to become thereon, Doktor Norbert on mechanics or lawyer, but you know,
to indicate people to ask the right questions and Anna Maria, when you hear Lauren, say that your idea for educating people for giving them more financial literacy in the letter, the school system for over the course of many years, when you hear her say that your proposal, for that is just too expensive and cumbersome and probably won't work on top of that, what say that this is exactly what people always tells me nights. Ben safe to do financially location. I think it's expensive not to do financially location, and we have just seen the consequences of that think of our expensive as being the cost of this financial crises in other people's tells me that you know finance should location is very difficult, and I love this analogy of driving, because driving is also very difficult and look what we have done. You know we have put fifteen years old, you know on their old any magic and what could happen if you
or putting people on their own without giving them a driving licence without checking that they are able to to drive. Imagine That also there's the assumption that just about anybody can be taught this. What might look from a distance like a rather complex set of skills, driving a heavy costs right here- and you know we are not asking people to move to a dry, a formula one race, you no one. We less, we give you a driving licence is not that we expect you to drive a third party together with Schumacher and show. You know that you can do that. What we are only asking you is to go no slow and to be able to reach our destination and know not to have acted than that can hurt you and others I think the problem actually is that the current world we live in does require people to act like
ass. They there are. The driver analogy that their formula Michael drivers? Right, I mean. Let me just read you from the Federal Reserve Board Consumer Handbook on adjustable rate mortgages, to compare two arms just worry mortgages with each other to compare and armed with a fixed rate mortgage. You need to know about indexes margins, discounts, caps on rates and payments, negative amateurs, asian payment options and recasting your alone, and so what were expecting from people is in fact formula one. Do you think that people should be, for instance, required to have some kind of financial licence before they can get a credit card or take out a mortgage that I think, if you do that, then I many law professors could not take out mortgages or get credit card. Now. Let me you both to assess your own rate of or you're on level, let's say of financial literacy with one being wildly incompetent and and being a financial master
Where were you drank yourself there, but I would ring on it but TAT I would rank myself about a five, that's it the drill and the truth is, I don't have to be very financially literate in order to get along very well financially in life. I dont have to carefully budget and know exactly, what's going on in my finances, because I earn enough money that I've got a little cushion. My employer radically narrows my choice that and guides me too good decisions by giving me retirement play and and life insurance in those sorts of things- and so I don't have to be very financially- literate because the world actually set up to help me quite a bit at least you're fairly. Narrow, wonderful corner of the wings actually eggs
likely, and you want to make the rest of the world a little bit more, like you're, wonderful corner, exactly so. Where do you come down in this debate? Is finished, illiteracy, something that should be fought on the demand side through widespread education, like and I'm really sorry suggests or on the supply side through the regulation of financial instruments and a new cadre of financial advisers like Lauren Willis wants. It seems obvious to me at least but some combination of both would be much better than nothing at all. I get Willis his argument that widespread finance education might be a massive waste of money and show where I can get behind her call for more trains pair see in financial products, but do we really want to rely upon a bunch of pro bono, finance advisers to get people out of their messages? The fact is that,
financial. Illiteracy is a hard problem to solve. acquires a fair amount of knowledge. Could be willpower and probably calls for some creativity like other hard problem, no the situation is cedars. Sinai medical center with doctors, not seeing their hands Doktor Michael. Albert says their hand. Jeanne rate was about sixty five percent. That would mean that thirty, five percent of the time it wasn't being gun and debt translated to our medical staff as potential harm. So what do you do? The doctors are the best educated people in the hospital, so wasn't as if they didn't know the danger of carrying around bacteria on their hands. Cedars Sinai tried a bunch of ideas. The seem to make sense. Put up signs and send out emails they handed out.
of hand sanitize relieving awarded ten dollars, Starbucks gift cards, doctors who did wash your hands, but none of this boosted, the handwashing rate, so rather than moving Forward Cedars Sinai, took a step backward. We had a in efforts to prove to the physicians that then I believe it or not. physicians hands can carry organisms. We would go to the leadership of the medical staff and ask them if they want to have a hands cultured, for example, and they did and they were cultured and some of them were pretty ugly. That's right the docks, ass to lay their palms and a petri dish with an egg our plate, which was then the lab to see what was working there after two days of incubation, the Patriot dishes grew a bunch of yellow bumps in the shape of a hand back
Syria and that's when the hospitals chief of staff made a clever and creative decision to take a photo of one of those disgusting bacterial laden pomp. And turned into the screen saver on the hospitals, computers Albert says the staff was shocked or that's disgusting. I can't believe that was on my hand. I can't believe I didn't know it The screen saver did its job. The handle rate shot up to nearly a hundred percent, but to keep the rate high Lang. Bergson Cedars Sinai has to be vigilant, has to keep introducing new measures like strategic placement of hand- disinfectant so we're working outside my office, and you can see they're. My assistant has a large bottle of Pirelli. Take two steps over here and my colleague on whose table has a bottle of pure l? What this way
entrance to my office. Sweet words as a bottle of corral. not even enough just to be vigilant. Sometimes you ve gotta, be little wiccan to about a little shaming. That's right. The names of doctors who failed to wash their hands were made public during departmental meetings, the first time it happened. Nothing subsequently other people, the rumor tat during the individual. To say to you: do you know her name is up here for having during an hygiene and as much as you want to reward people for doing it. These kinds of crime. The quince actions have had a really important impact on the way in which physicians are really aware of hand. Hygiene Its humbling isn't it to think that the best educated people in the hospital need to be tricked and shamed, even frightened and washing their hands. It shows just how hot
Behavior change can be whether its hand washing her something like learning how to the better job. With your personal finances, we like to think we can flickers which make a resolution maybe take a course and suddenly we start doing the right thing, the responsible thing, but take all kinds of incentives, all kinds of carrots and sticks to make that happen. What if we used the kind tricks that cedars Sinai used for handwashing to try to increase financial literacy? What, if you're for one can paperwork- came with a tin of tat to remind you what you might be eating in old age. If you don't want to hear adjustable rate, mortgage application came with
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Transcript generated on 2021-03-16.