« Freakonomics Radio

72. Lottery Loopholes and Deadly Doctors

2012-04-25 | 🔗
What do you do when smart people keep making stupid mistakes? And: are we a nation of financial illiterates?
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Thanks to Pennsylvania, lottery, scratch ass, pennsylvanians or scratching their way to fine and with new every month, big top rises and second chance, drawings, excitements, always in order so try Pennsylvania, lottery, scratch offer your ticket to fund and get yours. Did I keep on scratch? It must be eighteen or older. Please pay responsibly benefits older pennsylvanians. Every day if you're ready to push the boundaries of tomorrow, let the innovation experts at every riddle, aeronautical university, help you explore the possibilities, one, again this year, you s news and will report has ranked our online fatuous degree programmes number one in the nation and our distance learning technology with success at your fingertips. Flexible schedules personalized attention at expert faculty combined for learning experience that open stores around the world to find out more e array. You got it Slash, explore, there's something Peter to follow, wants to know about you. If you had to, could you come
but with two thousand dollars in thirty days. That's question? He asked a whole bunch of people in thirteen countries, including the? U S Why two thousand dollars costs an auto? transmission is about fifteen hundred most estimates of what an ever emergencies. Your about are in that water magnitude. If you were to have sick or ailing relative. On the other side of the countries hit by full price plane tickets, he could easily be that amount and why this language come up with as opposed to save, because what we wanted to see if people access to resources between savings and credit and friends and family, and about her for the Americans are not able to come up with two thousand dollars in thirty days, which means that these and only one emergency or crisis away from really quite dire circle. dances to Father was spent more than three decades in it Dania first at Harvard now at Oxford Side, business school, trying to figure out. Why
I consumers do what they do. He wants to know how many checks you write and for what? How much you borrow and why and especially this, why Americans are so bad, it saving money our snow savings rate has been plunging for more than twenty years actually went negative in two thousand and six the great recession, shocked it back into the positive spin it about five percent since two thousand eight, but now it started to fall again. Think about what to follow just said. Half of us don't have access to enough money to survive. One breakdown, and it's not just people who don't a lot of money to follow found that more than twenty percent of the households earning more than a hundred fifty thousand dollars a year couldn't come up with that two thousand dollars. In thirty days,
Americans are, however, pretty good at spending money. For example, this year will spend about sixty Billy dollars about five hundred twenty dollars per household on something it isn't very practical. Ladies and gentlemen, welcome to number five hundred and ninety nine million nine hundred and ninety nine thousand nine hundred and ninety nine or not. from ATM american Public Media W and Y see. This is really annex radio today, instead of that scratch on ticket, how about a no lose lottery class, Are we a nation of financial illiterates? Here's your house Stephen
Melissa? Carney is an economist at the University of Maryland when she was in grad school She used to stop at a little store in the evenings to get her milk and orange juice, and she would notice that a lot of people were buying lottery tickets. so I just sort of started chatting with the van earn he's alive. People coming in spending hundreds, thousands of dollars on lottery tickets a month a year and so being a graduate student. Nine just down, some data and started playing around and was struck in particular do we spend a lot of money buying lottery tickets? So so, let's walk through some of the numbers on lottery gambling. In the? U S, how many people play the lottery? Half of half of you, ass adults surveyed, say they play the lottery at some point in the past year and Would that make it the most popular form of gambling? In the? U S and by fire soon to three american adults report gambling and its percent, say they.
Play, lottery the next closest casino which, as you know, about one in five adults, and why do so? Many people play the lottery because it's fun for a dollar to you by the chance to dream to dream big, and this remarkable bargain illustrates a phenomena, a probabilistic oddity that economists call Sk Yunus. That's the idea that there are some big prize way out there. That course onto a very small odd, but but there's some potential of capturing that So what you're, typical no money market account can't give you write to you, could you can have fifteen hundred hours in your money market accounts and every Monday you mind. You know a dollar on it, but there's no hands in every month. Will you earn a hundred thousand hours, or even ten thousand now, I know, as an economist you're not trained to answer this question, but, as a human being tell me
Why is skinnes so important to us that fish and some changing your life right. That's that's! The return that's the big win outcome that might allow you to try to buy beach house, or you know, to send your kids to college in our if it's less far out and industries not may be, what you need to Jamaica, downplaying house or or by a cow, zero? Your daughter, the wedding. You want a two hour for a lot of people, skinnes as an irresistible appeal, and so a handful of researchers like Melissa, Carney are trying to harness its power. The unlikely chance Changing your life with a big prize in to solve America's low savings rate? The idea is a new financial products that combined, the thrill of the lottery with the goal of maybe accumulating more than two thousand dollars in the savings account so that
can transmission, doesn't become a full blown crisis. Here's carnies so we know, Americans, like gambling they always have, the majority of them do it and are going to keep doing it, and so we we do is take seriously the idea that people want some, small chance winning a large sum of money that market that asset is missing from the american landscape, Kay low wealth individuals, the only asset available to them that gives them some chance of. Accumulating a large amount of money. Is this a lottery and in fact in your recent national survey of a thousand adults, one in five american Adopt said their greatest chance of accumulating. Hundreds of thousands of dollars was through the lottery. That number jumps to forty percent for folks making less than twenty five
Nor is it the earth. So a lot of Americans think the lotteries their only chance it winning big sums of money when we take that appetite for gambling for a product like this and an attachment to a savings vehicle that offers some positive return is a win win situation. This win win situation has already worked in many other countries. It's called a prize linked savings plan, r, P, L S, here's outward people, deposit money in a bank or maybe they by government bond, and instead of receiving the going rate of interest, though get a smudge less. Maybe a quarter of a percentage point less. All those midges are then gathered up into a prize pool and cash prizes are distributed from pool just like lottery winnings. Maybe once a month to a few lucky winners and the losers. Well, there are no losers, really. Everyone can
his original savings, so you could call appeal s plan. A no lose lottery it's a kind of idea that can really catch fire. Madame's Robert Kpi works at First national bank. eleven years, where I headed up the investment product house and focus, was trying to look at ways of growing the funding base of the bank first National Bank is in South Africa in two thousand five, it started what would turn out to be a phenomenally successful, p S programme. It was born out of South Africa's financial problems, as the country struggled to put the apart an era behind millions of Black South Africans did not use banks for Anything Robert Cape wanted to fight
in a way to get some of them in the door now in South Africa, because so much of the population is on banked summit of the savings ass, it literally sitting on the mattresses. Now this has got a double affect the one that does really. Thirdly, added it removes that funding from the main stream banking environment. So it can be harnessed to leaned out and fund economic growth, because retail funding tends to come in from consumers and then get Linda ought to businesses. And they create jobs that that was the one problem, and the second problem was really that these people with the money- under buttresses, were excluded from the banking system and by being extremes on the banking system, you miss then semi benefits which really help with people's individual development, for example, developing credit reports being less exposed
to having your money stolen or less than the way home, but keeps bank had a problem interest rates at the time warrant. Keeping up with patients. So putting your money and a plain old savings account might actually erode its value. Capes job was to make it worthwhile for customers to deposit new money. So, instead of simply offering an account with a scrawny interest rate, he would offer an account with practically no interest at all, but it came with the chance for a really big payday. So what do you look for the pooled all of these little zero point, two five percent of interest and then what we did? We paid out that in in lump sums to a few people, so we paid out and a hundred fifty people a month in love some prizes, so the first a price would be a million round, which is an enormous amount of money in South Africa and indeed with three prizes. Tells him round and the women Don T Treaty
surrounding a few prices of of a thousand read. So, let's say I live in South Africa. Take the money, I'm learning and put it under my mattress or maybe by some high risk equities, for offering me the security of a bank account and the excitement of a chance to win a million ran right. When you call this idea, posted the million a month accounts Mamma and Burma became that trivial for it and you're, the man who gave birth to Mamma is how six Four was mama, hugely I'm probably to successful efforts for its own good, Mama attracted more than a million new customers to capes bank Other banks in South Africa took note and complained. regulators and then came bank heard from someone else. The South Africa national lottery. Won't we, H within before we launched, we wrote them and asked him the opinion on the product, the Rex so back saying that they didn't think it was a lottery they thought it fell into.
commercial competition policy legislation, and that is that we must comply with the requirements of the promotional common and belonged standing. Nothing was heard for from him for six or seven months. and they make eye contact us to say, actually they don't like what you're doing, and I think that it's a lottery now. So when you are starting out- and there was very little money in your coffers- they but it wasn't a lottery but then after got going for a while, and you had how much a hundred million dollars about, two hundred million dollars and but, more importantly, it was Emily customers that we had brought in and the National Lotteries Board changed its mind than it thought. Oh, that thing that we said a little while ago was not a lottery. Now looks a lot like a lottery dis and Did they do them? Either first engage with them and to try to discuss its, but it was very clear that were,
position or not wanting to even try to discuss what dishes were and They took us to court to have us close down. In court, the south african national lottery argued that first, national banks, peel S programme, infringed upon the lotteries domain and it noted that peace, L S, customers were surrendering their rightful interest payments on their savings, as opposed. That is to surrendering higher price of a lottery ticket anyway. The court sided with the lottery and the people s programme was shut down. Robert keep stands by the programme success. He says that twenty percent of the people s accounts were opened by
people who were previously on bank in two thousand nine. After first national banks, peel S programme was shut down. Cape was invited to Washington to talk to federal banking officials about its success. Now a bank in the: U S can't sit up a no lose lottery either. Why not because the Only legal lotteries here are those that are and by the states themselves, nice monopoly. If you can get it right, state Lotteries generate billions in revenues, and so on. Most state houses might like to help theirs it is an save more money. They mean I'd, be willing to put their own lotteries against arrival lottery run by a bank, but two thousand nine the same year
that Mama was shut down in South Africa Peter to follow in some colleagues, found a legal loophole in Michigan that let them set up appeal s plan there with some credit unions. Here's Dave, Adams, CEO of the Michigan Credit Union League in banking, can actually pretty boring had Snaplock we go to a social events and talk about how much were saving and talk about the great new feature on our new checking account. So what people What we need is a fun way to save, and in Michigan we ve come up with what we think will accomplish that it. Sir it's program called Dave to when and what it as he said so, using a lottery concept so that for every twenty five dollars they put into one of these one year, certificates of deposit, they are you get a chance at cash prizes and the cash prizes are given out every month by participating credit unions ranging from fifty two five hundred dollars.
and then there's a grand prize at the end of the year. An opportunity to want a hundred thousand dollar Grand Prize so even with us, sputtering economy and unappetizing interest rates, a handful of credit union Michigan open. Sixteen thousand new savings accounts who were these new customers more than sixty percent of them had spent money on the lottery or gambling in the previous six months and forty six percent of them currently had no savings account. One new customer was Billy June Psmith she's. Eighty eight years old said she was never very good at saving money much preferred to play the lottery, but when she learned about her credit unions save to win plan, she started buying twin, five dollar certificates of deposit and she was the first Grand prize winner. So you pay You put seventy five dollars of your own money into a critic, Union savings account
and as a result, you entered into a lottery, for which you want a hundred thousand dollars right. Lessons but a good deal to me. What do you think well, it is, it is help make it alive No tell me what you ve done with the money Billy. Well, my places a double wide. And ass. I had bought their way back, one, I retired. and we here remove dad deciding and put new, citing on. We done I've ourselves. My daughter and her husband levels may now I've had to replace the furnace just a month ago and Hoddan now, water softer and I have put my
on your side, further taxes- and I do, however, another saving said- I don't touch for just so along and I can add to it, then Now, what about all those seas to win customers in Michigan who didn't win? What, they are on their way to their own reward. Passing Peter to follows test, though, have money in the bank winner transmit in Congo Outer when they need the fly across the country to visit a sick relative Timothy flock is executive director of the door ways to dreams fund which to follow Kofoed. and which tries to bring new financial ideas like P S, low and moderate income consumers last year flock Assez was a pretty good one. so in twenty eleven Nebraska North Carolina and why
can state all have passed bills that explicitly author surprising savings or savings promotion, raffles for credit unions, a number the states have introduced bills or we're looking at bills. So we view all of that is very positive. The piano idea is making headway outside of credit unions to like a new for profit program, called save up which Rewards customers at thousands of banks for depositing money, repaying down dead and in Alabama were one Foundation is offering a twenty thousand dollar prize to encourage. low income families to invest their tax refund rather than spend it. I know what you're thinking you thinking plough. This p s idea, sons read an interesting fiscally responsible, even one way to encourage people to save more money, so what's up
from going bigtime coming up and for economic three work here from some people who do not want to go big time. State lottery, commissioners to be precise and We brought the idea to someone at the: U S: Treasury Department like a somewhat dubious. Economics. Radio is sponsored by wonder: is business movers podcast when cocksucker Allah, changed their recipe to what they called new coke. In nineteen five, the backlash was swift and severe, and yet the man who drove the change Chairman Robert Goya's wetter pulled new coke from the shelves
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the Pennsylvania lottery, scratch offs, pennsylvanians or scratching their way to find and with new every month, big top rises and second chance, drawings, excitements? Always in order so try, Pennsylvania, lottery, scratch offer your ticket to fund and get yours. Did I keep on scratch? It must be eighteen or older. Please pay responsibly benefits older pennsylvanians every day, from W and Y see and eight p M american public media. This is free economics, radio. Here's your host, Stephen Governor, the biggest lottery in the United States, is run by New York State Gordon Magenta, the state lottery Director says it. Seventy five percent of new Yorkers play generating nearly eight billion dollars in annual sales, but in order to get their New York like most states that have a lottery had to rewrite its existing law The prohibit gambling New York first began in nineteen sixty seven. It was the second state after New Hampshire to come in what was the original
This was it a budget shortfall essentially did the state feel we need money. We can. We can voice, this ban on gambling in the state and and come up with a way to do it. I think It was so both a desire to raise money and also, I think it was a recognition that term laying was going on anyway and it was an attempt to x and regulate an activity that they knew was very common among citizens. And you know whether you go back to the other- that the numbers games that existed in urban areas and frankly still exist or rub those the activities and even sports betting today, which of course technically is illegal, but we all know is a huge business and I There was a recognition on the part of lawmakers that much like prohibition better to tat some regulate, then too, you know ostensibly call something illegal and pretended doesn't go on
state governments do more than tax and regulate their lotteries. They take a big cut for themselves. in gambling circles, the commission, taken by whoever operates. The game is known as the rake with state lotteries. The rake can be as high as sixty percent, which means it is little as forty percent of the money taken in from ticket sales ends up in the pool that pays the winners there the money usually goes too. Patient and cover overhead marketing sales commissions now the lotteries rake to the slot machines in a casino they pay more than ninety percent, meaning a rate of ten percent meaning The state lotteries are how to put this politely extremely aggressive. Oh yeah, it's a lot of money. They take off here's Melissa, corny again the Maryland economist who studies the lottery: consumers
a very high price to buy this type of product get it from anywhere else legally and down and then they have the lottery commissions, have the mandate to increase revenue, so they They innovate advertise the market they they serve behave like monopolise. What do we know about people who play the lottery what's, for instance, the Socio economic breakdown? Okay, so this prize is a lot of people, but people throughout their socio economic distribution place date, lotteries, and so it's? U dont. Roughly fifty two, eighty percent of man roughly fifty sixty percent of women, roughly fifty to sixty percent of people across the education spectrum, so people with your high school. That's Highschool Degree College graduates and when you look at the The loot dollars reported spending. It's not that different across the union, distribution. Sir sort of lower income households spend about as much and our terms as higher income households. The flip side of that, of course, is that it finds it being a larger share.
of lower income. Households total spending, so the people who can least afford to play the lottery by just as many tickets as people who make a lot of money, which is why scholars like Carney and Peter too fond of think that prize linked savings? Repeal s plans could help America's pathetic savings rate, while to follow actually had the New York state lottery looking into a collaboration but Gordon Magenta, the lottery director told us that he did the math and he just didn't. That a no lose lottery could compete with the gigantic state lottery pay out. I asked, De Benigno, the state lottery director in Florida. What he thought of the people s and that Michigan credit unions have been offering from from a purely lottery perspective. I think the Florida lotteries the only entity in Florida that can operate a lottery game,
got to say that it probably sounds illegal under current floor to law states protect their lotteries because the lotteries, bringing lots of money for the states and look for that money to increase potentially big time. The justice department just cleared the way for state lotteries to put their games online. Gordon Magenta New York's lottery director said he was thrilled with the new, Lange men who could blame him now, some of that money goes to education and other worthy causes, but Rio De Benigno admits. That's not what motivates people play? People play the worry to win. They like the prizes. They, like the excitement they like the fund, with the possibility of winning No sometimes ten, twenty fifty dollars, and sometimes many multi multi- billions of dollars. I think the funding to education is ancillary its and it's an extra bonus that the public views the lottery as
as a different and unique and fund way to be able to fund. At least some of the things that are education system needs. The lottery as famously been called a tax on the stupid. The odds are terrible because this state rakes a huge amount off the top, far more than any casino her horse track would dare take and they converge. Your hard earned cash into an extra schools tax. Now I understand why State lottery commissioners lake things just the way they are, but what about the federal officials? so work on consumer protection. Things like that. What about some? Unlike the assistant secretary for financial institutions at the Treasury department, That was a position Michael BAR held. When I interviewed him about peel S programmes, I asked bar. If he ever play I haven't really played the lottery.
Probably if I went back over over my forty five years, I may have bought a square. Particular too in my twenties now? Why do you not play the lottery? It's a fool's errand hum as as you undoubtedly now, there are a handful of people who will make some money out of the lottery, but most people, most of it I'm will lose money it's not add, not a great way, of spending one scarce resources, I dont know if you are aware of the pilot programme, that's been happening up in Michigan with the credit unions, where uprising savings programme is actually under way. The are you familiar with the called the save to win programme. I have not actually studied that. So the folks who are trying to make this happen,
against a very simple reality, which is that its typically illegal that private institution, like a banker or credit union, is not allowed to run a lottery according to state law that state law typically forbids gambling and in order to allow a stateless say to run a lottery itself, there is a loophole that must be written in those loopholes, have been written most states do have their own lotteries, but for someone else to come in and do it, it would be illegal. If you looked at the landscape and thought in my role as as in Treasury. Here I would like to encourage people to save more I'd like to make it worth while to save more and I'd like to. move barriers that prevent them from participating in projects it that let them save more. Would you be in favour?
sponsoring or trying to trying to get rolling some legislation that would allow for a widespread deployment of prize link savings. You think that something that Treasury should get its get its momentum behind one of the things it I've. I've learned in my role as Treasury is dead. Picking fights said one doesn't have to pick is not. I had not the wisest course of action unless it something it's absolutely essential and take on, and I wouldn't have put tat in the category of of high priorities TED to wage into a discussion of state gaming, Because you dont work, but let me but but if your job is to help american families save more and be better financial stewards generally and we Oh, that tens of billions of dollars are being spent on lottery tickets every year, which you called a fool's game, and one alternative is to offer bank savings accounts that retain them
whereby a customer can put in a hundred dollars you're a lottery may be, will probably not maybe and keep the hundred dollars. Why? Isn't that something that's worth considering, even in a politically fractious environment, when the patent will benefit getting people to save more seems to be much larger than the potential downside of angering some state lottery. Commissioners at say so I think there are lots of different ways of encouraging greater savings on long all american families, and I think we should continue to an innovative and to try new approaches. I think that the question that you posed is based actually one aspect of one way to do that. I dont think Yet no enough from the research to save the kind of thing that we think needs stood to happen on a wide scale, to be effective, and I we have a number of potential strategies to help me
needs of american families to save that, we haven't really fully explored and that done that maybe razor somewhat lower, set of issues and barriers, all right. So Treasury doesn't like prize linked Savings accounts lottery. Commissioners, don't like the idea, maybe maybe you don't like it either. Maybe you think people want to save money on their own, but you know what we don't. People respond to incense in for a lot of us. The incentive to save for retirement for emergencies, for whatever is weak. Why? Well, because the pay off his abstract- and it's too far in the future, is the opposite of skinnes.
now. This dilemma doesn't just apply to saving money. Think of a school kid third or fourth greater. You want me to do what bust my button school for ten for years and then go to college just to get some job that I probably would even like or think about crime in punishment? If you look at the data, it turns out that the death penalty, for instance, does not work. Is a crime deterrent? Why? Because, as as its currently practised, at least with the punishment waiting so far out in the future, through a maze of delays and appeals. Incentive simply isn't strong enough to stop me from doing the crime rate. Now. Sometimes we need stronger incentives or maybe some good smoke and mirrors that's kind of what a prize linked say,
this plan could offer in a country where it's easy to borrow your way into bankruptcy. We can I lottery tickets. Whenever you buy loaf of bread, p, o s is like big neon, billboard the turns boring old savings account into saturation of itself sticks money in here it says, and you just might hit the big picture, and even if you don't well. Your money still belongs to you about that. For a dollar, when you were coming on four economics: radio, if you can't coke some one in the plane, smart with their money. Maybe you could just Tito it's what Like saying? Well, we should
start teaching, everyone to be their own doktor teaching everyone to be their own mechanic. Not only is it patient, but it it has a sort of culture of blaming the consumer, America's finance, illiteracy. In a moment. There are wonders on this planet around every corner, sometimes the written funny you hidden in plain sight, come with us. Second in ocean foggy, speak it's hard to find the first time there no sign here. Flowers, bloom, forever, changes. The way it's not just.
The incredible places will visit it's about the people in their stories. It's wonderful to feel that action in the whole area came to life, a federal and finally comes along and says Gimme every monkey you ve got four episodes. We each under fifteen minutes a new wonder every day the House of Europe gas is out now listen in stature apple, the serious ex em up or wherever you get your pike, ass funds, not Hugh lending away and- Gillian Jacobs and I'm Deanna reasonable, we ve got a new podcast called. If then, worry politically talk to scientists, engineers NASA folks, just a bunch of really smart curious people about cool stuff Julian. I think most people know you from your work on love and community, and most people would know you as forensic scientists, Casey Heinz on Anti I ass, so we were both
But what most people don't now? Is that we're both really curious in past? about stem. If we have a more diverse outlook in how we look at science and engineering and technology and map, then what This is possible. I get Eddie, when I get to speak to these people, carriages tat back into my curiosity excitement. You know that I have a kid about. All these are protects so come on this journey. Thus, as we learn from some of the poorest smartest people in their fields, if then is out now just search, if slash than to find the show that, if slash then no spaces listenin stitches, apple, the serious Ex m F or wherever you get your PA casts from W and Y see and eight p M american public media. This is free
Alex Radio, here's your house, Stevens Abner in the mid nineteenth century. Vienna, General Hospital was considered a world class research center, but the hostage Maternity ward did not have such a good reputation. If you came in to have a doctor deliver your baby, you stood a ten to fifteen percent chance of dying from what was called child bed fever bet. Fever is an infection primarily of the uterus and spreads out through the tubes into the abdominal cavity of immediately after they have given birth, That's Sherwin, Newland he's a professor of men. some at Yale. He wrote a book called the doctors plague about the situation at Vienna, general in eighteen, forty
a young Hungarian born doktor named ignites symbolise joined the staff there. He was horrified by the situation. Some always went digging in the numbers for a clue. Now. Here was something strange. There were two separate maternity wards in the hospital one staffed by doctors, who are all male, the other by midwives, who were female. The death rate in the midwives ward was far lower, so it seemed to be something the doctors were doing, but what then a clue came in the form of a tragedy. A colleague of some oasis died after getting gangrene, he had pricked his finger with a knife while giving a lesson in autopsy. and some advice was away on a brief occasion when this happens. When he came back, he began to study scrupulously the autopsy findings of his friend and no
did they were just like the autopsy findings of women? With child that favour who die his conclusion, doctors were carrying what he called in the ball. Cadaver particles from the morgue into the maternity ward today we call them bacteria, but remember this is mid. Eighteen, hundreds, pre, germ theory, Consider a typical morning of a student or young doctors in training, the very first thing 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 the day before and when the abdomen is open. There is a sea of pass. the euro, will surround tubes. The young doktor will put his hands in this. He
and probably wiped his hands on a towel, and goes up to take on his regular duties as an option in training. Some always ordered every medical attendant who entered the doctors moored to submerge his hands and chlorine wash before seeing patients within six months. The death rate of women in the doctors, had plummeted, and that was it. It was a simple is that it was a stellar piece of medical detective work. Some always not only found the cause of death. We figured out how to prevent it. So you know the rest of the story. It became standard priests Egypt for doctors to disinfect their hands and they stopped passing germs along the patient's right. Well, not exactly
doctors are our human Michael Lang Burg is the chief medical. For sir, it cedars Sinai. Medical center, in LOS Angeles, he's been trying to get his doctors to do a better job washing their hands. hasn't been easy. So, there's something in the human condition that somehow disconnects what is really good evidence from personal choices, habit, and I dont know why that is, I'm not a psychiatrist, my heels internal medicine. I just have the observation, physicians are no different, was disturbing about physicians is since their human You would expect them to have the same rate as everybody else it's not even greater rates, if not a hundred percent than other health care providers and at Cedars Sinai. I regret to report that the lowest rate, so
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're talking about risky behaviors like drunk driving or risky sex or what not. But here the doctors are the most educated people in the hospital and the worst at washing their hands. So how is a hospital like Cedars Sinai supposed to solve? That problem? Will tell you about that later, but first, let's take a look. at another problem, another instance of where knowing the right thing is not always connected to doing the right thing. We're gonna talk about money,
I am also ghouls, be I'm a professor at the university Chicago booth, school of business and I'm the former chair of the accounts of economic advisor which means that you worked as an economist in the White House, bending the presidency or somethin like something like that. Just give me first Second, your view of how important financial literacy is to a well functioning society 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 gotta Elise oh, the basics of our house. they ve money. If you're gonna invest the money where you put in it that you're not taking crazy ray 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
look away. Some of the restrictions that that financial institutions had in offering financial products to consumers. there were a lot of people with limited financial literacy who got into extremely complicated mortgages and those mortgages blew up and the magnification of, though explosions essentially caused the financial crisis and the worst recession of, most any of our lifetimes wow. That's quite a claim that financial illiteracy, individuals, not knowing what they were doing with their personal finances, helped cause the great recession.
How bad off are. We Anna Maria loose sovereignty is a professor of economics at the George Washington University School of business she's originally from ITALY, but she spent the past ten years looking into America's financial literacy on a scale of one to ten. She says described because a for, if I have to give a number, I would describe it as in some, We shall then deeply insufficient Dena says now. The good news is that other countries aren't necessarily better than us. The bad news is there a loose hardy? Isn't just guessing bad. We are. She knows it from the data that she is collected. it began with a survey administered by the National Institutes of Hell from the University of Michigan called the health and retirement scheme lucidity and a colleague were out to stick in a few questions designed to see what people knew about money. So we
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 see if 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 any account if you like the money to grow more than one hundred and two dollars, back. We one hundred and two dollars for less than one hundred two dollars. We wanted to testing threats compounding by we end up really asking people, you know how much do you get saving account. If you invest in a hundred dollar and interest rate, is two percent answer is more than one hundred two dollars. That's the miracle of compound interest. I hears a second question: Imagine 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 able to buy more then exactly the same as or less than today with the money in this account, certainly is less than two. That's what inflation and here's a third question: do you think that the following statement is true or buying a single company stock, usually by a safer return. Then stock mutual funds. the answer is a single stock is more volatile, then a mutual funds I how'd you do did you awesome 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, no offense, but it's a pretty big
two questions. It was a surprise in the sense that we were expecting people not to know very much, but we were surprised by our little people know. Given that work. Even this interview to people who were fifty an older, so they are already engaged in public. Probably a lot of financial transactions loose He was so struck by the sad state of our financial literacy, not just among older people, but as she discovered in later 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 curriculum. High school would probably be the best place, because we all know that educating people about risk is the best way to solve. The problem is Isn't it s sort of like saying, while we should start teaching every
to be their own. Doktor teaching ruin to be their own mechanic, not always inefficient, but it it has. A sort of culture of blaming the consumer that's Lauren, Willis she's, a professor at Loyola, Moscow, LOS Angeles. She teaches contracts and consumer law. Lately she has argued in a couple of law journals against widespread financial education. She has come to believe that a little bit of education can give people the illusion that they are better than they are at making financial decisions in an overconfidence that can lead to reckless behaviour. She first developed this position after reading a speech by FED Reserve Chairman Benbow Nanking about the need for financial literacy. Education evidence suggests the financial. How things can improve consumers managed.
read it. I written testimony describes a number of other studies knocking at the positive effects of financial education and knowledge on financial outcome, and he cited some papers that he said supported the idea that this would work and I and looked at those papers, hopeful that I would find something that worked. and I was appalled at bay. So what we did not prove that financial literacy education was effective. They prove that people liked the class. Since they take us thoroughly and people say I liked it at least with people who stuck around us go out the survey and people. You know people are very polite age. They would say yeah 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 chain
their behaviour and had changed outcomes. So we ve got a puzzle here. Don't way you ve got. The fetch urban and one leading scholar saying that budget It is the way out of our widespread financial illiteracy and you ve got, other scholar saying hold everything that would be a disaster. So we just did you get these two scholars together for a chat Anna, Maria Lucidity in favour of financial education and Lauren Willis against we began with some. they agree on. There are tens millions of financial illiterates in this fine country of ours, and that is not a good thing, 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
so dumb people and that's what you know that's what evolution is foreign capitalism takes care of them? Oh 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 them. I don't like they say. No. Thank you very much. I have to say actuating 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 four. They normal literacy in? We have set up school. Imagine a world where you know we don't have school and people have to today indication themself, it's very expensive and very inefficient. Teresa externalities, there is a cost to society. What other people do so Lauren? it sounds as though you have a lot of respect, for our memory is research, but what did
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 teenager adults to be financially literate, you think that's a good idea. The problem is, we are just not going to commit the resources that we would need to do that. You know we currently told people teach but 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 I later in their life There is no evidence that people who know the difference between a stock in a bond Judy do better later in their lives, as well as a consequence of being taught that it sort of life saying. Well, we should start teaching everybody to be their own doktor teaching our went to be their own mechanic you know something like that. It's terribly inefficient!
To do that. So your position, then, is what so, if you say Lauren that oughta Maria understands the problem quite well, but that really she's packing the demand side, and really it 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? Will a few things? one is. I think we ve moved to a point 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 cod re financial advisers, neutral financial advisers that are not going to be conflicted by also being salespeople and so then eyes and these people are employed by whom he then well. It would, to work in a similar way to other professions, and so
We'd have to be some folks. They were 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 fired. advice and ANA 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 of an cumbersome and probably won't work. On top of that. What do you say that this is exactly what people always Tasmania its expensive to do financially location? I think it's expensive not to finance, should it location. and we have just seen the consequences of that. Think of our expensive has been the cost of this financial crises in other people, tat
that you know financial 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, on their old any managing and what could happen if you were putting people under old without giving them a driving licence without checking that they are able to to drive. Imagine that law so there is the assumption that just about anybody can be taught this. What might look from a distance like a rather come like Ceta skills, driving heavy car right yeah- and you know we are not asking people to move to a dry a formula one race. we are only asking you is to go. In a slow and to be able for each your destination and not twelve accident that can hurt you and other fuels.
I think the problem actually is that the current world we live in does require people to act like their formula, on drivers right, I mean it. may just read you from the Federal Reserve Board Consumer Handbook on adjustable rate mortgages to compare two arms just worried mortgages with each other to compare and armed with a fixed rate mortgage. You need to know about index 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. So where do you come down in this debate? financial, illiteracy, something that should be fought on the demand side through widespread educational I am really sorry suggests. or on the supply side through
better 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 financial edge, haitian might be a massive waste of money and show where I can get behind her call for more transport. Unseen financial products, but Do we really want to rely upon a bunch of pro bono financial advisers to get people out of their messages? The fact is that financial illiteracy is a hard problem to solve, require There is a fair amount of knowledge that bit willpower and probably calls for some creativity like their hard problem the situation at Cedars Sinai Medical Center with doctors, not washing their hands
you're, Michael Lang, Burg, says their hand. Hygiene rate was about sixty five percent. That would mean that thirty, five percent of the time it wasn't and that 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 cedar. and I tried a bunch of ideas, the seem to make sense. They put up signs and send out emails. They handed out models of hand, sanitize relieving awarded ten dollars, Starbucks Gift Card said 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 an effort to prove to the physicians.
Damn it believe it or not. The 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 culture, for example, than they did and they were cultured and some of them were pretty ugly. That's right! The docks were asked to lay their palms in p traditions, which were then sent to the lab. After two days of incubation, the dishes grew a bunch of yellow bumps in the shape of a hand. Bacteria, that's when the hospitals chief of staff made a clever in creative decision to take a photo of one of those disgusting bacteria laden palmprints make it. The screens and the hospitals, computers. The screen saver did its job, the staff was shocked and disgusted and the handwashing rate shot up to nearly one hundred percent victory, but to keep their
hi Cedars Sinai has had to be vigilant and sometimes a little bit wicked. Would you believe public shaming? That's right. The names of doctors who failed to wash their hands were posted during Department, on meetings the first time it happened. I think subsequently other people, the rumour texting into to say to you: do you know her name is up here for having been caught not doing and Hygiene and as much as you want to reward people for doing it. These kinds of two quince actions of here 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 high word: behavior change can be whether its hand washing her something like learning how to do a 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 can take all kinds of incentives, all kinds of carrots and sticks to make that happen. What if we used kind of tricks that Cedars Sinai used for handwashing to try to increase our financial literacy, what if you're for one K paperwork came with
tat remind you what you might, even if you don't want to hear a just freaking out ex radio is produced by W and Y, see ATM american public media in Dublin productions. This episode was produced by com. Campbell, Borri, Lamb and Diana win our staffing Susie Elect Ember, Catherine Wells Increase banning David Herman is our engineer. If you want for free economic radio subscribe to our free podcast on Itunes and go to free economic stock com or you'll find lie, some radio, a blog, the books and more,
Transcript generated on 2021-03-16.