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

[0] In the mid -19th century, Vienna General Hospital was considered a world -class research center.

[1] But the hospital's maternity ward didn't have such a good reputation.

[2] Because it became known throughout the city of Vienna that if you went on to the doctor's division or the doctor's clinic, you were much more likely to die.

[3] That's Sherwin -Newland.

[4] He's a professor of medicine at Yale.

[5] He wrote a book called The the doctor's plague about the situation at Vienna General Hospital.

[6] In the early 1840s, one in 10 women whose baby was delivered by a doctor there died from what was called childbed fever.

[7] Childbed fever is an infection primarily of the uterus, and it spreads out through the tubes into the abdominal cavity, of women immediately after they have given birth.

[8] In 1847, one in six women died.

[9] And that was the year, a young Hungarian -born doctor named Ignaz Semmelweis joined the staff.

[10] He was horrified by the situation, and he went digging in the numbers for a clue.

[11] Now, here was something strange.

[12] There were two separate maternity wards in the hospital, one staffed by doctors, who were all male, and the other by midwives who were female.

[13] The death rate in the midwives ward was far lower.

[14] So was it a guy thing that was causing all this death?

[15] One theory at the time held that birthing mothers were such fragile creatures that being seen naked by a male doctor was enough to kill them.

[16] Now, Semmelweis didn't buy it.

[17] He also discovered that women who delivered their own babies on the street had an even lower rate of childbed fever.

[18] In those days, it would occasionally happen that a woman out of, of wedlock would deliver herself, sometimes in the streets.

[19] The Germans had a word for it.

[20] Gassen Giburta, they were street births, and he was hard put to find anybody who died when a woman self -delivered.

[21] And so Semmelweis came to suspect the likely cause of these thousands of deaths, his fellow doctors.

[22] But how?

[23] The answer came in the form of a tragic.

[24] A colleague of Semmelweis, as a doctor he admired, died after getting gangrene.

[25] He had pricked his finger with a knife while giving a lesson in autopsy.

[26] And Semmelweis was away on a brief vacation when this happened.

[27] 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 childbirth.

[28] fever who were dying.

[29] His conclusion, doctors were carrying what he called invisible cadaver particles into the maternity ward, better known today as bacteria.

[30] But remember, this is the mid -1800s pre -germ theory.

[31] Consider a typical morning of a student or a young doctor in training.

[32] 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.

[33] And when the abdomen is open, there is a sea of pus around the uterus, around the tubes, the young doctor will put his hands in this.

[34] He then probably wipes his hands on a towel and goes up to take on his regular duties as an obstetrician in training.

[35] Sometimes he'll have, one hand will be on the patient's abdomen, another will be in the vagina, and he'll be feeling that uterus with the two hands.

[36] And you can see all of the opportunity for infecting the inside of a woman's body with the cadaver particles, invisible cadaver particles made obvious only by their smell.

[37] Semmelweis figured if he could get rid of the smell, he could get rid of the dangerous particles.

[38] So he ordered every medical attendant who entered the doctor's ward to submerge his hands in a chlorine wash before seeing patients.

[39] Within six months, the death rate of women in the doctor's ward had plummeted.

[40] And that was it.

[41] It was as simple as that.

[42] It was a stellar piece of medical detective work.

[43] Semmelweis not only found the cause of death.

[44] death, but he figured out how to prevent it.

[45] So you know the rest of the story.

[46] It became standard procedure for doctors to disinfect their hands, and they stopped passing germs along to patients, right?

[47] Well, not exactly.

[48] Consider the results of a 1996 study from a pediatric hospital in Australia.

[49] Doctors self -reported their hand hygiene rate at 73%.

[50] Not great, but still, considering how busy doctors are.

[51] It could have been worse.

[52] One problem, though.

[53] During the same time that those docs reported their rate at 73 percent, the nurses were spying on them to see what their actual handwashing rate was.

[54] And it turns out it was a pathetic 9 percent.

[55] Similar studies show that doctors are consistently worse at washing their hands than any other medical staff.

[56] So what's going on here?

[57] Doctors are human.

[58] Michael Langberg is the chief medical officer at Cedars -Sinai Medical Center in Los Angeles.

[59] So there's something in the human condition that somehow disconnects what is really good evidence from personal choice and habit.

[60] And I don't know why that is.

[61] I'm not a psychiatrist.

[62] My field is internal medicine.

[63] I just have the observation.

[64] Physicians are no different.

[65] What's disturbing about physicians, Since they're human, you would expect them to have the same rate as everybody else, if not even greater rates, if not 100%, than other health care providers.

[66] And at Cedar Sinai, I regret to report that they're the lowest rate.

[67] From WNYC and APM American Public Media, this is Freakonomics Radio.

[68] Today, what do handwashing and financial illiteracy have in common?

[69] Here's your host, Stephen Dubner.

[70] So even at an excellent hospital like Cedars Sinai in Los Angeles, it's the doctors who have the lowest rate of hand hygiene.

[71] Now, isn't that bizarre?

[72] 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 whatnot.

[73] But here, the doctors are the most educated people in the hospital.

[74] and the worst at washing their hands.

[75] So how is a hospital like Cedars Sinai's supposed to solve that problem?

[76] We'll save that answer for later.

[77] First, let's take a look at another problem, another instance of where knowing the right thing isn't always connected to doing the right thing.

[78] Another problem that has really big consequences for society, bigger even than deadly germs.

[79] Yeah, I'm talking about money.

[80] I'm Alan Kruger.

[81] I spent most of my career as a professor of economics at Princeton.

[82] I am currently on leave to be the chairman of the President's Council of Economic Advisors.

[83] Very good.

[84] And the Council of Economic Advisors, to be the chair of the CEA, means that you are in the White House talking to the president daily, just about daily about economic policy.

[85] Is that right?

[86] That's right.

[87] I called Kruger to talk about the state of our nation's financial literacy, what we know about.

[88] handling money, whether we act on what we know, and what the country would look like if people did better?

[89] I think first and foremost we probably have greater savings.

[90] People are often in a situation where they have to live paycheck to paycheck.

[91] That's something I think we need as a country to work to improve.

[92] Most importantly, I think we can improve income growth for the broad middle class.

[93] But many people who say, seem to have the wherewithal to save for the future, find it difficult to save.

[94] So, for example, they don't take advantage of some of the tax benefits from savings plans, which is really unfortunate because they're leaving money on the table.

[95] And when it comes time to retirement or when it comes time to needing those savings, they have a very thin cushion.

[96] So 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 a long run, translate to greater investment and probably higher income growth for the country.

[97] All right, but what are the stakes here?

[98] We shouldn't worry too much about all those people who choose to be financially illiterate.

[99] It's their problem, right?

[100] I think it's pretty important at most times, but we saw in this last financial crisis, it can become unbelievably important.

[101] That's Austin Gouldsby.

[102] He was Kruger's predecessor as Obama's top economist, which meant that he was around for the darkest days of the Great Recession.

[103] So just for your own sake, you know, your own retirement or your own making sure you can send your kid to college and this sort of thing, you've got to at least.

[104] know the basics of how to save money, if you're going to invest some money, where are you putting it, that you're not taking crazy risks that you don't understand and things like that.

[105] But then, you know, we saw through the 2000s as we in some ways ripped up the rules of the road and took away some of the restrictions 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.

[106] And those mortgages blew up.

[107] And the magnification of those explosions essentially caused the financial crisis and the worst recession of most any of our lifetimes.

[108] Wow.

[109] That's quite a claim.

[110] that financial illiteracy, individuals not knowing what they were doing with their personal finances, helped cause the Great Recession.

[111] I think that financial literacy is an essential skill in today's society.

[112] My research shows that it's not possible to live and work efficiently in today's society without being financially literate.

[113] That's Anna Maria Lusardi, a professor of economics at the George Washington University School of Business.

[114] She's originally from Italy, but has spent the past 10 years looking into Americans' financial literacy.

[115] It's not a pretty picture.

[116] On a scale of 1 to 10...

[117] I would describe it as a 4.

[118] If I have to give a number, I would describe it as insufficient and deeply insufficient in a sense.

[119] Now, the good news is that other countries aren't necessarily better than us.

[120] The bad news is that Lussardi isn't.

[121] just guessing how bad we are.

[122] She knows it from the data that she's collected.

[123] It began with a survey, administered by the National Institutes of Health and the University of Michigan, called the Health and Retirement Study.

[124] Lusardi and a colleague were allowed to stick in a few questions designed to see what people knew about money.

[125] So we were only three, and they were very simple.

[126] They were one simple questions about can people do a 2 % calculation.

[127] Here's the actual question, see if you know the answer.

[128] Suppose you had $100 in a savings account and the interest rate was 2 % per year.

[129] After five years, how much do you think you would have in the account if you left the money to grow?

[130] More than $102, exactly $102 or less than $102?

[131] You know, we wanted to test interest compounding, but we end up really asking people, you know, how much do you get?

[132] On your saving account, if you invest $100 and the interest rate is 2%.

[133] The answer is more than $102.

[134] That's the miracle of compound interest.

[135] All right, here's the second question.

[136] Imagine that the interest rate on your savings account was 1 % per year and inflation was 2 % per year.

[137] After one year, would you be able to buy more than exactly the same as or less than today with the money in this account?

[138] The answer is less than today.

[139] That's what inflation does.

[140] And here's the third question.

[141] Do you think that the following statement is true or false?

[142] Buying a single company stock usually provides a safer return than a stock mutual fund.

[143] The answer is false.

[144] A single stock is more volatile than a mutual fund.

[145] All right.

[146] How'd you do?

[147] Did you ace them?

[148] Turns out that only 50 % of respondents got both of the first two questions right, and only a third of the people got all three answers right.

[149] And no offense, but these are pretty basic questions.

[150] It was a surprise in a sense that we were expecting people not to know very much, but we were surprised by how little people know, given that we were giving this interview to people who were 50 and older.

[151] So they had already engaged in probably a lot of financial transactions.

[152] Lusarty 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.

[153] The obvious solution, as she sees it, is to make financial literacy part of our educational curriculum.

[154] High school would probably be the best place because we all know that educating people about risk is the best way to solve a problem, isn't it?

[155] Isn't it?

[156] It's sort of like saying, well, we should start teaching everybody to be their own doctor, teaching everyone to be their own mechanic.

[157] Not only is inefficient, but it has a sort of culture of blaming the consumer.

[158] That's coming up right after this.

[159] From WNYC and APM American Public Media, this is Freakonomics Radio.

[160] Here's your host, Stephen Dubner.

[161] So what we're looking at today is a pair of problems that need to be solved.

[162] The first is getting doctors to do a better job washing their hands.

[163] The second is to fight financial illiteracy.

[164] Now, in each case, it's an open question of whether education alone is the solution.

[165] Anna Maria Lussardi, a leading scholar in financial literacy research, argues that education is the answer, hands down.

[166] But another scholar argues that not only is financial education ineffective, it can actually be harmful.

[167] I'm Lauren Willis.

[168] I am a law professor at Loyola Law School, Los Angeles.

[169] I teach contracts and consumer law and some related courses.

[170] And I research how people actually make their decisions out there in the real world.

[171] Lauren, I'm 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.

[172] How do they respond?

[173] Well, I tend to get two very different responses.

[174] One is sort of anger that absolutely, I must be wrong.

[175] I know I've gotten hate mail from people about this.

[176] They say it's got to work.

[177] It's got to work.

[178] You have to be wrong.

[179] The data must be wrong that shows that it's not working.

[180] And then I also get folks, particularly people who do work in the financial industry and give financial advice or steady consumer behavior in the financial industry.

[181] And they tell me, you know, you're exactly right.

[182] But you can't use my name or tell anyone I said that because my firm's official position is that we support financial education.

[183] Before academia, Willis worked in the Justice Department and the Federal Trade Commission.

[184] Lately, she's argued in a couple of law journals against widespread financial education.

[185] She's come to believe that a little bit of education can give people the illusion they're better than they are at making financial decisions and an overconfidence that can lead to reckless behavior.

[186] She first developed this position after reading a speech.

[187] by Fed Reserve Chairman Ben Bernanke about the need for financial literacy education.

[188] The evidence suggests that financial counseling can improve consumers' management of their credit.

[189] My written testimony describes a number of other studies to document the positive effects of financial education and knowledge on financial outcomes.

[190] And he cited some papers that he said supported the idea that this would work.

[191] And I went and looked at those papers.

[192] hopeful that I would find something that worked.

[193] And I was appalled.

[194] They absolutely did not prove that financial literacy education was effective.

[195] They proved that people liked the classes.

[196] They'd take a survey and people say, yeah, I liked it, or at least the people who stuck around to fill out the survey.

[197] And people, you know, people are very polite.

[198] They would say, yeah, sure, I'm going to do all of those things you told me to do when I get home.

[199] But there was no real evidence that people actually changed their behavior and had changed outcomes.

[200] So we've got a puzzle here, don't we?

[201] You've got the Fed chairman and one leading scholar saying that education is the way out of our widespread financial illiteracy.

[202] And you've got another scholar saying, hold everything.

[203] That would be a disaster.

[204] So we decided to get these two scholars together for a chat.

[205] Anna Maria Lussardi in favor of financial education and Lauren Willis against.

[206] We began with something they agree on.

[207] There are tens of millions of financial illiterates in this fine country of ours, and that is not a good thing.

[208] So that does sound bad, the fact that you both think that Americans are quite financially illiterate.

[209] But, you know, maybe we should just think, you know, too bad for those people.

[210] Those are dumb people.

[211] And that's what, you know, that's what evolution is for and capitalism takes care of them.

[212] So, you know, anyone who chooses to smarten up, well, you know, that's a big advantage for them.

[213] What's wrong with thinking like that?

[214] I don't like this kind of thinking very much.

[215] I have to say, I actually think that people are very smart and they try to do the best of what they can do.

[216] But I think it's very expensive to acquire financial education.

[217] And that's why, you know, for the normal literacy, you know, we have set up school.

[218] Imagine a world where, you know, we don't have school and people have to do the education themselves.

[219] It's very expensive and very inefficient.

[220] And there is an externality.

[221] There is a cost to society of what other people do.

[222] So, Lauren, it sounds as though you have a lot of respect for Anna Maria's research.

[223] But what do you think when you hear her describe this new curriculum?

[224] that should be taught in schools throughout the land of teaching children and then older teenagers and adults to be financially illiterate.

[225] You think that's a good idea?

[226] The problem is we are just not going to commit the resources that we would need to do that.

[227] You know, we currently don't teach people how to do math terribly well.

[228] And I actually think math makes a difference.

[229] Just plain old math, there are studies that show that folks with basic math skills do better.

[230] financially later in their lives.

[231] There is no evidence that people who know the difference between a stock and a bond do better later in their lives as a consequence of being taught that.

[232] It's sort of like saying, well, we should start teaching everybody to be their own doctor, teaching everyone to be their own mechanic, you know, something like that.

[233] It's terribly inefficient to do that.

[234] Not only is it inefficient, but it has a sort of culture of blaming the consumer.

[235] You know, you're the one who didn't figure this all out.

[236] You, you know, didn't go to the classes or didn't pay attention or whatever.

[237] And that's not going to help in the long run.

[238] So your position then is what?

[239] So if you say, Lauren, that Anna Maria understands the problem quite well, but that really she's attacking the demand side.

[240] And really it sounds to me like you're identifying a big set of problems on the supply side.

[241] So, If that's the case, what do you propose?

[242] Well, a few things.

[243] One is I think we've moved to a point where financial decisions are complex because there are complex products out there.

[244] It's not just to fool people.

[245] I mean, there really are good complicated products out there and good complicated decisions that need to be made.

[246] We need to train and regulate a cadre of financial advisors, neutral financial advisors that are not going to be conflicted.

[247] by also being salespeople.

[248] And so then that's...

[249] And these people are employed by whom then?

[250] Well, it would have to work in a similar way to other professions.

[251] And so there would have to be some folks that were doing pro bono work, as well as it simply would need to become also something that people expected to pay some kind of flat fee for to get financial advice.

[252] I'm not advocating people to become their own doctor or their own mechanics or lawyer.

[253] But, you know, we have to.

[254] educate people to ask the right questions.

[255] And Anna Maria, when you hear Lauren say that your idea for educating people for giving them more financial literacy in the, let's say, 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 it probably won't work on top of that, what do you say to that?

[256] Actually, this is exactly what people always tells me. It's expensive to do financial education.

[257] I think it's expensive not to do financial education.

[258] And we have just seen the consequences of that.

[259] Think of how expensive has been the cost of this financial crisis.

[260] You know, a lot of people tell me that, you know, financial education is very difficult.

[261] And I love this analogy of driving because, you know, driving is also very difficult.

[262] And look what we have done.

[263] You know, we have put 15 years old, you know, on the road.

[264] And imagine what could happen if you were putting people on the road without giving them a driving license, without checking that they are able to drive.

[265] Imagine that.

[266] Well, 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 car, right?

[267] Yeah, and, you know, we are not asking people to drive in a Formula One race.

[268] You know, once we give you a driving license, it's not that we expect you to drive a Ferrari together with Schumacher and show, you know, that you can do that.

[269] What we are only asking you is to go, you know, slow and to be able to reach your destination and, you know, not to have accident that can hurt you and others.

[270] So I think the problem actually is that the current world we live in does require people.

[271] to, you know, act like they are the driver analogy that they're Formula One drivers, right?

[272] I mean, let me just read you from the Federal Reserve Board Consumer Handbook on Adjustable Rate Mortgages.

[273] To compare two arms, adjustable rate mortgages with each other, to compare an arm with a fixed rate mortgage, you need to know about indexes, margins, discounts, caps on rates and payments, negative amortization, payment options, and recasting your loan.

[274] And so what we're expecting from people is, in fact, Formula One.

[275] Do you think that people should be, for instance, required to have some kind of financial license before they can get a credit card or take out a mortgage?

[276] I think if you did that, then many law professors could not take out mortgages or get credit cards.

[277] Now let me ask you both to assess your own rate of or your own level, let's say, of financial literacy, with one being wildly incompetent and tend to.

[278] being a financial master.

[279] Where do you each rank yourself there?

[280] Well, I would rank Anna a 10.

[281] But so I would rank myself about a five.

[282] That's it.

[283] But the truth is I don't have to be very financially literate in order to get along very well financially in life.

[284] I don't 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.

[285] My employer radically narrows my choice set and guides me to good decisions by giving me retirement plans and life insurance and those sorts of things.

[286] And so I don't have to be very financially literate because the world actually is set up to help me quite a bit.

[287] At least you're fairly narrow, wonderful corner of the world.

[288] Exactly.

[289] Exactly.

[290] And you want to make the rest of the world a little bit more like your wonderful corner.

[291] Exactly.

[292] So where do you come down in this debate?

[293] Is financial illiteracy something that should be fought on the demand side through widespread education like Anna Maria Lussardi suggests, or on the supply side, through better regulation of financial instruments and a new cadre of financial advisors like Lauren Willis wants?

[294] It seems obvious, to me at least, that some combination of both would be much better than nothing at all.

[295] I get Willis's argument that widespread financial education might be a massive waste of money.

[296] And sure, I can get behind her call for more transparency in financial products, but do we really want to rely upon a bunch of pro bono financial advisors to get people out of their messes?

[297] The fact is that financial illiteracy is a hard problem to solve.

[298] It requires a fair amount of knowledge, a good bit of willpower, and it probably calls for some creativity, like other hard problems.

[299] You remember the situation at Cedars -Sinai Medical Center with doctors not washing their hands?

[300] Dr. Michael Langberg says their hand hygiene rate was about 65%.

[301] That would mean that 35 % of the time it wasn't being done.

[302] And that translated to our medical staff as potential harm.

[303] So what do you do?

[304] The doctors are the best -educated.

[305] people in the hospital.

[306] So it wasn't as if they didn't know the danger of carrying around bacteria on their hands.

[307] Cedar Sinai tried a bunch of ideas.

[308] This seemed to make sense.

[309] They put up signs and sent out emails.

[310] They handed out bottles of hand sanitizer.

[311] They even awarded $10 Starbucks gift cards to doctors who did wash their hands.

[312] But none of this boosted the hand washing rate.

[313] So rather than moving forward, Cedar Sinai took a step backward.

[314] We had an effort to prove to the physicians that, believe it or not, physicians' hands can carry organisms.

[315] We would go to the leadership of the medical staff and ask them if they wanted to have their hands cultured, for example, and they did, and they were cultured, and some of them were pretty ugly.

[316] That's right.

[317] The docks were asked to lay their palms in a petri dish with an agar plate, which was then sent to the lab to see what was lurking there.

[318] After two days of incubation, the petri dishes grew a bunch of yellow bumps in the shape of a hand, bacteria.

[319] And that's when the hospital's chief of staff made a clever and creative decision to take a photo of one of those disgusting bacteria -laden palm prints and turn it into the screensaver on the hospital's computers.

[320] Langberg says the staff was shocked.

[321] Ugh, or ooh, or that's disgusting.

[322] And I can't believe that was on my hand.

[323] I can't believe I didn't know it.

[324] The screensaver did its job.

[325] The handwashing rate shot up to nearly 100%.

[326] But to keep the rate high, Langberg says, Cedars Sinai has to be vigilant, has to keep introducing new measures, like strategic placement of hand disinfectant.

[327] So we're walking outside my office, and you can see right there, my assistant has a large bottle of Purell.

[328] You take two steps over here, and my colleague on his table has a bottle of Purell.

[329] Walk this way.

[330] The entrance to my office suite has a bottle of Purell.

[331] And it's not even enough just to be vigilant.

[332] Sometimes you've got to be a little wicked, too.

[333] How about a little shaming?

[334] That's right.

[335] The names of doctors who failed to wash their hands were made public during departmental meetings.

[336] The first time it happened, I think subsequently, other people in the room are texting the individuals to say, you know, do you know that your name is up here for having been caught not doing hand hygiene?

[337] And as much as we want to reward people for doing it, and these kinds of consequence actions have had a really important impact on the way in which physicians are really aware of hand hygiene.

[338] It's humbling, isn't it?

[339] to think that the best educated people in the hospital need to be tricked and shamed, even frightened, into washing their hands.

[340] It shows just how hard behavior change can be, whether it's hand washing or something like learning how to do a better job with your personal finances.

[341] We like to think we can flick a switch, make a resolution, maybe take a course, and suddenly we start doing the right thing, the responsible thing.

[342] But it can take all kinds of incentives, all kinds of carrots and sticks to make that happen.

[343] What if we used the kind of tricks that Cedars Sinai used for hand washing to try to increase our financial literacy?

[344] What if your 401K paperwork came with a tin of cat food to remind you what you might be eating in old age if you don't learn a bit more about it?

[345] What if your adjustable rate mortgage application came with a picture of the future, What if every time you buy a lot of it to you instead of putting some money in the money?

[346] Freakonomics Radio is produced by WNYC, APM, American Public Media, and Dubner Productions.

[347] This episode was produced by Diana Wynn.

[348] Our staff includes Susie Lectenberg, Catherine Wells, Bury Lamb, and Chris Bannon.

[349] Our engineer is David Herman.

[350] Colin Campbell is our executive producer.

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