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United States: Academics Question Financial Literacy Strategy, Recommend Advice

Some academics question the drive towards helping consumers increase their financial literacy as a strategy for generally improving financial outcomes. Instinctively I do not like this idea. One habit I have is trying to reverse the position - in this case by asking, 'would more financial ignorance help?' Somehow the answer seems obvious - no, of course not. But the author of this new paper is making a point about a certain threshold above which the gains from financial literacy are not worth the effort. At some point you are better off getting advice. This is the key sentence from the abstract:

"Consumers generally do not serve as their own doctors and lawyers and for reasons of efficient division of labor alone, generally should not serve as their own financial experts."

I have often used the phrase "be a good shopper" when talking about how consumers need to be careful with any purchase process - financial services just as much, if not more. But there are limits to the ability of all customers. Our compliance adviser likes to remind us of this by talking about consumer "capability and preference." Financial literacy is a component of consumer capability. Put another way, should every consumer get a level five qualification in order to make their own insurance purchase decision? No! An adviser can efficiently share that cost across hundreds of consumers making thousands of decisions.


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