Tuesday, March 29, 2011

Financial illiteracy hinders savings - Pittsburgh Tribune-Review

Financial illiteracy hinders savings - Pittsburgh Tribune-Review:

"A working paper just published by the National Bureau of Economic Research, on two explanations for why consumers have trouble with financial decisions.

'One is that people are financially illiterate since they lack understanding of simple economic concepts and cannot carry out computations, such as computing compound interest, which could cause them to make suboptimal financial decisions,' wrote Olivia Mitchell, the director of the Pension Research Council, and Justine Hastings, an economics professor at Yale University, in their paper, 'How Financial Literacy and Impatience Shape Retirement Wealth and Investment Behaviors.'

'A second is that impatience or present-bias might explain suboptimal financial decisions. That is, some people persistently choose immediate gratification instead of taking advantage of larger long-term payoffs."

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