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

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Our latest podcast is called “What Do Hand-Washing and Financial Illiteracy Have in Common?” (You can download/subscribe at iTunes, get the RSS feed, listen live via the media player above, or read the transcript.) It explores the idea that most problems are solved by more education — except when they’re not.

You’ll hear Michael Langberg, chief medical officer at Cedars Sinai Medical Center in Los Angeles, talk about why doctors there (and elsewhere) routinely fail to wash their hands despite the evidence suggesting they must:

LANGBERG: There’s something in the human condition that somehow disconnects what is really good evidence from personal choice and habit. And I don’t know why that is. I’m not a psychiatrist; my field is internal medicine. I just have the observation. Physicians are no different.

You’ll also hear National Book Award winner Sherwin Nuland, another doctor, talk about Ignatz Semmelweis‘s discovery of the importance of hand hygiene.

We then turn to the topic of financial literacy, which we’ve written about before. You’ll hear from Alan Krueger, chairman of the White House’s Council of Economic Advisers; and from Krueger’s predecessor, Austan Goolsbee, who talks about the role that Americans’ financial illiteracy played in the Great Recession.

You’ll then hear from two guests who offer up radically different solutions to our financial illiteracy. One is Annamaria Lusardi, an economist at George Washington University, who has spent the past 10 years studying the topic, and believes that education is the way out:

 LUSARDI: In the same way we start people, you know, in school just reading and writing, you know, from the very beginning. We don’t teach literature so that people go on and write “War and Peace,” but we teach it so that people can appreciate a good book.

Next is Lauren Willis, a legal scholar who previously worked at the Justice Department and the Federal Trade Commission. She has argued against widespread financial education, recommending instead a new cadre of financial advisers and greater transparency and regulation in the financial industry:

WILLIS: 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, terribly inefficient to do that. Not only is it inefficient, but it has this sort of culture of blaming the consumer. You know, you’re the one who didn’t figure this all out.



Hi! I listened to freakonomics today & found myself yelling out loud for the opportunity to become financially literate. I am consciously incompetent when it comes to my finances, I know I don't know anything. I want to learn & it would be awesome if you could do a show that talks about how to become financially literate, at least provide some resources.
This weeks show just made me feel like an idiot- worse actually- a helpless & hopeless idiot. While I may pass the quiz & don't pass the test: no retirement fund, a handful of debts, & a bazillion questions about how to run a business & set myself up for a bright financial future plague me.
I know I don't know how to manage my fiances & I want to learn, to empower myself to at least move the car (I don't need to hit the race track!). Most Americans are not irresponsible drivers because we have had defensive driving drilled into our practice. That humility & judgment can certainly translate to our financial knowledge if we are given the chance to learn. Of course there will always be people who take risks & invest irresponsibly, but isn't that already happening out of our ignorance? Sounds like we as a country have nothing to lose by learning how to pay attention to our financial situation. Do you have suggestions of where to look to learn how to learn about the language of money? I'm tired of being illiterate.



1. The Only Investment Guide you'll ever need - Tobias
2. The Four Pillars of Investing - Bernstein
3. A Fool and His and Money - Rothschild
4. A Piece of the Action - Nocera

Video: "Maxed Out"


I have to take issue with this podcast, which I think was based on a premise that was poorly thought-out. To put forth the idea that our recent economic crisis was brought on simply because poorly educated people got in over their heads with risky mortgages is insulting to Americans. Of course that was part of the problem, but you can't simply eliminate factors such as predatory lending.

It is not unreasonable (or a mistake of the uneducated) for someone to rely on experts to properly inform them of the risks of a particular investment, and absent the integrity of those folks to be truthful it is unfair to place the blame on someone who may in fact have questioned the mortgage product being suggested by the lender and received assurances that it was OK. I could go into further detail, such as banks using pre-tax income and unrealistic income/expense ratios to qualify purchasers, but I think you get the point.

I understand your hand washing example and I understand the issue with financial literacy, but using the mortgage crisis as the precarious line drawn between the two was a mistake, imo.

Brooklyn, NY


Danny Chamovitz (@DanielChamovitz)

I was struck by what Lauren Willis said about most people not having the capability of understanding financial material. You went on to list a bunch of financial jargon that few of us can define.

This paternalistic approach is really no different from much of society's approach to people with intellectual disabilities. This could be a great lead in to a new podcast on accessibility and language simplification. I've become attuned to this issue since my wife has been instrumental in defining a framework for accessibility for people with intellectual disabilities (Shira Yalon-Chamovitz (2009) Invisible Access Needs of People With Intellectual Disabilities: A Conceptual Model of Practice. Intellectual and Developmental Disabilities: October 2009, Vol. 47, No. 5, pp. 395-400.). The key issue here is that language simplification helps everyone, not only those with intellectual disabilities. When she was pushing forward legislation on language simplification, the biggest fights were from financial institutions, who profit from our ignorance. Something to think about (also museums were reticent, but that comes from intellectual arrogance, which may be no different).


Al H

Wow, Lauren Willis has sure missed the boat on this one - typical lawyer logic. Lets teach high school students things like the periodic table, or how to calculated the angle of obtuse triangles. Those are things we will all be using for the rest of our lives - don't you think. Now to think that teaching students how to balance checkbooks, or understand compound interest, or basic economics is too costly to schools????

Also, if you need a financial planner to explain your new mortgage terms, then I think you better not take out that mortgage. The banking system has gotten so convoluted that Ben Bernanke can't keep things straight. Perhaps we need to tie the interest rates to derivatives.

Jeff Bowen

It is true that managing money is complicated and risky. But while some people can choose not to drive a car, everyone has to manage their money. Sometimes we have to manage other people's money too,such as our children or parents. I think the idea of a license or permit is good. You might have a permit for Vanguard index funds, or large or madcap stocks. More training would permit you to purchase small cap stocks, ETFs, and adv level for buying and selling puts and calls?
This is the first person I have ever heard on NPR or anywhere that advocates against people getting education or training! Very elitist!


When I heard Ms. Willis's idea I thought she was ...well wack. However, after hearing her I realized she is advocating the same idea that frustrats me with the publix school education of my son. Focus on the education quality of basic consepts like math, morals history and science. When we make sure that we educate strong basic skills we can foster strong common sense and effecient self preservation skills.


This seems like one of the top three topics of the decade.

Personally I benefitted enormously from Dave Ramsey's Financial Peace University - a 13 week course on a range financial topics - budgeting and beyond. That program is 2 hours per week and costs only $100 for the whole thing.

While I appreciate the car mechanic analogy - a lack of car repair knowledge is unlikely to have the same long term consequences as financial ignorance.

Grateful for Freakonomics,


Sometimes the logic on Freakonomics gets in the way of the story for me. Comparing doctors, who as the podcast points out are the most highly trained in their world, to the average financial consumer just feels a little off the mark. The better analogy might be to compare doctors to the Wall St. folks, the most highly trained of the financial people. We want doctors to wash their hands because of the damage they can do to other people. We want finance people on Wall St. to make financial decision that will help everyone. The analogy should be more like a patient goes to a doctor to get better (not to have his/her dirty hands make you sick), and the average citizen goes to Wall St. to invest for his/her future security (not to have his money used and lost). The doctor doesn't suffer from not washing his hands, so he doesn't change his behavior. Wall St. doesn't suffer, they get bailed out, so they don't look out for the investor. It is Wall St. that should be punished for bad decisions, not the average person who invested in Wall St. Not to mention that we have presidents who tell us to be good Americans by spending and not saving. That's another story but one that begged to be mentioned when this podcast told us that the average person is financially illiterate - why wouldn't they be when they don't even good advice from their leaders? And we're being told to spend while real wages are going down, so you do what your president and culture are telling you to do by going into debt. It often feels like Freakonomics misses the bigger point that could be made.



While I agree with Ms. Lusardi's idea of increasing financial education it will, unfortunately, never occur. Financial education at the high school level will never happen because it is not part of the core curriculum (English, math, science, etc.) for graduation and/or preparation for college and there is a lack of funding, political support, qualified teachers and approved curriculum. Then again, why don't we extend Ms. Willis' idea of not teaching financial education and free up some resources to teach financial education by cutting a few subjects at the high school level. Hey, you don't need four years of English. We'll make it three years. Why? Well, we can let the English majors write stuff so you don't have to. We can also let the Math majors do all the math so you don't have to and therefore cut a year of math from high school. Now we do the same for science and history; we can probably cut political science and economics altogether. With all of these cuts, thank you Ms. Willis for the idea, one should now be able to fund financial education at the high school level.

As for the level of financial education one has and their ability to succeed: To succeed you need education and/or training and the ability or resources to use that education/training. Knowledge of investing, IRAs, compound interest, etc. is great but it is of no use if you if you don't have a job and you're broke.


Mumbo Jumbo

The reason that nurses wash their hands more than doctors is that they're actually trained to wash their hands, there's way too much material to cover in the 4 years of med school, so doctors wind up never really thinking about it. If you put enough resources toward teaching doctor's to wash up, they'd do it.

Also, doctor's have the cleanest job in the hospital. Who do you think is going to wash their hands more, the doctors who chat with the patient from a safe distance and then order labs or the nurse who cleans up poop on a daily basis?


Thanks for the awesome podcast.
What is the music which was played in the background? Thanks

M. Jane

Really? Austan Goolsbee thinks that the _cause_ of the US is in a recession is due to poor mortgage decisions by individuals? Ah, hello unfunded wars and massive broken pensions, companies that can legally sell and sell short the same MBS, and and and... brought to you by our lawmakers. Those in the know, those who claim to be literate should go look in the mirror, pulease freakanomics. The fact that this man was the top economist blaming the whole of the financial meltdown on individuals truly is scapegoating in its ugliest form. That individuals have not held their lawmakers accountable, this could be laid at the feet of individuals--but the cause of the financial meltdown and boondoggling rescue attempt with no strings attached money give-away, come on!!!!

Just a few facts as foder: Private, competitive mortgage securitization is believed to have played an important role in the U.S. subprime mortgage crisis. (Wiki) Wars in Iraq & Afghanistan: The final bill will run at least $3.7 trillion and could reach as high as $4.4 trillion, according to the research project "Costs of War" by Brown University's Watson Institute for International Studies. (www.costsofwar.org) The landed cost of a gallon delivered to the front lines for our troops in Afghanistan cost more than $400. (Politifact Ohio) There's lots more for Goonsbee to research should he like to try to make some more guesses on what "caused" this recession, speaking of literacy.


Lifestyle Of Change

Financial illiteracy is only part of the reason the "Great Recession" occurred. As we learned earlier in this podcast, many people even if people knew that spending their money in a detrimental ways would cost them their financial security or even their houses, that they would still spend it in these ways. We're stubborn and all know-it-alls!

That being said, education is key, key, key. Advancements and progressive trends in innovation, economics, and other topics only come from learning further and learning more. Basic economics and even math in this country on a global scale is VERY low. We're dependent on others to do everything for us, whether that be changing a tire, or saving our money for us. I miss the good old days when someone could manage their own life without having to call, text, or email somebody for help.

Learn on,

Lifestyle Of Change


You did not touch on why nurses performed better than doctors in hand washing. I suspect that it is for the same reason of organisational culture that afflicts other occupations as well. In short, they say to themselves, infection comes from the plebs, we are superior and are above such considerations. For instance, surgeons are notorious for being above criticism. So are airline pilot captains, some of whom accept no advice from their copilot even when safety is concerned and it is the copilots responsibility to do so. There is enough here for another programme as there is much effort in aviation to change such attitudes.


I think a big point has been missed here. Hand washing and financial management are examples of people's habits. Of course a 16-week course that meets for one hour once a week will have little effect on a person's habits. The way we can change it is to 'practice' good financial habits from a young age.


Education doesn't always work, but fear does ;-)