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In the mid-nineteenth century, Vienna General Hospital was considered a world-class research center. But the hospital’s maternity ward didn’t have such a good reputation.

Sherwin NULAND: Because it became known throughout the city of Vienna that if you went onto the doctor’s division or the doctor’s clinic, you were much more likely to die.

That’s Sherwin Nuland. He’s a professor of medicine at Yale; he wrote a book called The Doctors’ Plague about the situation at Vienna General Hospital. In the early 1840’s, one in ten women whose baby was delivered by a doctor there died from what was called childbed fever …

NULAND: 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.

In 1847, one in six women died. And that was the year a young Hungarian-born doctor named Ignatz Semmelweis joined the staff. He was horrified by the situation. And he 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 were all male, the other by midwives, who were female. The death rate in the midwives’ ward was far lower. So was it a guy thing that was causing all this death? 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! Now, Semmelweis didn’t buy it. He also discovered that women who delivered their own babies, on the street, had an even lower rate of childbed fever:

NULAND: In those days, it would occasionally happen that a woman – out of wedlock – would deliver herself, sometimes in the streets! The Germans had a word for it, gassengeburten, they were street births. And he was hard put to find anybody who died when a woman self-delivered.

And so Semmelweis came to suspect the likely cause of these thousands of deaths: his fellow doctors. But how? The answer came in the form of a tragedy. A colleague of Semmelweis’s, a doctor he admired, died after getting gangrene. He had pricked his finger with a knife while giving a lesson in autopsy.

NULAND: And Semmelweis was away on a brief vacation when this happened. But 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 childbed fever who were dying.

His conclusion? Doctors were carrying what he called “invisible cadaver particles” into the maternity ward. Better known today as bacteria. But remember, this is the mid-1800’s, pre-germ theory.

NULAND: Consider a typical morning of a student or a young doctor in training. The very first thing he would do in the morning was to go to “the dead house,” as it was often called, 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 pus – around the uterus, around the tubes, the young doctor will put his hands in this. He then probably wipes his hands on a towel, and goes up to take on his regular duties as an obstetrician-in-training. Sometimes 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. 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.

Semmelweis figured if he could get rid of the smell, he could get rid of the dangerous particles. So he ordered every medical attendant who entered the doctors’ ward to submerge his hands in a chlorine wash before seeing patients. Within six months, the death rate of women in the doctors’ ward had plummeted.

NULAND: And that was it. It was as simple as that.

It was a stellar piece of medical detective work. Semmelweis not only found the cause of death, but he figured out how to prevent it. So you know the rest of the story – it became standard procedure for doctors to disinfect their hands and they stopped passing germs along to patients …. right? Well, not exactly. Consider the results of a 1996 study from a pediatric hospital in Australia. Doctors self-reported their hand-hygiene rate at 73 percent. Not great but still, considering how busy doctors are, it could have been worse. One problem, though. During the same time that those docs reported their rate at 73 percent, the nurses were spying on them, to see what their actual hand-washing rate was. And it turns out it was a pathetic nine percent. Similar studies show that doctors are consistently worse at washing their hands than any other medical staff. So, what’s going on here?

Michael LANGBERG: Doctors are human.  

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

LANGBERG: So 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. What’s disturbing about physicians is since they’re human — you would expect them to have the same rate as everybody else if not even greater rates, if not a hundred percent, than other healthcare providers. And at Cedars Sinai, I regret to report that they’re the lowest rate.

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So even at an excellent hospital like Cedars-Sinai in Los Angeles, it’s the doctors who have the lowest rate of hand hygiene. Now, isn’t 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 whatnot. But here, the doctors are the most educated people in the hospital – and the worst at washing their hands! So how’s a hospital like Cedars-Sinai supposed to solve that problem?

We’ll save that answer for later. 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.  Another problem that has really big consequences for society, bigger even than deadly germs. Yeah, I’m talking about money.

Alan KRUEGER:I’m Alan Krueger. I’ve spent most of my career as a professor of economics at Princeton. I am currently on leave to be the chairman of the President’s Council of Economic Advisers.

DUBNER:Very good, and the Council of Economic Advisers, to be the chair of the CEA means that you are in the White House talking to the president daily, just about daily economic policy. Is that about right?

KRUEGER: That’s right.

I called Krueger to talk about the state of our nation’s financial literacy – what we know about handling money, whether we act on what we know, and what the country would look like if people did better:

KRUEGER: I think first and foremost, we’d probably have greater savings. People are often in a situation where they have to live paycheck to paycheck. That’s something I think we need as a country to work to improve. Most importantly I think we can improve income growth for the broad middle class. But many people who seem to have the wherewithal to save for the future find it difficult to save. 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. And when it comes time to retirement, or when it comes time to needing those savings, they have a very thin cushion. So I think the biggest difference would be if we can improve financial literacy, and if as a result, people act based on their own personal interest to a greater extent, I think we would see higher savings, which would in the long run translate to greater investment and probably higher income growth for the country.

All right, but what are the stakes here? Maybe we shouldn’t worry too much about all those people who choose to be financially illiterate. It’s their problem, right?

Austan GOOLSBEE: I think it’s pretty important at most times, but we saw in this last financial crisis, it can become unbelievably important.

That’s Austan Goolsbee. He was Krueger’s predecessor as Obama’s top economist. Which meant that he was around for the darkest days of the Great Recession …

GOOLSBEE: So just for your own sake, you know, your own retirement, or your own making sure that you can send your kid to college and this sort of thing, you’ve got to at least know the basics of how to save money, if you’re going to invest the money, where are you putting it, that you’re not taking crazy risks that you don’t understand and things like that. 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. And those mortgages blew up, and that the magnification of those 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.

Annamaria LUSARDI: I think that financial literacy is an essential skill in today’s society. My research shows that it’s not possible to live and work efficiently in today’s society without being financially literate.

That’s Annamaria Lusardi, a professor of economics at the George Washington University School of Business. She’s originally from Italy but has spent the past 10 years looking into Americans’ financial literacy. It’s not a pretty picture. On a scale of 1 to 10 …

LUSARDI: I describe it as a four, if I have to give a number. I would describe it as insufficient and deeply insufficient in a sense.

Now the good news is that other countries aren’t necessarily better than us. The bad news is that Lusardi isn’t just guessing how bad we are; she knows it from the data that she’s collected. It began with a survey, administered by the National Institutes of Health and the University of Michigan, called the Health and Retirement Study. Lusardi and a colleague were allowed to stick in a few questions designed to see what people knew about money:

LUSARDI: So there were only three. And they were very simple. There was one simple question about can people do a two percent calculation?

Here’s the actual question. See if you know the answer: Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow: more than $102, exactly $102, less than $102?

LUSARDI: You know, we wanted to test interest compounding, but we end up really asking people, you know, how much do you get on your savings account if you invest, you know, a hundred dollar and the interest rate is two percent?

The answer is: more than $102. That’s the miracle of compound interest. All right, here’s the second question: Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, would you be able to buy more than, exactly the same as, or less than today with the money in this account? The answer is: less than today. That’s what inflation does.

And here’s the third question: Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.”  The answer is: false! A single stock is more volatile than a mutual fund. OK, how’d you do? Did you ace ‘em? Turns out that only fifty percent of respondents got both of the first two answers right; only a third of the people got all three answers right! And no offense, but these are pretty basic questions:

LUSARDI: 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 knew given that we were giving this interview to people who were 50 and older. So they had already engaged in probably a lot of financial transactions.

Lusardi 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 a problem, isn’t it? Isn’t it?

[TEASE: It’s sort of like saying, well we should start teaching everybody to be their own doctor, teaching everyone to be their own mechanic. Not only is it inefficient, but it has this sort of culture of blaming the consumer.]

That’s coming up, right after this.

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So what we’re looking at today is a pair of problems that need to be solved. The first is getting doctors to do a better job washing their hands. The second is to fight financial illiteracy. Now, in each case, it’s an open question of whether education alone is the solution. Annamaria Lusardi, a leading scholar in financial literacy research, argues that education is the answer, hands down. But another scholar argues that not only is financial education ineffective – it can actually be harmful.

Lauren WILLIS: I’m Lauren Willis. I am a law professor at Loyola Law School Los Angeles. I teach contracts and consumer law and some related courses. And I research how people actually make their decisions out there in the real world.

DUBNER: Lauren, I’m curious to know, when you tell people that yes, consumers aren’t well equipped to make the right kinds of financial decisions, but that you don’t think that education, financial education is the answer, how do they respond?

WILLIS: Well, I tend to get two very different responses. One is sort of anger that absolutely, I must be wrong. You know, I’ve gotten hate mail from people about this. They say it’s got to work, it’s got to work, you have to be wrong, the data must be wrong that shows that it’s not working. And then I also get folks, particularly people who do work in the financial industry and give financial advice, or study consumer behavior in the financial industry and they tell me, you know, you’re exactly right, 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.

Before academia, Willis worked in the Justice Department and the Federal Trade Commission. Lately, she’s argued in a couple of law journals against widespread financial education. 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. She first developed this position after reading a speech by Fed Reserve chairman Ben Bernanke about the need for financial literacy education.

[BERNANKE TESTIMONY: The evidence suggests that financial counseling can improve consumers’ management of their credit. My written testimony describes a number of other studies that document the positive effects of financial education and knowledge on financial outcomes.]

WILLIS: And he cited some papers that he said supported the idea that this would work. And I went and looked at those papers hopeful that I would find something that worked. And I was appalled. They absolutely did not prove that financial literacy education was effective, they proved that people liked the classes, they take a survey and people say ‘Yeah I liked it,’ or at least the people that stuck around to fill out the survey. And you know, people are very polite. They would say, ‘yeah sure I’m going to do all those things you told me to do when I get home.’ But there was not real evidence that people actually change their behavior and had changed outcomes.

So we’ve got a puzzle here, don’t we? You’ve got the Fed chairman and one leading scholar saying that education is the way out of our widespread financial illiteracy and you’ve got another scholar saying, hold everything — that would be a disaster! So we decided to get these two scholars together for a chat. Annamaria Lusardi in favor of financial education and Lauren Willis against. We began with something they agree on: there are tens of millions of financial illiterates in this fine country of ours, and that’s not a good thing.

DUBNER: So, 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 are dumb people and that what, you know, that’s what evolution is for, and capitalism takes care of them. So, you know, anyone who chooses to smarten up, you know, that’s a big advantage for them. What’s wrong with thinking like that?

LUSARDI: I don’t like this kind of thinking very much I have to say. I actually think that people are very smart, and they try to do the best of what they can do, but I think it’s very expensive to acquire financial education. And that’s why, you know, for the normal literacy we have set up school. Imagine a world where, you know, we don’t have school and people have to do the education themselves. It’s very expensive and very inefficient. And third, there is an externality; there is a cost to society of what other people do.

DUBNER: So, Lauren, it sounds as though you have a lot of respect for Annamaria’s research, but what do 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 teenagers and adults to be financially literate? You think that’s a good idea?

WILLIS: The problem is we are just not going to commit the resources that we would need to do that. You know, we currently don’t teach people how to do math terribly well. And 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 later in their lives. 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. 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. You, you know, didn’t go to the classes or didn’t pay attention, or whatever. And that’s not going to help in the long run.

DUBNER: So your position then is what? So if you say, Lauren, that Annamaria understands that problem quite well, but that really she’s attacking kind of the demand side, and really it sounds like you’re identifying a big set of problems on the supply side. So, if that’s the case, what do you propose?

WILLIS: Well, a few things: one is I think we’ve moved to a point where financial decisions are complex because there are complex products out there. It’s not just to 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 cadre of financial advisers, neutral financial advisers that are not going to be conflicted by also being salespeople.

DUBNER: And these, and these people are employed by whom then?

WILLIS: Well it would have to work in a similar way to other professions. And so there would have to be some folks that were doing pro bono work as well as it would simply need to become also something that people expected to pay some kind of flat fee for to get financial advice.      

LUSARDI: I’m not advocating people to become their own doctor, or their own mechanics, or lawyer, but you know, we have to educate people to ask the right questions.

DUBNER: And Annamaria, when you hear Lauren say that your idea for educating people, for giving them more financial literacy in 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?

LUSARDI: Actually this is exactly what people always tell me, you know, “It’s expensive to do financial education.” I think it’s expensive not to do financial education. And we have just seen the consequences of that. Think of how expensive has been the cost of this financial crisis. You know, a lot of people tell me that, you know, financial education is very difficult, and I love this analogy of driving, because you know, driving is also very difficult and look what we have done. We have put 15-year olds on the road. 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. Imagine that.

DUBNER: Well, also there’s the assumption that just about anybody can be taught what might look from a distance like a rather complex set of skills — driving a heavy car, right?

LUSARDI: Yeah, and you know, we are not asking people to drive in a Formula One race. Once we give you a driving license it’s not that we expect you to drive a Ferrari together with Schumacher and show that you can do that. What we are only asking you is to go slow and to be able to reach your destination, and you know, not to have accidents that can hurt you and others.  

WILLIS: So, I think the problem actually is that the current world we live in does require people to, you know, act like they, say they are the driver analogy, that they’re Formula One…

DUBNER: Michael Schumacher.

WILLIS: …drivers, right? I mean, let me just read you from the Federal Reserve Board consumer handbook on adjustable rate mortgages. “To compare two ARMs, adjustable rate mortgages, with each other, or 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.”  And so what we’re expecting from people is, in fact, Formula One.

DUBNER: 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?

WILLIS: I think if you did that then many law professors could not take out mortgages or get credit cards.

DUBNER: Now, let me ask you both to assess your own rate of, or your own level of financial literacy, with one being wildly incompetent and ten being a financial master. Where do you each rank yourself there?

WILLIS: Well I would rank Anna a ten, but … So, I would rank myself about a five.

DUBNER: That’s it! Really?

WILLIS: But the truth is I don’t have to be very financially literate in order to get along very well financially in life. 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. 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. And so I don’t have to be very financially literate, because the world is actually set up to help me quite a bit.

DUBNER: At least your fairly narrow, wonderful corner of the world.

WILLIS: Exactly, exactly.

DUBNER: And you want to make the rest of the world a little bit more like your wonderful corner.

WILLIS: Exactly.

So where do you come down in this debate? Is financial illiteracy something that should be fought on the demand side, through widespread education, like Annamaria Lusardi 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, that some combination of both would be much better than nothing at all. I get Willis’ argument that widespread financial education might be a massive waste of money. 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 advisers to get people out of their messes? The fact is that financial illiteracy is a hard problem to solve. It requires a fair amount of knowledge, a good bit of willpower – and it probably calls for some creativity. Like other hard problems.

Remember the situation at Cedars-Sinai Medical Center, with doctors not washing their hands? Dr. Michael Langberg says their hand-hygiene rate was about 65 percent …

LANGBERG: That would mean that 35 percent of the time it wasn’t being done. 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 it wasn’t as if they didn’t know the danger of carrying around bacteria on their hands. Cedars-Sinai tried a bunch of ideas that seemed to make sense: putting up signs and sending out e-mails; handing out bottles of hand sanitizer; even awarding $10 Starbucks gift cards to doctors who did wash their hands. But none of this boosted the handwashing rate. So rather than moving forward, Cedars-Sinai took a step backward:

LANGBERG: We had an effort to prove to the physicians that, believe it or not, physicians’ hands can carry organisms. 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.

That’s right. The docs 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. After two days of incubation, the petri dishes grew a bunch of yellow bumps in the shape of a hand – bacteria. 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 make it into a screen saver on the hospital’s computers. Langberg says the staff was shocked.

LANGBERG: ‘Ugh!’  Or ‘ooh’  Or ‘that’s disgusting.  I can’t believe that was on my hand. I can’t believe I didn’t know it.’

The screen saver did its job: the handwashing rate shot up to nearly 100 percent. 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.

LANGBERG: So we’re walking outside my office, and you can see right there my assistant has a large bottle of Purell. You take two steps over here and my colleague on his table has a bottle of Purell.  Walk this way. The entrance to my office suite has a bottle of Purell.

And it’s not even enough just to be vigilant; sometimes you’ve got to be a little wicked too. How about a little shaming? That’s right – the names of doctors who failed to wash their hands were made public during departmental meetings.

LANGBERG: The first time it happened, I think subsequently other people in the room are texting the individuals to say,  “Do you know that your name was up here for having been caught not doing hand hygiene?” And as much as you want to reward people for doing it, these kinds of consequences, um, actions, have had a really important impact on the way in which physicians are really aware of hand hygiene.

It’s humbling, isn’t it? To think that the best-educated people in the hospital need to be tricked and shamed and even frightened into washing their hands. 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. 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. But it can take all kinds of incentives — all kinds of carrots and sticks — to make that happen. What if we used the kind of tricks that Cedars-Sinai used for hand-washing to try to increase our financial literacy? What if your 401(k) 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 investing? What if your adjustable-rate mortgage application came with a picture of the future you, living in a cardboard shack on the sidewalk after you fail to keep up with your payments? What if, every time you buy a lottery ticket instead of putting some money in the bank …

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