Americans are Innumerate and Broke

And not just the ones I tell stories about from my clinical law teaching.  Some of our readers have written in to say that these clients of ours, these title loan and payday loan customers, are idiots or worse yet, should be institutionalized for their stupidity. Most of my stories about our clients have to do with not being able to do complex math.

Now we learn that most consumers think that 36 months is longer than three years.  And these are “regular” Americans, not those dullards who use sub-prime credit.  A study in the Journal of Consumer Research proved that as a result of something called the “unit effect,” no doubt a behavioral bias similar to framing, “people typically fail to realize that the unit of quantitative information is arbitrary.”
As one cool math blog reports, this “unit effect” leads to anomalous conclusions: to most consumers, the difference between an 84-month warranty and a 108-month warranty looks bigger than the difference between a 7-year and a 9-year warranty. A 95 out of 100 rating looks better than 9.5 out of 10. Is it any wonder at all that interest rates stated by the month or bi-monthly make it hard to calculate the cost of credit?

On another topics, a study by the National Foundation for Credit Counseling found that if confronted with an unexpected bill of $1,000, only 36% of respondents would be able to tap an emergency fund. Either of these studies is depressing enough alone, but together they are a real recipe for disaster. It seems that we are losing ground against the purveyors.  The more we try to educate people, the worse it gets.