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Is a little bit of knowledge a bad thing?

January 31, 2013

We’ve all seen the movie that didn’t end the way we thought it would.  A great storyteller can put a twist on the ending and throw us all for the loop.  I think that is one of the joys of being human.  Things don’t always go as planned.  This is also true with it comes to research on personal finance education.

A study done by Cliff Robb and Deanna Sharpe (2009) looked at the effect of financial literacy and credit card usage at a large Midwestern University.  The hypothesis was pretty much a no brainer in they guessed that students who had higher financial literacy scores would use credit cards better.

Guess what?  They were wrong.  In this research study they found that students with higher levels of financial knowledge had significantly higher credit card balances.

The conclusion was that there needs to be amore effective way to deliver personal finance education.  A little education in the current system was harmful to these students.  I don’t know why and the research for this project didn’t discover why, but maybe a little knowledge is worse than no knowledge.

With a little knowledge, individuals may feel like they can control the risk and understand how to use credit cards to their advantage.  Unfortunately they can’t.

I’ve heard of a similar situation with card counting.  When the movie 21 came out about the MIT blackjack card counters some thought the casinos would hate this as it would teach everyone how to get the advantage on the house at the casino.  Surprisingly, it seems some casinos enjoyed this movie coming out because they knew it would increase gambling and most amateur card counters lose money.  This is another situation where a little information can be harmful.

So what should we do?  Should we get rid of personal finance education?  Is a little bit of knowledge in a high school course or by playing the Stock Market Game teaching students to misuse credit and day trade to make money?  I’m not sure, but it appears if a school doesn’t embrace a full personal finance curriculum and just adds a week or two on top of another class it can actually do more harm than good.  Hopefully, the research in this field continues.

Work Cited:

Robb, C.A. and D.L. Sharpe (2009)  Effect of Personal Finance Knowledge on College Students’ Credit Card Behavior.  Journal of Financial Counseling and Planning.  20 (1), 25-43.

2 Comments leave one →
  1. terry rooster permalink
    January 31, 2013 9:22 pm

    I wonder if the same idea holds true for teaching middle schoolers how to put on condoms.

    • January 31, 2013 10:09 pm

      I would agree. Another article I saw a while back said it was bad to say something like 4 out of 5 college students drink because then everyone thinks it is O.K. since other people are doing it.

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