Are We Financial Fools?

Is financial illiteracy “rational ignorance”— that is justified because the costs of paying attention outweigh the benefits? The New Yorker warns that the depth of our financial ignorance is startling yet few decisions affect us more directly than the ones we make about our money. “The difference between knowing a little about your finances and knowing nothing can amount to hundreds of thousands of dollars over a lifetime.” One solution is regulation, to help curb the finance industry’s most predatory excesses, it says. Another is to tinker with “choice architecture”, helping nudge people toward better decisions.