Heartened

"For teachers of psychology, the implications of this study are disheartening. When we teach our students about the behavior of people in the helping experiment, we expect them to learn something they had not known before; we wish to change how they think about people's behavior in a particular situation. This goal was not accomplished in the Nisbett-Borgida study, and there is no reason to believe that the results would have been different if they had chosen another surprising psychological experiment."

So wrote the 2002 Nobel Memorial Prize winner in Economic Sciences, Daniel Kahneman, professor emeritus of psychology and public affairs at Princeton's Woodrow Wilson School, in his book, Thinking, Fast and Slow (2011).

In light of my recent work teaching children about personal finance, I too am disheartened. That is, till I read on.

Nisbett and Borgida went back to the drawing board and came back with this conclusion:

Subjects' unwillingness to deduce the particular from the general was matched only by their willingness to infer the general from the particular.

Or, as Kahneman explains, "The test of learning psychology is whether your understanding of situations you encounter has changed, not whether you have learned a new fact. There is a deep gap between our thinking about statistics and our thinking about individual cases...You are more likely to learn something by finding surprises in your own behavior than by hearing surprising facts about people in general." 

This is encouraging for two reasons. First, it supports my belief that the majority of children's books written on personal finance, despite their preponderance of facts and bold print words, are falling on deaf ears. Kids, hell, all of us, need a more personal story that we can identify with. In other words, there is a place for the series of kids' books that I'm working on.

Second, it paves a way for how to teach financial education in the classroom. While the kids have occasionally oohed and aahed at the cost of college or the price of a home, these facts alone will not establish good financial habits and behavior. They simply map out markets for the kids to refer to in the future. While this is important, it is not the focus of the class. The focus is to establish good financial habits and behavior. Personal stories of kids like them have the power to give the message staying power.

This semester I have focused on drawing parallels to school, an environment the kids are familiar with. Next semester I'll focus more on eliciting personal stories from the kids and using those stories to make points about personal finance. That is one of a few key changes I plan on making. 

The Lingo

Within the next ten years the six to nine year olds I work with in the Get Cheddar Club will be formally introduced to Shakespeare, the U.S. Constitution, DNA and Darwinism. Unfortunately, I have done their future teachers a disservice.

In an attempt to introduce the kids to confusing and confounding financial language, I primed them with lines from the not-always-easy-to-understand movers and shakers mentioned above (as well as Thomas Hardy's pithy line, "Some folk want their luck buttered.") in a drive-by intro.

As in previous classes I drew a parallel to their experiences in school.

"Who wants to get good grades in school?"

They all raised their hands high to the question. They all then did their best to read words and ideas severely unfamiliar to them. And they all plead guilty to not understanding what they had read. Bless their hearts.

How much, I asked, would you bet that you'd get an A on what you just read? A little or a lot? I then waited for them to reply: a little.

"A lot!!!" they all answered.

"Yeah?"

"Yeah!"

I had a feeling this was a conditioned answer, one based on confidence and expectations. I then walked them through their options. Eventually they changed their minds to a little.

"Who wants to own their own home?"

Again hands shot up in the air.

"Well then, you'll have to read this." My assistant and I then handed out sample mortgages to all the kids.

"Elena, please read the first paragraph."

Elena did so, battling through the legalese, but as she did the others skimmed the material and quickly decided they had had enough for one day, especially if no one was going to butter their mortgages never mind their luck.

I then rephrased my earlier question.

"If you don't understand this, would you sign it?"

"No!!!" they responded loudly.

"Why?"

Now I had conditioned them to answer no. Their reasons for not signing didn't quite add up. They didn't quite understand the danger of signing something they didn't understand. And this is where the chorus to the day's song came in handy:

If I don't get it,

you don't get it.

In other words, "If I don't understand, you don't get my money." They ate that up. It has attitude especially when sang three times, each time louder than the time before. In fact, it got going so good that one little boy in class outdid my conducting by introducing a little MC Hammer touch with a, "Stop!" His classmates adopted that immediately. 

While they may bristle at reading Othello or their biology textbook in high school, I can only hope when posed with a difficult financial document to sign that they remember that chorus and ask questions or walk away. Leading up to the financial crisis of 2008, too many people signed mortgages that they didn't understand out of fear of looking like a fool or weak in front of a loan officer, their spouse or their neighbor. And too many feared questioning the financial products they sold and didn't understand.

They didn't get it, and we all ended up getting it alright. 

The Rub

Shortly after teaching a class on the marshmallow experiment, I heard back from the American Psychological Association (APA) about my children's book on the subject. Unfortunately, the APA did not accept Cookie-Wise Pablo for publication. Among other reasons for rejection, the APA cited new research on the experiment.

Findings from the new research are interesting. First, they ran the experiment differently. Before the experiment even began the kids had an encounter with an adult. One adult offered to bring the kid art supplies and flaked on the promise. The other adult came through on the promise.

According to the experimenters' abstract, here is what they found:

Children in the reliable condition waited significantly longer than those in the unreliable condition (p < 0.0005), suggesting that children’s wait-times reflected reasoned beliefs about whether waiting would ultimately pay off. Thus, wait-times on sustained delay-of-gratification tasks (e.g., the marshmallow task) may not only reflect differences in self-control abilities, but also beliefs about the stability of the world.

Fascinating stuff that totally makes sense, right?

To a certain extent, yes. But there are holes or, at least, questions remaining.

It makes sense that this may not wholly be a question of nature or nurture. After all, how often does that happen? It makes sense that the answer may be a combination of the two.

It also makes sense that children in the reliable condition waited significantly longer for the second marshmallow. They just had a reliable encounter and may, in general, have more reliable encounters than unreliable ones. But some children in the reliable condition still did not make it to the second marshmallow. Why? Maybe because they, in general, have more unreliable encounters than reliable ones making a reliable one an aberration.

Or, maybe the kids in the reliable condition that did not make it to the second marshmallow do not have the skills or good habits to successfully delay gratification. These kids can benefit from a book where the protagonist builds these skills and habits.

And what about the kids in the unreliable condition? Are they right to eat the first marshmallow immediately? When the person offering the marshmallow is unreliable, yes. But what about when the person is reliable? If the person is reliable and the kids eat the first marshmallow they have just lost out on a second. In this case the kid who had the unreliable experience is performing a knee-jerk reaction and is not weighing the new offer on the substantiated merits of the person making the offer (unless the person who flaked earlier and the person who offered them the marshmallow are one and the same).

As my prior research has shown, the cities in the U.S. with the highest average credit scores are those in the upper-midwest (Wausau, WI, Minneapolis, MN, Madison, WI, Cedar Rapids, IA). Areas with low incarceration rates and knowledge handed down over generations among people with good habits. In other words, these are the kids who have reliable encounters and who believe they will be rewarded for waiting for the second marshmallow.

Cities in the U.S. with the lowest average credit scores are found in south Texas (Harlingen, Corpus Christi), Mississippi (Jackson) and Louisiana (Shreveport, Monroe) and are, in general, minority-majority communities. Cities with higher rates of incarceration that make it difficult to hand down knowledge from one generation to the next. In other words, these are the kids who have unreliable encounters and who do not wait for the second marshmallow because they do not believe it will ever come. I don't blame these kids for eating the first marshmallow, but there's more to the story.

Not trusting one's father or neighbor is one thing. Not trusting (bear with me on this one) the rule of law and its ability to safeguard consumers from merchants is something else. Then again, as a minority why should you trust the rule of law if it only persists in putting you in jail? Or if, as is well-documented, the law is not equitably executed and you are taken advantage of by banks and their egregious lending rates to minorities? And there's the rub.

As I've learned capitalism is based on trust. If there is no trust, there is no trade as consumers doubt the products merchants sell and merchants doubt consumers' ability to pay. Part of establishing trust is a properly functioning rule of law that protects consumers and merchants. Without an equitable execution of that rule of law, trust breaks down among those who find themselves on the short end, in this case, those who have more unreliable encounters than reliable ones.

For as much as I believe in a book's ability to fill knowledge gaps left by broken families and unreliable individuals or communities, it would be disingenuous of me to portray a minority waiting for a second marshmallow when that does not line up with their reality.

Back to the drawing board.