Five Questions With: Stephen A. Atlas

Stephen A. Atlas is an assistant professor of marketing with the college of business administration at the University of Rhode Island. / COURTESY UNIVERSITY OF RHODE ISLAND
Stephen A. Atlas is an assistant professor of marketing with the college of business administration at the University of Rhode Island. / COURTESY UNIVERSITY OF RHODE ISLAND

Stephen A. Atlas is an assistant professor of marketing with the college of business administration at the University of Rhode Island. Atlas is embarking on a new study looking at human behavior as it relates to financial literacy. He talks with Providence Business News about the resiliency of financial literacy education, the scope of his research and what he hopes to achieve.
PBN: First off, can you tell our readers why you wanted to study the resiliency of financial literacy education?
ATLAS:
Financial literacy is a vital skill in today’s economy. Unfortunately, most young adults are not equipped to hold primary responsibility for their financial future. While hindsight is always 20/20, the future looks fuzzy for a consumer – especially a young adult— facing an array of complicated financial options such as credit cards, student loans, a new car or a lease. Who hasn’t thought, “If only I had known that sooner…?” So educators seek to increase consumers’ financial knowledge in order to improve the choices being made and produce broader benefits for society. Yet, in practice it is hard to sustain healthy financial behaviors such as budgeting, saving for emergencies and using credit cards responsibly. Like all knowledge, financial literacy tends to be forgotten when it isn’t practiced and reinforced. So by understanding how financial literacy evolves over time, we can improve methods to encourage financial behaviors that increase financial well-being. Studying why people forget may help us develop better ways for making financial knowledge persist longer.
PBN: What’s led you to believe financial literacy is not as resilient as other learned skills?
ATLAS:
We all know from experience that some physical skills, like learning to ride a bicycle, are retained without reinforcement for years. In contrast, studies show that most knowledge tends to be forgotten over time when it is not reinforced. Fading financial knowledge can create some expensive blind spots. While we’d notice right away if we’ve forgotten how to ride a bike, we might not notice for years that we’ve made poor choices with low financial literacy. The damage may really add up.
PBN: Can you give us some details about the scope of your study?
ATLAS:
This project tracks a diverse group of college students for a year after they complete a financial education curriculum and receive periodic education supplements. We want to know what happens to their financial knowledge, confidence and financial behaviors after financial education. Do financial behaviors such as credit card use and saving for emergencies change due to changes in financial literacy and confidence? We are also following up with an online study reaching out to a nonstudent population. Understanding how financial literacy evolves over time is particularly important when we consider that confidence and knowledge jointly influence consumer decisions. Improving confidence is typically a key objective of financial literacy programs – without confidence, consumers fail to apply their knowledge to make better financial choices. But as knowledge fades, there is a risk of overconfidence, which has been linked to adverse behaviors such as excessive stock trading, pursuing high-risk investments and failing to seek financial advice when needed. In other words, we tend to think we know more than we actually do, and that can lead to poor decisions. As knowledge fades, it may be that overconfidence causes previous financial literacy efforts to fail. This project is a collaboration with URI Professors Nilton Porto and Jing Xiao, and we are grateful for input from URI’s Mental Accounting and Pricing Lab. We are supported by a $176,000 grant from the National Endowment for Financial Education.
PBN: Why is it important for people – young or old – to improve their financial literacy?
ATLAS:
Without financial literacy, it’s hard to tell the difference between good and bad financial choices. Society empowers consumers to make a wide range of financial choices with varying consequences for themselves, their families and communities, today and in the future. Consumers’ financial intuitions are often incorrect and impulsive, and the incentives for firms offering financial services often do not align with their customers’ needs. As a result, what seems like a good decision today may be regretted in the future. Our research focuses on young adults, whose low financial literacy is well-documented: Fewer than one in five young adults has high financial literacy. Meanwhile they are making key financial choices that can dramatically alter their lives: 23 percent are spending more than their income, 68 percent have no rainy day fund and 22 percent already have a mortgage, with an additional 20 percent projected to get a mortgage in the next 10 years. Prudent decision-makers must arm themselves with a basic understanding of what financial alternatives exist and how to pursue the options that are most likely to lead to long-term financial well-being. These factors affect people of all ages. Lack of adequate retirement savings for those nearing retirement age is also a well-documented personal finance challenge.
PBN: What’s the best-case outcome you’re hoping for with this study?
ATLAS:
We are hoping that this project will produce ideas for improving consumer financial behaviors. In particular, we expect that this project will shed further light on how knowledge and confidence decay over time and how these factors jointly influence financial decisions in a young adult population. We want to understand what factors in financial education contribute to positive financial outcomes. This will help educators and advisers design more effective interventions.
Once we develop the platform to administer financial education and track financial literacy over time, we will be looking for partnerships to reach other populations beyond college students. We are interested in collaborating with financial services firms that have a shared interest in research on this topic.

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