STUDY | 
Finance
 BEHAVIOR CHANGE

Financial Literacy, Information, and Demand Elasticity.

Hastings & Tejeda-Ashton (2008)
Summary by 
Mark Egan

The authors use a survey and an experiment with participants in Mexico’s privatized social security system to examine (1) how financial literacy impacts workers’ choices and (2) how simplifying information on management fees may increase measures of price elasticity sensitivity among the financially illiterate.They find that when presenting fees in pesos instead of annual percentage rates, financially illiterate workers focus much more on fees when choosing between investment funds and select funds with lower average fees. Even though changes in information have small impacts on the fees of the selected fund, the changes in choice behavior imply a substantial increase in price sensitivity. Hence, the way in which information is presented to workers can have a substantial impact on optimal fees that firms can charge in the marketplace.