Do you know what you don’t know?
eZonomics poll respondents could well be highly financially literate and about half of them may know more than most people about managing money. But it is also possible that some are overestimating their abilities. The poll question raises important questions about how aware we are of our strengths and weaknesses – and how we can fall into thinking traps about money.
We all can’t be better than average
It’s not uncommon to think we know more than other people about a subject. In the ING International Survey on Financial Competence, for example, many of the 11,000-plus respondents thought their financial knowledge was “more than the average person”. In six of the 11 countries polled, more than a third of people said they knew more than the average person in their country. But we can’t all be better than average. The French were the most likely to say in the survey that they “knew about the same” as the average person. Italy was the only country in which more than 20% said they knew “less than the average person”.
The two sides of overconfidence
Viewing ourselves as knowing more than others taps into the notion of overconfidence. As economist and writer Chris Dillow blogged for eZonomics, overconfidence can be a double-edged sword for individuals. At one level, overconfident people send out cues that are often (wrongly) interpreted as signs of genuine ability, perhaps winning promotions at work. Commonly though overconfidence is seen as a dangerous trait that can lead investors, for example, to underestimate uncertainty and take on more financial risk than intended.
It’s never too late to learn
It’s never too late to boost our understanding of smart ways to manage money. The ING International Survey found popular sources of financial education were learning at school, being taught by family and friends or being “self-taught” via the internet, TV, radio and press reports. When learning about money, consulting a wide range of sources can be a good idea. An earlier eZonomics poll highlighted that simply turning to family as a single source of education can be problematic, particularly as they might pass down habits or traits that no longer make financial sense.
This article is related to the ING International Survey: