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Finance and fake news: how misinformation can hurt your personal bottom-line

New study finds mistrust of banks can overshadow objective savings
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MILIDAE CLAIRE UY/THE VARSITY
MILIDAE CLAIRE UY/THE VARSITY

A recent U of T study has revealed that misinformation can affect financial preferences. “Elaborating on the Abstract: Group Meaning-Making in a Colombian Microsavings Program” analyzes observations from a Colombian government-sponsored program that saved participants money, promoted financial literacy, and allowed them to discuss their experience with banking in groups.

The results of the program yielded a surprising discovery: as financial education and literacy amongst the participants improved, interest in offered financial products decreased. The authors of the study attribute this seemingly paradoxical result to negative anecdotes, hostility toward financial institutions, and general misinformation.

Interpreting the results

Objectively, the microsavings program resulted in increases in savings, with participants’ median monthly savings increasing from 3.15 USD to 9.44 USD by the end of the program. However, this increased level of savings was accompanied by a decline in financial product interest with only 64.9 per cent of participants interested in financial products at the end of the program, compared to 73.6 per cent at the beginning of the program.

In studying this seemingly counterintuitive result, the study found that the Colombian government used vague and abstract messaging to describe the financial program, leaving participants to augment their understanding of it through group discussion. Said discussion was replete with three factors: anecdotal negative experiences with banking, rumours and misinformation regarding the program, and negative delivery of otherwise neutral information. 

“In development economics literature, there’s a strong expectation that as people’s material conditions improve, they’ll become increasingly interested in formal financial products,” Laura Doering, an associate professor in the Rotman School of Management and co-author of the paper, said in an interview with The Varsity

“Our expectations about how our financial preferences are formed don’t usually account for how we receive information and how we digest that information in groups. This study… [shows] that our financial preferences are very much affected by these processes.”

Mass communications, mass misunderstandings

Information released by governments and institutions is meant to be digestible and easy to understand. However, the simplification of complex information can result in misunderstandings. Although the findings focused on the actions of participants in one microsavings program, Doering explained that she sees the implications of their findings as being broadly applicable to any institution attempting to disseminate abstract information to large and diverse audiences.

“[If] I have to share information with 50,000 people across the country, how do I do that in an efficient way?” she explained. “The response — which is a reasonable one — is to say, ‘let me compress this information into a form that’s easy to share, that’s scalable, and that anybody, no matter who they are, no matter where they are, can pick it up and understand it.’ ”

However, the compression of institutional messaging can lead to exaggeration of otherwise neutral information. “We, as human beings, are meaning-making creatures,” she continued.
“So we will take what is very skeletal basic information, and we will add colour to it; we will add narrative to it. We will add examples; we will add anecdotes of things that our friend of a friend of a friend told us.”

A fascination with negative information

Doering emphasized that human beings have a tendency to pay more attention to negative information. “What came out really strongly in the research was how often people would take very basic factual information with negative anecdotes, with secondhand stories. And the fact is, negative information is really interesting. We like it — we’re drawn to it.” 

The effects of ‘fake news’ are well-documented in the political sphere, but it’s important to realize how misinformation can creep into all aspects of life. Recognizing the human tendency to focus on negative information is especially important during the uncertainty of the pandemic.

“As consumers of information, we want to be careful, especially in the time of [COVID-19],” Doering said. “When we’re receiving abstract information, say, from public health officials, [be careful] that we don’t necessarily fall into this tendency when we’re talking with our friends and family of attaching negative accounts to it… try to maintain a sort of balanced perspective and a balanced way of engaging with that that information.”