12:58 15 October 2023
Estonian researcher explains why we make irrational financial decisions
In the context of economic turmoil related to the sharp rise in inflation or economic slowdown, there is much talk about the issue of financial education and the problem of still low citizens' knowledge about effective money management.
"The costs of low financial knowledge are enormous, e.g. lack of concern for retirement security is a risk of potential poverty in old age. Another threat is debt. I am concerned about the growing popularity of products such as "buy now, pay later," Leonore Riitsalu, a behavioral scientist at the Johan Skytte Institute of Political Studies at the University of Tartu, said.
In her opinion, irrational financial decisions are a sign of short-sightedness, and lack of trust in the pension system, but not only.
"We are focused on the present, we prefer immediate gratification to abstract well-being in the future. We also have a natural aversion to risk, and for example, investing for retirement involves financial risk, but above all the need to predict the length of your life - this is not something we want to think about a lot,” she added.
