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What do consumers know about the economy?

A test of minimal economic knowledge in Germany

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Abstract

This research investigates Minimal Economic Knowledge (MEK) of consumers in Germany—that is, basic economic knowledge needed for understanding and successfully participating in the economy. First we develop a scale for measuring MEK in four economic domains: finance, labour economics, consumption, and public economics, testing for three kinds of knowledge within each domain, namely facts, concepts, and causal relationships. Second, we conduct an empirical study to test MEK level and influence of demographic drivers in a representative sample of German adult consumers (N = 1,314), with a mean result of only 59.4 points (of 100), indicating a considerable lack of even minimal economic knowledge. And third, using a subsample, we study factors that result in differences in the level of MEK showing among others that the choice of “sensationalist” versus “serious” news sources, both on television and in newspapers, is associated with a loss of about 10 MEK points, while, surprisingly, participating in an economics course did not enhance minimal economic knowledge. The article closes with a discussion of implications for consumer policy-making.

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Notes

  1. Certainly, economic experts and persons with a university degree in economics have knowledge far superior to the minimal economic knowledge that we define here, and that we perceive as essentially important. However, it was not the goal of our questionnaire to test expert knowledge, but rather the knowledge of laypersons.

  2. e.g., ‘How high is the unemployment rate in Germany right now?’

  3. e.g., ‘What is meant by the liquidity of a company?

  4. e.g., ‘What effect does a jump in value of the US dollar have on the German economy? ’

  5. Expert names and affiliations are provided in the electronic supplementary material.

  6. Danaher and Crandall (2008) expanded the view proposed by Williams et al. (1992) that women typically score lower on economic tests, showing that girls who were asked to indicate their gender before being tested in mathematics had weaker scores than girls who did not indicate their gender; for females, apparently, designating gender activates negative stereotypes and thereby decreases performance (Schmader et al. 2008). In order to avoid stereotyping, we did not assess gender until the end of the questionnaire.

  7. Responses were scaled ‘1 = Haupt- oder Realschulabschluss’, comparable to general or intermediate secondary school, ‘2 = Lehre oder Ausbildung’, comparable to an apprenticeship or vocational training, ‘3 = Meister’, comparable to master craftsman, ‘4 = Abitur’, comparable to A-Levels, ‘5 = Studium’, equalling university or college studies, ‘6 = Promotion’ equaling PhDs or professors.

  8. Consumers were asked to rate their economic knowledge prior to the knowledge questions, and then were asked to rate it again after answering the knowledge questions, using a scale from ‘1 = I belong to the worst 20% of the population’ to ‘5 = I belong to the best 20% of the population.’ The purpose of asking participants to respond to this question twice was to capture the affective as well as the cognitive aspects of self-assessment, and to avoid common-method bias (Podsakoff et al. 2003).

  9. Respondents were classified as yellow press readers if they read the ‘Bild-Zeitung’ at least once a week but never the ‘Handelsblatt’ or the ‘Frankfurter Allgemeine Zeitung’. ‘Serious’ newspaper readers were classified as such if they read the ‘Handelsblatt’ or the ‘Frankfurter Allgemeine Zeitung’ at least once a week but never the ‘Bild-Zeitung’. Respectively, we classified consumers as sensationalist news viewers if they watched ‘RTL aktuell’ at least once a week but never ‘heute/heute journal’ or ‘Tagesschau/Tagesthemen’. ‘Serious’ news viewers were classified as such if they watched ‘heute/heute journal’ or ‘Tagesschau/Tagesthemen’ at least once a week but never ‘RTL aktuell’.

  10. Respondents who indicted a neutral opinion where not entered into the analysis.

  11. Because Berlin was divided between East and West Germany during the German separation, this sub-sample is excluded in the analysis of the two former parts of Germany.

  12. Our large sample size in our empirical study (N = 1,314) obviously produces small p-values in the regression analysis and the t-test comparisons. To make the article simple and readable, unless noted otherwise, all p-values are p < 0.001 (for a discussion on the usage of statistical significance please refer to Krämer and Gigerenzer 2005).

  13. Age was centered before calculating the quadratic term to reduce problems associated with multicollinearity (tolerance = 0.962, VIF = 1.040) (Allison 1999).

  14. However, the direction of this effect remains unclear as this effect may be endogenous. For example, people who want to make an investment may have a high personal motive to acquire knowledge. On the other hand, they may also have a higher personal relevance as a result of their high economic knowledge. For example, they might have taken a mandatory economics course they did not choose to attend out of personal interest but may discover their interest in the economy in this course.

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Acknowledgments

We would like to thank an anonymous reviewer for very valuable feedback, Deborah C. Nester for proofreading and the experts of the Delphi study for enabling us to develop this MEK questionnaire and for supportive discussions on the topic.

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Authors and Affiliations

  1. Zeppelin University, Am Seemooser Horn 20, 88045, Friedrichshafen, Germany

    Inga Wobker & Peter Kenning

  2. Dresden University of Technology, Helmholtzstraße 6-8, 01062, Dresden, Germany

    Marco Lehmann-Waffenschmidt

  3. Max Planck Institute for Human Development, Center for Adaptive Behavior and Cognition, Lentzeallee 94, 14195, Berlin, Germany

    Gerd Gigerenzer

Authors
  1. Inga Wobker
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  2. Peter Kenning
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  3. Marco Lehmann-Waffenschmidt
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  4. Gerd Gigerenzer
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Correspondence to Inga Wobker.

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Wobker, I., Kenning, P., Lehmann-Waffenschmidt, M. et al. What do consumers know about the economy?. J. Verbr. Lebensm. 9, 231–242 (2014). https://doi.org/10.1007/s00003-014-0869-9

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