Consumer Law

Research on the Cognitive Deficits of Low-Income Low-Literacy Consumers

By Jeff Sovern

On October 20. the Wall Street Journal published "Emerging Lessons: For multinational companies, understanding the needs of poorer consumers can be profitable and socially responsible."  In addition to discussing  consumers in foreign countries, the piece notes that 14% of US consumers are functionally illiterate and describes how low-literacy low-income consumers make purchase decisions differently from most consumers.  The entire piece is worth reading, but here are some excerpts.

Being anchored in the perceptual "here and now" also interferes with the ability of low-literacy consumers to perform mathematical computations, especially those framed in abstract terms. For example, when we asked low-literacy shoppers in the U.S. to estimate whether they had enough cash to pay for the groceries in their cart, many needed to physically handle cash and envision additional piles of currency or coins to accurately estimate the cost of goods in their cart; when the sensorial experience of counting cash was taken away, they often were at a loss.

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* * * They tend to choose products based solely on the lowest posted price or smallest package size, even when they have sufficient resources for a larger purchase, because they have difficulty estimating the longevity and savings that come from buying in larger volumes. Some base purchase decisions on physical package size, instead of reported volume content, or on the quantity of a particular ingredient -- such as fat, sodium or sugar -- but without allowing for the fact that acceptable levels of an ingredient can vary across product categories or package size.

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When shopping in unfamiliar stores, some low-literacy consumers will choose products at random, buying the first brand they see once they locate a desired product category or aisle. Others simply walk through the store, choosing items that look attractive based on factors such as packaging colors or label illustrations, without regard to whether they even need the product.

These data have a variety of implications for consumer protection laws.  For one thing, they raise questions about the efficacy of the FTC and UDAP standards for protecting these consumers.  Standards such as "likely to deceive the consumer acting reasonably in the circumstances" do little to aid consumers who don't act reasonably in the circumstances.  Similarly, it would hardly be surprising if some of these consumers were trapped by predatory loans, and obviously the Truth in Lending Act won't help them.  Consumer law always raises a broad question about how much responsibility the consumer has to protect herself, and how much the law should do to protect the consumer.  But when we know that some consumers are not able to protect themselves, arguments that the law should not protect them means that others will be able to take advantage of them, a troubling outcome.  On the other hand, it's not clear that we even understand enough at this point to know what such consumers need to make decisions.

(HT to Chris Hoofnagle whose own comment on the article can be found on the denialism blog at http://scienceblogs.com/denialism/2008/10/selling_to_the_poors.php).

Full post as published by CL&P Blog on October 29, 2008 (boomark / email).