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Literacy Matters in Marketing: International Journal of Bank Marketing July 2017
Literacy Matters in Marketing: International Journal of Bank Marketing July 2017
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Bruce Huhmann
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IJBM
35,5 Literacy matters in marketing
Bruce A. Huhmann
Department of Marketing, Virginia Commonwealth University,
Richmond, Virginia, USA
750
Abstract
Received 9 December 2016 Purpose – Literacy represents one’s ability to process and produce materials related to a domain. One type
Accepted 9 December 2016 of this higher-order, global individual difference variable is consumer financial literacy. It stems from one’s
financial information processing capacity, prior financial knowledge, and proficiency in optimizing
financial decisions and managing financial resources. The paper aims to discuss these issues.
Design/methodology/approach – The research matching perspective theoretically explains findings related
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to literacy, including those in this special issue. Optimal processing arises as available and required processing
resources correspond. Thus, cognitive comprehension and behavioral application/decision-making outcomes
following financial marketing communication exposure are optimized when consumer financial literacy matches
the level needed for successful processing. Insufficient or excess available resources harm outcomes.
Findings – The resource-matching perspective clarifies consumers’ increasing financial difficulties.
Consumers limit personal finance efforts because required resources overwhelm limited financial literacy.
However, education or experience can expand consumer financial literacy. Alternatively, financial service
marketers may accommodate low consumer financial literacy by simplifying financial information
presentation. Consumers reward firms that show sensitivity to their domain-specific literacy limitations with
stronger loyalty.
Research limitations/implications – Construct definition is vital to advance research. Yet, financial
literacy has no generally accepted definition. This paper’s definitions should aid understanding of the
psychological underpinnings of financial literacy’s components.
Originality/value – Much has been written about consumers’ inability to manage personal finances.
This paper provides a unified, theoretical explanation for consumers increasing financial literacy difficulties
and suggests ways that consumers, financial service providers, and public policy makers can overcome
these difficulties.
Keywords Consumer financial literacy, Cognitive capacity, Objective prior knowledge,
Decision-making proficiency, Resource-matching perspective, Financial services marketing, Financial education,
Processing fluency, Personal relevance, Need for cognition, Heuristics, Regulatory resource depletion
Paper type Viewpoint
produce advertising imagery, text, and use conventions, styles, construct individual
messages across a of intertextuality and vocabulary, elements and group identities,
variety of media persuasion knowledge and techniques be a competent
to gain insight into consumer, and view
advertising’s advertising messages
persuasive intent; with skepticism
objectives; tactics; and
media, positioning
and targeting issues
Health Ability to obtain, Cognitive and social Knowledge of health Proficiency in decision
literacyc comprehend, evaluate, competencies and and healthcare making and judging
act upon or deliver skills needed for terminology, health courses of action that
health-related informed health or risks, treatment promote and maintain
information from healthcare decisions options and outcomes, good health and help
physicians, by members of the possible side effects one thrive in a
caregivers; public public or personnel in and contraindications healthcare setting
health, direct-to- health-related of pharmaceutical,
consumer, or contexts over-the-counter, and
professional traditional medicines
advertising;
prescriptions;
directions; labels; or
online sites
Language Ability to effectively Capacity to Knowledge of letters, Proficiency in reading
literacya read and write printed successfully identify, language, idioms, and creating printed
or hand-written understand and vocabulary, sentence or hand-written
materials in a interpret printed and structure and grammar materials in a
particular language written materials particular language
associated with a
particular language
Visual Ability to successfully Figure-ground Knowledge of how Proficiency in
literacyd interpret images and discrimination and individual images are recognizing three-
encode images that picture perception formed and the use of dimensional subjects
others can capacity arising from cultural content or settings from two-
comprehend familiarity with visual (e.g. icons, signs, dimensional images;
conventions (e.g. depth symbols, references resolving ambiguity
cues; representational and allusions) in or indeterminate
style; cropping; visual communication meanings in images;
illumination/color and applying
indicators; shape) and arbitrary, formal Table I.
cultural cues conventions Types of literacy
a b c d
Notes: Huhmann (2014), O’Donohoe and Tynan (1998), Wright et al. (2005), Pleasant (2014), Messaris of interest to
(1997), Meyers-Levy and Malaviya (1999) marketing researchers
IJBM I have incorporated a brief introduction to the papers in this special issue on consumer
35,5 financial literacy into a demonstration of how one theory developed by researchers in
marketing (i.e. the resource-matching perspective) can expand understanding of the
processes underlying a domain-specific literacy.
consumer possesses a level of financial literacy that matches that required by information in
a mutual fund advertisement, then processing of that advertisement’s information and,
in turn, investment behavior based on this information is optimized.
However, when information’s resource demand exceeds a consumer’s available resources,
the consumer will feel overwhelmed to the detriment of processing and its consequences.
For example, a mutual fund advertisement may contain information that demands more
resources than the consumer is willing or able to process; thus, harming processing and its
consequent outcomes. Unfortunately, decisions regarding financial services require much
information, but providers are reluctant to include all this information to avoid negative
consumer responses to copy-heavy or lengthy presentations (Franke et al., 2004). For example,
a content analysis of mutual fund ads appearing over two years in Barron’s or Money found
88 percent lack all the requisite risk-return trade-off, principal-agent conflict, or transaction
cost information needed for high quality investment decision-making (Huhmann and
Bhattacharyya, 2005). Including all this information should be beneficial according to theories
of finance and neoclassical economics (e.g. Arya et al., 2000; Fama, 1980; Huang and
Litzenberger, 1988; Ingersoll, 1987; Jensen and Meckling, 1976; Williamson, 1981). However,
the resource-matching perspective would expect this information to overwhelm most consumers.
An experiment that presented a mutual fund ad either with or without risk-return trade-off,
principal-agent conflict, and transaction cost information supports the resource-matching
perspective. Instead of being perceived as forthcoming and informative, mutual fund advertising
incorporating this information heightens consumers’ risk perceptions (Bhattacharyya et al.,
2014). Thus, including information useful to the financially literate is actually detrimental to
responsible advertisers as it drives the less financially literate toward financial service providers
who instead advertise via emotional and other non-informative appeals, which unsurprisingly
predominate in financial service advertising (Huhmann and Bhattacharyya, 2005).
A third possibility, according to the resource-matching perspective, occurs when
resource demand is insufficient to fully engage available resources. In this case, extra
resources may be devoted to counterarguments, source derogations, or other cognitive tasks
to the detriment of processing. For example, the resource demand associated with an
insurer’s website that explains its products to novices would likely lead to
counterarguments or source derogations if processed by experts or else these experts
might quickly shift the focus of their attention to more engaging stimuli.
consumers’ financial literacy. However, familiarity aids financial literacy only with sufficient
processing effort. Financial education materials that are not personally relevant fail to
increase motivation to process and, without motivation to process, exposure is insufficient for
acquiring and retaining concepts. As Xiao and Porto demonstrate in this issue, when financial
education is unable to develop sufficient financial literacy, consumers continue to be
dissatisfied with results of their financial decisions.
With intrinsic motivation, consumers find the act of processing enjoyable or personally
rewarding. Intrinsic motivation depends on need for cognition, which is one’s propensity to
engage in and prefer activities requiring considerable thought, regardless of personal
relevance (Cacioppo and Petty, 1982). For example, higher need for cognition increases
consumers’ propensity to read investment and financial media that add to their store of
financial knowledge (Martin et al., 2003). It also increases ability to evaluate information for
inaccuracy or bias due to framing, weak arguments, or extreme statements.
Higher levels of involvement or need for cognition motivate one to make more resources
available to process, which should shift the non-monotonic function between available
resources and resource demand the right such that it will peak at a point of greater resource
demand. Research supports this view as those with higher product-category involvement
exhibited greater product category, brand, and message element recall than those with
lower involvement when exposed to a resource-demanding, complex TV commercial
script (Lowrey, 2006).
the unfamiliar and familiar problems and to become overconfident about the strength of the
familiar and unfamiliar problem’s similarity.
Next, the availability heuristic relies on the most accessible information at the time of
decision-making. It gives more weight to information as saliency and ease of visualizing
increase due to factors such as seriousness of the consequences or recency.
Third, the adjustment and anchoring heuristic relies on trial and error. Experiments
show that the starting point for dealing with an unfamiliar situation serves as an anchor
that biases subsequent processing of new information. One manifestation of this bias is that
an incorrect first impression continues to influence decisions despite disconfirming
evidence. Other manifestations result from excessive reliance on trial and error that leads
consumers to overlook alternative information sources or over-focus on new trials rather
than carefully analyzing the results of previous trials (Tversky and Kahneman, 1974).
Researchers have tended to investigate error resulting from these systematic biases
under specific circumstances. However, the learning of heuristics generally helps routine
task efficiency by freeing up cognitive capacity for more important or unique challenges.
environmental factors. For example, lifestyle-related stress can deplete available resources
and lead to poor financial decisions. This is a promising new avenue for consumer financial
literacy research. Montoya and Scott (2013) found that regulatory resource depletion, such as
that due to family or social demands, impedes financial decision-making. It would be useful for
research to discover ways to overcome this regulatory resource depletion. Similarly, emerging
work on scarcity’s impact on proficiency shows that even those with sufficient literacy can
have their mental bandwidth so overtaxed that they are incapable of devoting their available
resources to the task at hand. For example, Mullainathan and Shafir (2013) show that poverty,
loneliness, time pressure and other stressors degrade one’s decision quality. When one is
worried about not having enough of something (e.g. money or time), it dominates one’s
thoughts to such a degree that it distracts from thinking about other issues and harms
decision making and long-range planning. Unfortunately, many programs to help those with
problems, such as programs for the poor, often impose cognitive taxes. These cognitive taxes
take many forms – completing lengthy forms, scheduling and preparing for interviews, and
deciphering rules or incentive programs – but all consume limited cognitive resources
(Mullainathan and Shafir, 2013). These stressors likely consume so many available resources
that few remain available for processing and decision-making. Future research is needed to
examine scarcity and stress as bandwidth-reducing factors that limit the outcome proficiency
or quality for those who otherwise would possess sufficient literacy.
Similar to insufficient domain-specific literacy and bandwidth-reducing stresses, research
has also identified age as impacting one’s ability to devote available resources to processing.
Resources available for processing take time to mature, and then tend to decline with advanced
age. Thus, age should affect literacy and its outcomes. For example, the young and the aged
should possess somewhat lower levels of available resources to devote to processing, which
should negatively impact processing outcomes for resource-demanding information that those
in their prime resource availability years should be better equipped to handle. Thus, age should
shift the peak of the non-monotonic function to a point at which optimal processing and literacy
outcomes are evident with less resource-demanding materials due to lower available resources.
Evidence for such a shift in optimal processing is evident in other contexts. Wohlwill (1975)
found that more resource-demanding complex shapes engaged and were positively evaluated
by sixth graders, but not first graders whose outcomes peaked with much simpler shapes.
Huhmann (2003) found that recall of banner ad images peaked with more visually complex
images for prime resource-availability age groups (16 to 50), but shifted left toward the origin of
the x and y axes (i.e. recall peaked with less complex images) for younger (under 15) and older
(over 51) groups. Similarly, prime resource-availability age UK, U.S., and German consumers are
less likely to have a negative net worth than younger consumers with fewer available resources
(Brown and Taylor, 2008). However, the effects of age and familiarity on financial literacy or its
outcomes can be difficult to untangle from other factors, such as income, without experimental
control. More experimental research is needed in this area.
IJBM Resource demand and processing fluency
35,5 To help compensate for a lower willingness or ability to devote available resource to
processing, the resource-matching perspective recommends decreasing resource demand
to match available resources. Resource demand is the cognitive load required to successfully
process information. The growing literature on the theory of processing fluency can guide
those interested in increasing literacy by lowering the resource demand of materials
756 that consumers experience difficulty processing. Processing fluency is an evaluation of the
ease with which a stimulus’ information may be processed. Processing fluency may be
affected by message elements, such as type font and size, contrast between lettering and
background, simplicity of word choice and sentence structure.
Financial industry marketing communications (e.g. mutual fund advertisements, credit
card solicitations, securities prospectuses) provide a great deal of information largely required
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by regulations, but consumers with less financial literacy find this information difficult to
comprehend. Increased processing fluency should reduce resource demand and overcome
some negative financial proficiency outcomes associated with lower financial literacy.
Public policy makers have begun to take to heart the need to lower financial materials’
resource demand to compensate for consumers’ continuing low financial literacy. Huhmann
and McQuitty (2009, p. 287) urged regulators to “provide a succinct and simplified version of
critical information, perhaps in the form of a simple standardized table to aid comparisons
across product choices.” The Dodd-Frank Wall Street Reform and Consumer Protection
Act, signed into law by US President Barack Obama on July 21, 2010, encouraged simpler
language and presentations of some financial product and service information. Starting in
2000, the Fair Credit and Charge Card Disclosure Act of 1988 stipulated that rates, fees,
terms, and conditions of a credit card agreement would appear in an easy-to-read table, often
known as “Schumer’s Box,” with long-term rate information in an 18-point or greater font
and remaining terms in at least 12-point font. This simplified presentation reduced resource
demand associated with combing through small print legalese and by aiding comparison
shopping with a standardized table across all credit cards. Since 1998, the Security and
Exchange Commission’s Plain English Rule 421(d) has required that investment product
prospectuses use “plain English.” The Plain English Handbook accompanying this rule
provides guidelines for diction and syntax (e.g. short, simple sentences, active words, and
simple synonyms), straightforward layouts, clear hierarchy of headings, bullet points for
tabulated information, and appropriate table and graph use. Similarly, amendments to the
Securities Exchange Act of 1934 in 2006 and the Investment Advisers Act in 2010 require
financial disclosures and narrative brochures targeted to future and prospective consumers
to also use “plain English.”
Research is also beginning to show the value of lowering the resource demand or
cognitive load of financial product or service information. Miller (2010) finds that more
complex, longer, and less readable 10-K filings reduce small investors’ trading activity
for that security. Tan et al. (2015) find that investors’ assessment is more accurate with
easier-to-read information, especially when a corporation reports actual earnings
performance that is inconsistent with prior management guidance and year-ago
quarter performance. The performance inconsistency likely increased resource demand,
because incongruent information requires more cognitive resources to process than does
congruent information (e.g. Huhmann, 2007; Mothersbaugh et al., 2002). One way to reduce
incongruity is by dual coding a message in both verbal and visual modalities. Research in
language literature suggests that a consistent verbal and visual message improves
processing of marketing communication and warning label information ( Jae et al., 2008;
Jae and Viswanathan, 2012).
Increasing messages’ processing fluency also helps those with less domain-specific
literacy. Rennekamp’s (2012) experiment finds that enhancing processing fluency with
easier-to-read disclosures increases investors’ beliefs that they can rely on the information Literacy
provided and that greater perceptions of processing fluency increase perceived matters in
management credibility. This special issue lends further support via Lee’s examination of marketing
the type of information that retirement-related financial service providers use to alter
consumers’ financial proficiency outcomes.
Education and prior experience also lower resource demand by increasing familiarity
(see Huhmann, 2007 for a review). Thus, commonly touted literacy education programs and 757
prior experience should shift the non-monotonic (inverted-U) function of peak information
processing toward a higher level of resource demand even though available resources
remain constant.
In this special issue, Xiao and Porto examine the links between financial education and
financial satisfaction, a subjective measure of financial well-being using data from the 2012
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National Financial Capability Study. They find that financial education increases satisfaction
with financial proficiency outcomes, or financial well-being. Although their analysis of a
secondary data set does not permit the examination of the underlying cognitive processes,
their results are entirely consistent with the view that education makes domain-specific
information more familiar; thus, lowering resource demand and optimizing literacy outcomes.
Future research should investigate how policy makers can lower resource demand of
programs designed to help those unable to devote available resources to processing
financial information or optimizing financial management decisions. Mullainathan and
Shafir (2013) summarize research that demonstrates the resource demand reduction
associated with relatively simple interventions, such as reminders, form-completion and
planning assistance, and default options (e.g. automatic enrollment in helpful programs
unless one opts out). Reducing resource demand of financial education or financial
management programs should better serve those for whom these programs are designed by
not adding cognitive taxes that further consume available resources and make successfully
manage finances that much more difficult.
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Further reading
Messaris, P. (1996), “‘Visual literacy’ in a cross-cultural perspective”, in Kubey, R. (Ed.), Media Literacy
in the Information Age: Current Perspectives, Transaction, New Brunswick, NJ, pp. 135-162.
Corresponding author
Bruce A. Huhmann can be contacted at: bhuhmann@nmsu.edu
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