Americans are mired in debt they don’t understand, according to a new working paper.
Not only do many Americans not have a financial plan in place for emergencies or even foreseeable expenses, but a “sizable” number also don’t understand the terms of their own mortgages and credit cards, the National Bureau of Economic Research report found.
And it seems Americans are also ignorant of their financial ignorance. Although many haven’t mastered basic economic concepts, such as inflation, nearly 40 percent of gave themselves high scores when asked to rate their own financial literacy. Just 14 percent rated their knowledge level three or worse on a seven point scale.
Americans Struggle With Financial Problems They Don’t Understand: Study
ReplyDeleteby Janell Ross
Huffington Post
http://www.huffingtonpost.com/2011/06/09/financial-ignorance-and-denial_n_873181.html
The study, released this week, isn’t the first to point to the limits of the average American’s financial literacy.
ReplyDeleteIt echoes other findings that suggest financial ignorance and a lack of emergency savings made many American families vulnerable to the economic shocks unleashed during the Great Recession.
The report finds the average American family has very little financial breathing room; almost half of the population has trouble covering monthly expenses. And just over half of the population lacks a household rainy-day fund that could cover three months of living.
Nearly 30 percent of American have no savings account at all. Nearly that same share have at least four credit cards.
Yet the report finds very few American consumers compare credit cards or other financial goods across the market before choosing a product. The report also found one in five Americans borrowed money in the most expensive ways — from a pawn shop, a pay day lender or through a tax return advance.
And then there’s mortgages. The study found that 20 percent of those with home loans did not know whether they held an interest-only mortgage or a loan that includes this option. Another 10 percent did not know their interest rate at all, and 12 percent did not know how much money they had put down on their homes.