A new study by two economists gives Americans a C-minus in financial literacy. A large percentage have a partial or incomplete understanding of personal money management.
The economists, from Dartmouth College and the University of Pennsylvania, asked:
"Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After five years, how much do you think you would have in the account if you left the money to grow -- more than $102, exactly $102 or less than $102?
"Imagine that the interest rate on your savings account was 1 percent per year and inflation was 2 percent per year. After one year, would you be able to buy more than, exactly the same as or less than today with the money in this account?
"Do you think that this statement is true or false: Buying a single company stock usually provides a safer return than a stock mutual fund."
Just half of respondents were able to answer the first two questions correctly (more than and less than, respectively). Fewer than a third answered all three correctly (the answer to the third question: false).
Some people have a put-it-on-my-tab attitude toward loans, but no understanding of interest rates. Others are victimized by sales people who get them to focus on the monthly payment, while they lose track of total cost.
Yet The Los Angeles Times reports that many between the ages of 20 and 30 have given up on credit cards. That's a good sign. On at least one key issue of financial literacy, they clearly see the hunters and the hunted.opinion_editorials