Posted on 02/26/2008 11:11:52 AM PST by Toddsterpatriot
Americans don't understand debt, which may be one reason that they have too much of it, according to a survey released Tuesday. The survey presented 1,000 people with a hypothetical scenario about credit card debt and asked them to compute how long it would take to pay it off. Only 35.9% of the 1,000 respondents could figure out how many years it would take for the amount they owe on their credit cards to double. A full 18.2% did not know how to respond and 31.9% of those surveyed over-estimated the timeframe.
The survey by Harvard Business School and Dartmouth College professors and TNS asked respondents to assess their debt levels. Those who said they felt they were carrying too much debt were found to be "wildly wrong" when it came to using compound interest to calculate how long it would take to pay off that debt.
Of those polled, 26% said they consider the debt they are carrying to be unmanageable, while 61% said their debt level was "just right."
Americans don't realize they're unaware of some of the complexities of personal finance - like compound interest - said Bob Neuhaus, the executive vice president and the head of the financial services sector in the U.S. for TNS. "If financial literacy was higher, you would see more caution in the use of consumer debt. It would not eliminate the problem, but it would mitigate [it]."
The survey draws attention to a large problem without an easy solution. "Even those with a college degree don't have an understanding of the basic finance ideas," said Annamaria Lusardi, Professor of Economics at Dartmouth College.
However, there are smaller, more manageable steps that can make a difference. Harvard Business School Professor Peter Tufano, a self-proclaimed believer in financial education, does not see credit as inherently bad, but he said that debt services are much more complicated now than they were a generation ago. He said credit card companies could help by creating more consumer friendly credit contracts that plainly spell out the terms, and bills that itemize outstanding debt so consumers can grasp the reality of how they spend money and how long it will take to pay.
A lack of savings could be compounding the consumer debt problem. Another nationwide survey of 1,000 Americans released Monday by the American Savings Educational Council (ASEC) and America Saves found that a mere 53% of Americans have adequate savings with only 28% saving the recommended 10% of their annual income.
Three-quarters of Americans surveyed said that they spend less than their income and save the difference, which may provide enough for an emergency unexpected expense, but only a little over 50% have enough savings to provide for a comfortable standard of living in retirement.
However, those who make more money are able to sock away more for a rainy day, according to the savings survey. Ninety-percent of the high-income group (those earning at least $75,000 annually) say they have adequate savings, but only 48% of the low-income group (those earning below $35,000 annually) can say the same. And 81% of the high-income group report saving at least 5% of their income, compared with 34% of the low-income group.
Regardless of income or level of financial literacy, there is one unifying lesson: have a plan. "Having a financial plan increases savings and financial stability," said Stephen Brobeck, executive director of Consumer Federation of America.
Ping!
I would say that by and large, Americans are economically illiterate. Relatively few of them study it, and the popular press treatments of economic issues are simpleminded and often agenda-driven. As a consequence, the understanding of debt on a personal and a national level, as well as the related issues of currency stability and inflation are poorly understood.
Carolyn
Where is that pic of Captain Obvious?
How does gold fix the burning pyramid? Who cares, it’s gold!
We talk about poor education and the effect on our country, and this is the core of the problem: a lack of financial understanding. If we had taught our students about personal economics and finances, much of the situation the country is in would have never happened.
Well I couldn’t figure out how long it would take for a credit card balance to double. My answer would be either “too fast” or “I don’t care because I don’t carry balances on credit cards. That’s retarded.”
Okay...Compared to who? Compared to when?
There are 3 generations that need a depression to teach them about finances, responsibility, and work ethics.
Well it doesn’t help our cause when the winners of the $270 Million Lottery jackpot were a poor toothless illiterate couple living in a trailer house in the woods. But I digress.
Debt. Forgot about that. Not doing my part as an American. Need to buy a car or something. Or not. Maybe I’ll just buy some GM in a while.
Don’t forget “Scientifically Illiterate”.....
And yet, they will vote in November to decide the future course of the nation.
The Illuminati still handle it. No worries.
Which famous economist was the author of the popular economic theory that we could borrow all we wanted from ourselves, because after all, we trust ourselves to repay ourselves, don’t we?
In this case, gross ignorance starts at the top.
The acme implementation of this theory is the monetary system based on fiat money being “borrowed into circulation”, that is borrowed from nowhere, based on nothing, and being used by the monopoly issuer (at present, the “Federal Reserve”, a corporation with zero government ownership) to purchase goods and services to the benefit of government.
The Illuminati....running the world, keeping us in the dark and saving us from burning pyramids. For thousands of years. Thank goodness!
For proof you can look at product advertising.
For many years Hawaiian Punch was a big seller and all the commercials and even the can had huge letters that stated that it contained 10% real fruit juice.
Why would anyone buy this garbage that was 90% “something else”? Because market surveys proved that consumers thought it meant that HP had 10X as much fruit juice as the other brands!
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