While a nation where every person owns a home might sound pretty great, it can't happen until financial literacy takes a major step forward. James Surowiecki makes a compelling argument that the average American's understanding of fiance hasn't increased as quickly as credit product complexity. Of course, the subprime crisis shows this quite clearly, with millions of unsuspecting borrowers obtaining loans they didn't understand. How bad is it?
The depth of our financial ignorance is startling. In recent years, Annamaria Lusardi, an economist at Dartmouth and the head of the Financial Literacy Center, has conducted extensive studies of what Americans know about finance. It's depressing work. Almost half of those surveyed couldn't answer two questions about inflation and interest rates correctly, and slightly more sophisticated topics baffle a majority of people. Many people don't know the terms of their mortgage or the interest rate they're paying. And, at a time when we're borrowing more than ever, most Americans can't explain what compound interest is.