Debt Literacy

When it come to debt, do people know enough to make good decisions?

Two researchers for the National Bureau of Economic Research say no. In a paper entitled “Debt Literacy, Financial Experiences, and Overindebtedness,” they conclude that many Americans do not have a good understanding of debt and finances, and they suffer financially because of it.

In November 2007, researchers Annamaria Lusardi and Peter Tufano conducted a phone survey of 1,000 Americans, asking them questions about debt and finances. Only one-third of those surveyed had a grasp of topics such as the basic workings of credit cards.

It is not a simple academic question. “Financial Literacy” bears a close relationship  with debt. Those with less knowledge of debt and the financial system end up with a higher debt burden and more expensive debt services. About one-third of the charges paid by the less knowledgeable are the result of ignorance.

The survey also found that women, some minorities, the elderly and poorer people have particularly low understandings of these topics. However some of them think they know more than they do. That is particularly true of the elderly.