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Mortgage Crisis = More Financial Literacy?

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    Mortgage Crisis = More Financial Literacy?

    It is, or at least it should be, a simple question. You have $200 in an investment that's earning 10 percent a year. Assuming you let the money grow, how much would you have at the end of two years? If you answered $240, you've got plenty of company: in a 2004 survey of American adults, 34 percent gave that answer, which is incorrect, since it ignores the principle of compound interest. In fact, that $200 investment would earn $20 during year one and $22 in year two (on the larger balance). That totals $242—which only 18 percent of adults answered correctly. (The rest gave even worse incorrect answers or copped out.) While it may seem like a trivial exercise, research shows that people who can answer questions like these do better at planning for retirement, saving and managing their debts.

    Clues for the Clueless | Newsweek Newsweek |

    Financial pros have fretted for decades over our ignorance about money.
    I don't know about this one. Ignorance is what makes financial pros rich -- people buying expensive managed funds, paying huge loads, wasting a lot of money on variable annuities and whole life insurance, etc.