Yikes, I'm financially illiterate!
It is a “well-established fact” that “a substantial proportion of the general public in the English-speaking world is ignorant of finance,” writes Niall Ferguson, an historian at Harvard University, in his forthcoming book about the history of finance, “The Ascent of Money”. He produces a long list of evidence to support this conclusion. According to one survey last year, four in ten American credit-card holders do not pay the full amount due every month on the credit card they use most often, despite the punitive interest rates charged by credit-card companies. Nearly one-third said they had no idea what the interest rate on their credit card was.
I suppose the point is that even if people want to borrow they should get a personal loan, which will be at much lower interest rates, but I'm not sure it always works like that even. I think this is more worrying:
Often borrowers did not even realise that their monthly payment would rise if interest rates went up, says Mr Bryant
All this from this, which I believe is a worthy project. although I could see how if introduced here it would quickly turn into a promotional campaign for various banks.
Back to Niall:
Financial illiteracy is not limited to subprime mortgage borrowers, then; it is pervasive in all age groups, income brackets and countries. “Subprime is a mere symptom,” says Mr Ferguson, noting that many of the students he has taught in the “best universities in the world, including MBA programmes, don't even know the difference between the nominal and real interest rate.”
Ah ha! A real interest rate is expected nominal interest rates over your time horizon deflated by the expected inflation rate.
Labels: finace
posted by Matthew @ 4/08/2008 06:48:00 AM
Comments: 1
