In: Root » » Loans and mortgages
Americans aren't as smart about money as we should be. Financial illiteracy was a fundamental cause of the subprime financial shock. Yes, many people knowingly stretched to buy an expensive home with a subprime ARM loan, figuring they could either sell quickly at a profit or refinance before the payment reset hit. But many more barely understood what they were getting into. According to Federal Reserve surveys done prior to the subprime shock, almost half of lower-income homebuyers (mostly subprime) couldn't describe basic features of their mortgage, such as how their interest rate was determined or whether it was capped. Many trusted their brokers to get them a mortgage they could afford, believing it was the broker's responsibility to look after their financial interests. The nation's general financial illiteracy contributes to a wide range of poor decisions on borrowing, saving, and investment. This may have been less dangerous 10 or 25 years ago when there were fewer financial products to choose from, thus it was harder to make a financially catastrophic mistake. But ignorance of the basics is certainly perilous today. Some of the mortgage options presented to homebuyers during the housing boom were mind-numbingly complex and confusing; even an economist adept at manipulating spreadsheets would have trouble calculating future payments on an interest-only or "option" ARM loan. It is both bizarre and tragic that American high schools today are more likely to offer students cooking classes than personal finance courses. Such courses should be required period. A meaningful investment in the financial acumen of young people would pay enormous dividends by reducing the likelihood that future households will take out bad mortgages or not save adequately for retirement.
|
|||||||||||||
Disclaimer
1) E-articles is not responsible for the information contained by this article as well for any and all copyright infringements by authors and writers. E-articles is a free information resource. If you suspect this article for any copyright infringement, please read the terms of service and contact us or use the "Report this article" button on this page to investigate the problem.
2) E-articles is not responsible for inaccuracies, falsehoods, or any other types of misinformation this article may contain and will not be liable for any loss or damage suffered by a user through the user's reliance on the information gained here. |
|||||||||||||
