The magic of compound interest: Financial advisers and strategists are constantly telling us about it, but only one in three Americans understands how it can make credit-card bills snowball, according to research.
Nevertheless, most people think highly of their own financial literacy, the researchers from Dartmouth and Harvard found.
On a scale of 1 to 7, with 7 the most financially literate, more than half of those surveyed rated themselves 5 or 6.
Sample survey question
You owe $3,000 on your credit card. You pay a minimum payment of $30 each month. At an annual percentage rate of 12% (or 1% per month), how many years would it take to eliminate your credit card debt if you made no additional new charges?
A. Less than five years
B. Five to 10 years
C. Ten to 15 years
D. Never; you will continue to be in debt
