[jaynos]

Even once they are in repayment, many people don't understand loans. One of my friends posted on facebook his frustration with how his principal never seemed to be going down. I was able to explain to him how amortized loans work (pay the accrued interest and then any remainder goes towards principal) and he was much less frustrated after that (I think he even started paying extra to pay down the principal).

Edit: If you search online, there is a lot of info about subsidized vs unsubsidized, income based repayments vs standard repayment, etc, but not of the (small) sample of sites I looked at explained repayment in simple terms of what does my monthly payment go towards (principal vs interest).

[ashark]

> One of my friends posted on facebook his frustration with how his principal never seemed to be going down.

That's one of those really basic things that I'd bet well over half the adult population of the US couldn't explain, if asked. Like how marginal tax rates work.

[giardini]

David Letterman: "The lottery is the tax you pay for not paying attention in math class."

Once one has taken algebra (and paid attention) to the point of studying compound interest, one should be sufficiently forewarned about loans.

As for your remark about half the adult population: I truly fear you may be correct (it may even be greater - half the population has an IQ of only 100, after all. What IQ is required to understand compound interest? And then there's the training - making sure it is in place). If so, then perhaps stronger vetting systems for obtaining loans should be put in place.

All in all, good arguments for increasing the numeracy of the population at large and, barring that, putting mechanisms in place that prevent them from unwitting personal fiscal disasters. Unfortunately, to do so in the USA would be viewed as a form of fiscal, and therefore, political discrimination, so the disasters will continue!

Which leaves only increasing numeracy, Which is well-nigh impossible. Which leaves the task to our not-yet-here AI personal assistants to warn us not to make bad loans. Indeed the best argument for AI may be that we shall need AI to save us from ourselves, in ways both big and small.

[notlefthanded]

Why is increasing numeracy "well-nigh impossible"?