- Americans got a report card today on
their financial literacy and the average grade was an "F."
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- In a recent survey, Americans scored
an average 42 percent on a 14-question test of basic knowledge of personal
finances. For instance, two-thirds falsely believe there is "an organization
that insures you against losing money in the stock market or as the result
of investment fraud."
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- Another 45 percent falsely believe diversification
is "a guarantee" investments will do well even if the stock market
falls. And 63 percent do not understand the basic concept of inflation.
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- High school seniors did even worse on
a separate personal finance quiz, with 82 percent failing questions on
issues like interest rates, savings, loans, credit cards, and calculating
net worth.
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- Will the 'System' Save the Ignorant?
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- The lack of financial literacy is particularly
worrisome now, as one lesson of the Enron debacle is that investors cannot
count on "the system" to protect them.
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- "There was, as the Enron collapse
demonstrated, an across the board failure. The auditors failed. The Enron
board of directors failed. The regulators failed," commented Stephen
Brobeck of the Consumer Federation of America.
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- On Capitol Hill today, a powerhouse trio
including Treasury Secretary Paul O'Neill, Federal Reserve Chairman Alan
Greenspan, and the head of the Securities and Exchange Commission Harvey
Pitt agreed the country needs to do a better job of educating Americans
in the basics.
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- But as one senator pointed out, you need
to know a lot more than the basics to spot an Enron coming. "What
does it take to survive in the markets? Does it take a Ph.D. in finance?"
asked Sen. Richard Shelby, R-Ala. "If it takes a Ph.D., then we've
failed," responded Pitt.
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- Pros Short on Information, Too
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- In the wake of Enron's collapse, even
professional investors are concerned they may not have enough information.
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- "Whether you're a mom and pop investor
from the heartland or whether you're a professional money manager,"
observed market analyst Arthur Hogan, "You still have a feeling that
you don't know exactly what's going into the books of corporate America."
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- Companies suspected of cooking their
books " the conglomerate Tyco International is a case in point "
are being hammered by investors. Tyco stock was down another 22 percent
today, and has dropped 57 percent in the last month.
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- What Wall Street calls "Enronitis"
is even spreading to the most reputable companies. Today, for instance,
General Electric had to defend itself against suggestions it was overestimating
its profit potential.
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- So how are we supposed to invest? That's
what has the market on edge. The uncertainty surrounding the integrity
of a company's financial statements, and the integrity of the accountants
that audit them, is keeping people from investing or prompting them to
sell.
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