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A new survey from Opinion Research Corporation for the Center for Economic and Entrepreneurial Literacy makes some discouraging conclusions about the financial management skills of American households.

Writer Dean Koontz once wrote, "When things are baffling, they usually don't unbaffle themselves." Koontz's observation doesn't bode well for the many Americans who are confused by basic debt concepts.

Survey results from the Center for Economic and Entrepreneurial Literacy (CEEL) conclude that Americans lack the fiscal know-how needed to make savvy financial decisions. The survey, conducted nationwide in December, found that many Americans were unable to provide correct answers to basic questions about consumer debt, debt management, and credit cards.

Consumer debt management missteps

Survey respondents demonstrated incomplete knowledge on a range of topics related to consumer debt management, including mortgages, basic math, and FICO scores. For example:

• More than half of the respondents didn't know what a subprime mortgage was.

• Two-thirds didn't know that total interest costs on a mortgage loan could effectively double the cost of the home. Breaking this down further, only 20 percent of respondents aged 18 to 24 identified mortgage costs correctly. In comparison, 40 percent of older respondents, aged 45 to 64, answered this question correctly.

• Nearly two-thirds could not calculate 8 minus 25 percent.

• A full 56 percent didn't identify the FICO score as the primary factor in obtaining a loan approval.
  

Credit card confusion

More than one-third of survey respondents admitted that they didn't have a budget that would allow them to repay their credit cards in full by year-end 2009. Also, three quarters of respondents didn't know that writing a bad check for $100 would be more expensive than advancing that money from credit cards, or taking out a payday loan.

Responses to the telephone survey also suggested that younger Americans were more likely to measure the affordability of a purchase by the size of the monthly payment. These twenty- and thirty-somethings weren't as concerned with the total cost of the purchase including borrowing fees.

Many respondents openly admitted to making poor decisions with respect to debt management. And, more than half the respondents admitted that they'd over-drafted a checking account at least once in the past.

Recession amplifies bad decisions

The CEEL survey results are somewhat ominous, considering that the U.S. economy is grinding its way through recession. At a time when many households could experience a loss of income, it's important that consumers know how to manage their borrowing costs. Bad habits, like ignoring the total cost of financed purchases or incurring unnecessary bank charges, can be disastrous when household cash flow is already tight.

CEEL is a financial literacy program that reaches out to young people with quick and relevant quizzes. The organization seeks to "unbaffle" a wide range of personal finance topics, including credit cards, taxes, savings and debt management. More information is available at www.Econ4U.org.