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Where the money-smart people live

As consumers across the country amp up their holiday shopping, consider this: Nearly half of all U.S. credit card holders do not understand how interest works.

While 60 percent of American adults have credit cards, only 57 percent of cardholders in a recently completed survey sponsored by Standard & Poor's correctly answered a basic question on calculating interest. The survey, which measured financial smarts in 140 countries, found that just 1 in 3 survey respondents around the world demonstrated financial literacy.

"I wasn't surprised, but it is striking nevertheless," said Annamaria Lusardi, academic director of the Global Financial Literacy Excellence Center at the George Washington University School of Business and an author of the study.

Money smarts, it seems, is a global challenge — but more so in some parts of the globe than others.

People living in advanced economies tend to be more financially literate, which the survey defined as being able to correctly answer 3 of 4 questions testing understanding of interest rates, interest compounding, risk diversification and inflation. Some 57 percent of American adults demonstrated financial literacy, worse than residents of Canada (68 percent), Germany (66), and Britain (67) but better than France (52) and Japan (43).

Among developing economies, though, the picture is very different. In Russia, just 38 percent of respondents demonstrated financial literacy — but that was better than Brazil (35), India (24), or China (20).

In addition, across all economies, women tend to have lower levels of financial literacy. The difference globally is 5 percentage points, and it is worse in the U.S., where 62 percent of men are financially literate, compared with 52 percent of women.

Part of the issue for women, Lusardi said, is that they tend to be more cautious. The survey allowed respondents to answer "not sure" or "don't know" on every question, and women were more likely to choose one of those answers.

"Women are not willing to advance an answer if they are not sure about it," she said. But that caution may have an upside: Various studies have shown that women tend to be less impulsive investors and spend more time researching investments.

Women's lack of certainty about financial matters may also mean they would be especially receptive to financial education. "This data, I think, really speaks to the importance of really doing programs specifically targeted to women," Lusardi said.

Another finding was that in advanced economies, financial literacy tended to peak between ages 36 and 50, while in less developed economies it is highest among young adults. Lusardi pointed out that the study does not reveal whether this is a function of age, or of different cohorts. But she said it does point to an urgent need for financial education.

"We might want to really step up the effort among the young, because we don't want them to learn only by experience," she said. "This is a world that really requires financial skills," like understanding how to finance education, save, and participate in financial markets.

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Many experts on financial literacy advocate teaching money smarts in school: The Organization for Economic Cooperation and Development, which has long studied and measured financial literacy, says that including financial education as part of the school curriculum is a fair and efficient policy tool.

Another study, of students' financial experiences before and after financial education was mandated, found that after it was required, students had higher relative credit scores and lower relative delinquency rates.

Lusardi also favors school-based financial literacy instruction. She pointed to a Chicago public school sponsored by Ariel Investments that includes an intensive financial curriculum and that graduates high-performing students.

"We have to dream about education," she said.

That, and learn how credit cards work.