The roots of the mortgage crisis have been microscopically examined by everyone from economists to consumer groups and volumes of conten has been written on underwriting guidelines, irrational exuberance, greed, and hubris. Now comes a study which offers a stunningly simple explanation, not for the whole crisis, but for a contributing factor: Americans can't add and subtract Kristopher Gerardi, Lorenz Goette, and Stephan Meier recently produced a working paper for the Federal Reserve Bank of Atlanta which examined the relationship between financial literacy and subprime mortgage delinquencies. They found that the ability of individuals to make simple financial calculations is strongly related to the amount of time they spend being delinquent on their mortgages . The study used loan level...(read more)

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