Ignorance Got Us Into This Mess

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Imagine that you and a bunch of other ordinary Americans took a test and outperformed a group of elected officials. That would be kind of depressing, wouldn't it? Especially since these officials are charged with running our beloved nation? Wouldn't it be even worse, then, if the test centered specifically on civic knowledge?

Well, that's just what happened recently. The folks at the Intercollegiate Studies Institute (ISI) administered a 33-question quiz to thousands of people, and the average score was a failing 49%. If that's not pathetic enough, elected officials averaged just 44%. (How many earned an "A"? Just 1%.)

As I consider America's troubled economy today, I can't help but wonder if we'd be in a better state if our elected officials (and heck, we citizens, too) had a better grasp of our government. Here -- check out some sample results:

• Less than half of all Americans can name all three branches of government.
• Just 21% of Americans know where the phrase "government of the people, by the people, for the people" comes from.
• Fully 30% of elected officials do not know that "life, liberty, and the pursuit of happiness" are the inalienable rights listed in our Declaration of Independence.
• 20% of elected officials believe that the Electoral College "was established to supervise the first televised presidential debates."
• 40% of respondents with a bachelor's degree do not know that business profit equals revenue minus expenses.

Fools know better
In the darkness of those numbers, I'm heartened to think that at least we Fools would have gotten that last question right. We should all know that profits are what you get after you subtract expenses from revenue. It's something that many of us look at all the time when we study companies as potential investment opportunities. Here -- check out the net profit margins of some familiar names:

Company	Net profit margin
Amgen (Nasdaq: AMGN)	27%
Pfizer (NYSE: PFE)	22%
ExxonMobil (NYSE: XOM)	11%
Hewlett-Packard (NYSE: HPQ)	7%
Costco (Nasdaq: COST)	2%

Data: Yahoo! Finance.

Notice how widely profit margins can vary, and remember that a low number isn't necessarily bad, as long as there's a lot of volume. You might make a 50% profit on pianos, but if you only sell two per year, you'd be better off making 2% on something you sell lots of every day.

If you hadn't given profit margins much thought before, I can pat myself on the back for enhancing America's financial literacy at least a little. This article is not enough, though.

Financial ignorance is costly, too
America suffers from financial illiteracy, and there's no way, in my mind, that that hasn't contributed to the financial meltdown we experienced over the past year. Why did so many people buy homes they really couldn't afford, taking on mortgages they didn't really understand? Because few Americans learn much about money management as they grow up. Why does the average household owe thousands in credit card debt? Why do so many young people graduate college burdened with credit card debt? Why do so many Americans fail to save or invest enough for retirement? It all comes down to a lack of financial grounding.

There's hope for this situation, though -- because there are lots of organizations working hard to fight this ignorance, and schools are signing on, too, to produce more financially savvy graduates. The Motley Fool is involved in the effort to educate children through our annual Foolanthropy campaign, we're raising money right now for an impressive organization called DonorsChoose. I invite you to take a few minutes to learn more about it. I recently made my own first donation, and I hope you will, too.