Tag Archives: mortgage crisis

Bad Math, Bad Mortgages

4-out-of-3-people-are-bad-at-math.american-apparel-unisex-fitted-tee.silver.w760h760How are your math skills? Back in school, mine were fine until 10th grade when I started paying more attention to the girl sitting next to me than to my homework. I stalled out in Geometry and never caught up.

And I guess I am not alone. Supposedly, Americans are at the bottom of developed world in math skills. And one study suggests that this deficit may be one cause of all the mortgage problems.

Americans who have trouble dividing 300 by 2 are much more likely to end up in foreclosure than consumers with average math skills, a new study has found. The research is among the first to directly link mortgage trouble and financial literacy, according to its authors. NBC Redtape Blog

Can’t divide 300 by 2? And here I was embarrassed because I never learned quadratic equations!

Anyway, these science nerds gave a test to various mortgage-holders. And their scores directly related to their ability to maintain a healthy credit score. Here’s the test:

  1. In a sale, a shop is selling all items at half price. Before the sale, a sofa costs $300. How much will it cost in the sale?
  2. If the chance of getting a disease is 10 per cent, how many people out of 1,000 would be expected to get the disease?
  3. A second-hand car dealer is selling a car for $6,000. This is two-thirds of what it cost new. How much did the car cost new?
  4. If 5 people all have the winning numbers in the lottery and the prize is $2 million, how much will each of them get?
  5. Let’s say you have $200 in a savings account. The account earns 10 percent interest per year. How much will you have in the account at the end of two years?

It’s alarming, but a LOT of people can’t solve these problems. Number 5 is the hardest. (answers below)

The takeaway is FINANCIAL LITERACY or, I suppose, NUMERACY. Learn your financial ABCs and don’t back yourself into a corner. So lean on your kids to do well in math, because there is always hope. I may have ended up as an English major, but that girl sitting next to me in 10th grade is now the head of the math department at an East Coast university!

Read the article – it’s really interesting. And happy Tuesday!

Answers: 1) $150 2) 100 3) $9,000 4) $400,000 5) $242 (compounded annually)