Newsflash: majority of Americans don’t understand basic math
By: PAUL JACKSON
December 11, 2008 8:58 AM CST
(This post has been updated)
A study conducted by the Center for Economic and Entrepreneurial Literacy, released Thursday, finds that many Americans aren’t exactly the brightest bulbs in the room. Which means if you wonder how we got into this mess, you have to at least consider the average intelligence of the masses that took out a mortgage loan they couldn’t afford — however politically incorrect it may be to do so.
“The national survey conducted last week shows that an overwhelming number of Americans are unable to answer some of the most basic questions about borrowing, interest rates, terminology, and even basic math,” the Center said in a press statement. “More troubling is that many Americans admit to making poor decisions with their own personal finances.”
No kidding. Some highlights from the survey are eye-opening — and others are questionable, as early commenters caught onto (such as FICO being the most important part of originating a loan, for example). But the following two findings stood out to me more than anything else:
- 65% of respondents could not identify what would remain if you subtracted 25% from 8.
- One in three respondents could not identify what 1% of 50,000 was.
Wow. If people can’t do basic math, is it any wonder that the survey also found that half of respondents have overdrafted their checking account at one time, while a third of respondents have paid a bill late in the past year?
We can continue to blame Wall Street all we want for this mess, which nearly every borrower on the planet has proven they are wont to do. But, at some point, I think we need to wonder when personal responsibility enters the equation. Like, you know, maybe, when 2 out of 3 people don’t know elementary-school-level math.
Print This Article
-
December 11th, 2008 11:26 am by Patrick Morrison
> Wow. If people can’t do basic math, is it any wonder that
> the survey also found that half of respondents have
> overdrafted their checking account at one time, while a
> third of respondents have paid a bill late in the past year?Your premise seems to be ‘good math skills’ equals ‘good financial hygiene’. As a counterexample, I know people with advanced degrees who bounce checks. There’s a difference between math and responsibility, and there may not be the correlation you imply. I’m pretty sure, for example, that there are well-paid Wall Streeters who are having more trouble keeping their commitments than some of the failing survey respondents. From subprime borrower to Goldman Sachs, I’d argue that it was a culture of placing big bets and hoping they work out. There is properly a gerater focus on the financially literate and financially responsible - the banks and their regulators - over the financially gullible.
-
December 11th, 2008 11:27 am by Russell
Not trying to dispute the overall premise of the article but I do have to make 2 quick points:
(1) I have yet to see a definitive definition of what is a subprime mortgage so I will give them a pass on that.
(2) The most important factor in getting a loan? In what context. As a borrower I would say that ability to pay should be the most important factor. FICO obviously plays a big role in getting approved and the interest rate charged but an 800 FICO is irrelevant if you can’t service the loan. -
December 11th, 2008 11:51 am by Patrick Morrison
If a car dealer has a habit of letting poor drivers crash cars they’re test-driving, do you blame the drivers or the dealer?
If a gun shop has a habit of selling guns to people who can’t handle them properly, do you blame the person or the shop?
-
December 11th, 2008 12:35 pm by Holden Lewis
FICO is the most important factor in getting a loan? Really? Maybe it’s an important factor in determining the rate. But I assure you that no one can get a $500,000 loan to buy a $200,000 house, even with an 800 FICO score. I’d say loan to value is more important than credit score. Accordingly, this survey would say I’m wrong and thus financially illiterate.
-
December 11th, 2008 12:37 pm by PAUL JACKSON
OK, everyone. I should delete the FICO reference. I get it. Is there a reason nobody is saying anything about the math skills? That was the title of the post, anyhow.
And Patrick, are you equating a mortgage to a gun? Just checking.
-
December 11th, 2008 1:04 pm by PAUL JACKSON
Everyone, thanks for commenting. I’ve updated the post, because I think everyone was sort of getting sidetracked.
Patrick, in reference to your first comment, I’m certainly not attempting to absolve Wall Street here. I’m merely commenting that borrowers had a role to play in this too. The vast majority of our population is at least high school educated, and yet can’t perform basic math? I’d suggest that underscores a number of different failings — spanning from the personal to the institutional.
And, yes, I do believe that properly managing finances requires at least some basic level of math skill. And, just to be clear, I never said anything about education level in my post — you managed to put those words into my mouth. The survey could consist entirely of of biology PhDs, for all we know.
-
December 11th, 2008 1:20 pm by Holden Lewis
8 minus 25 percent is obviously … um … let me open up Excel here. Get back to you in a sec…
-
December 11th, 2008 1:51 pm by mathwhiz
the majority of people I work with cannot do this type of arithmetic, so it surprises me to the positive that 1 in 3 do know what 8 less 25% is.
-
December 11th, 2008 5:26 pm by Patrick Morrison
> And Patrick, are you equating a mortgage to a gun?
In the sense that a gun, a car and a mortage can all do a lot of harm if improperly used, yes. Also in the sense that there’s an obligation on the part of the shop/dealer/bank to make sure they are providing their wares to informed, competent people. The fact that this went out the window in the first part of the decade, that loans were made based on the ability of the broker to resell the loan rather than the ability of the borrower to repay the loan seems to be the salient fact to me.I also think that I distracted you based on mentioning education. My actual points are that responsibility is independent of math skill, and that I think there’s a stronger correlation between responsibility and repayment than there is between math skill and repayment. I took the point of your article to be that a lack of math skill has led to a lack of repayment. While there may be some correlation, I don’t think it’s the main thing at all.
-
December 12th, 2008 4:31 pm by Rick Grant
The really sad thing here guys is that some percentage (lower today than it was three years ago) of the home finance business exists primarily to “serve” those borrowers who have little if any hope of understanding the financial transactions they are entering into. Yes, the prey could have removed themselves from the target market by learning some basic math and so must share some portion of the blame. But there is no prey without a predator.
I’m as guilty as any of wagging my finger at Wall Street wizards who create money out of nothing more than paper-driven ponzi schemes. But if we choose to go after those bankers, we need to save some enforcement money for the payday lenders, the rent-to-own retailers and the state lottery commissions, all of whom profit primarily because their target markets are not savvy enough to know their real odds of coming out on top.
Get your HW Fix
Join nearly 10,000 bold subscribers who already get our daily email delivered to their inbox -- it's free, and a great way to ensure you don't miss something.
Events
2009 Dec 09 -- 2009 Dec 10
RMBS: Assessing Value and Risk
This two-day course in New York City will equip market participants with the knowledge and skills to evaluate prime, Alt-A and subprime RMBS portfolios in order to assess their value and understand inherent risks. For more information, visit www.fitchratings.com.
2010 Jan 13 -- 2010 Jan 14
2010 Collection Technology Summit
The Collection Technology Summit is the first industry event to focus solely on collections and its associated technologies and continues to draw top executives from the nation's most prominent institutions. The Collection Technology Summit, where innovation happens. For more information, visit www.collectiontechnology.net
Got something to say?
Remarks by first-time commenters will not appear immediately, and must be approved before they will appear. All comments are subject to HousingWire's usage policy.