If you have poor math skills, you're three times more likely to go into foreclosure over your mortgage loan found a new study led by Stephan Meier, a Columbia University assistant business professor.
The study, "Financial Literacy and Subprime Mortgage Delinquency," was conducted in 2008 and surveyed borrowers in Connecticut, Massachusetts and Rhode Island who took out subprime loans in 2006 and 2007. The five questions dealt with simple math problems.
The first question required the respondents to divide 300 by 2: "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?" In the second question, borrowers had to calculate 10 per cent of 1,000: "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?"
About 16 per cent of those surveyed answered at least one of the first two questions incorrectly. Overall, 21 per cent of respondents whose math abilities placed them in the bottom quarter of the survey experienced foreclosure, versus seven per cent of those in the top quarter.
Meier also found that the results were the same across all levels of education and income, meaning even doctors who don't know how to budget their finances can wind up in foreclosure.