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Journal of No. 118


November 18th, 2010

The financial cost of poor math skills @ 01:21 pm

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A RAND study finds "when both spouses answered three numeracy-related questions correctly, family wealth averaged $1.7 million, while among couples where neither spouse answered any questions correctly the average household wealth was $200,000."

One wonders (well, I wonder) whether the numeracy skills are merely correlating with just some general braininess that might help people get ahead. I'd like to see the questions to see how numerate or innumerate these people are. I mean if the couple can't answer what 2 + 2 is, one doesn't expect high salaries. Nevertheless, "In addition to studying numeracy skills, the study also examined the impact that other cognitive skills, including memory retrieval and intact mental status, may have on financial outcomes. Researchers found the other cognitive functions studied had far less influence on a household's wealth."

ETA: According to NPR, here are the three questions used in the study. Not quite gimmes, but certainly not super difficult.

(1) If the chance of getting a disease is 10 percent, how many people out of 1,000 would be expected to get the disease?

(2) If 5 people all have the winning numbers in the lottery and the prize is $2 million, how much will each of them get?

(3) Let’s say you have $200 in a savings account. The account earns 10 percent interest per year. How much would you have in the account at the end of two years?
 
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From:freudinshade
Date:November 18th, 2010 09:45 pm (UTC)
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Given the impact of compound interest on both wealth building/savings and on wealth destruction/debt I'd be curious if the last question wasn't the strongest impact of the three. The first two are basic math word problems, not necessarily throwaways, but not terribly difficult or directly related to financial wellbeing. Understanding the basis of the last question is critical for maintaining finances and projecting past the current fiscal moment.
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From:essentialsaltes
Date:November 18th, 2010 09:47 pm (UTC)
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I concur with Dr. Phil.
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From:jimkeller
Date:November 18th, 2010 09:59 pm (UTC)
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Yeah, that's exactly what I was just wondering.
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From:ian_tiberius
Date:November 18th, 2010 09:47 pm (UTC)
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There are households where neither adult can answer either of those correctly that are worth $200,000?

...I shoulda become a con man.
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From:essentialsaltes
Date:November 18th, 2010 09:59 pm (UTC)
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FWIW, the sample was composed of couples 50 and older, so be sure to pick on the old people... they have the money.
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From:casketgirl
Date:November 18th, 2010 10:20 pm (UTC)
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Where the heck can I find a savings account with 10% interest?!? Gimme!
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From:essentialsaltes
Date:November 18th, 2010 10:25 pm (UTC)
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Now there's a practical question!
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From:argonel
Date:November 18th, 2010 11:47 pm (UTC)
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Is the winning before or after taxes and are the winners taking it as a lump sum or as an annuity. It makes a huge difference in the payouts.
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From:colleency
Date:November 21st, 2010 07:17 pm (UTC)
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That's what I was wondering.

Journal of No. 118