Want a mortgage? … Then quick, what’s 300 divided by 2 ?

Punch line: If you can’t add & subtract, then you probably can’t do a budget … and will eventually end up in financial hot water.

* * * * *

Excerpted from NY Times: Study Says Math Deficiencies Increase Foreclosure Risk. June 9, 2010

If you can’t divide 300 by 2, should you qualify for a loan?

That is one of the questions raised by a new study led by a Columbia business professor who found that borrowers with poor math skills were three times more likely than others to go into foreclosure.

Survey respondents were asked five questions, with the first requiring borrowers to divide 300 by 2, and the second to calculate 10 percent of 1,000.

About 16 percent of the respondents answered at least one of the first two questions incorrectly. The results were consistent among all levels of education and income.

Over all, 21 percent of the respondents whose math abilities placed them in the bottom quarter of the survey experienced foreclosure, versus 7 percent of those in the top quarter.

Mr. Meier said the study had at least two implications for mortgage lenders.

One alternative would be working to help borrowers improve their financial literacy before they took out the loan.

Another alternative might be to add math tests to the process and screen the math-challenged away.

“People say they’re doctors, so they don’t really need math … So what? We see doctors who took out loans they didn’t understand, and who are in foreclosure now.”

“Many of them don’t understand how to do a budget — which is basic math, I guess,” she said.

Full article:
http://www.nytimes.com/2010/06/13/realestate/13mort.html?ref=business

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