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Article from The Economist;
In print;
Numeracy and the subprime crisis
Numbers game
May 13th 2010
From Economist.com
Many defaulting subprime borrowers flunked a simple numeracy test. Dare to try it?
IN AMERICA'S subprime-mortgage meltdown, why did some borrowers manage to struggle on, keeping up with their payments, while others defaulted? Subprime borrowers were all, by definition, people with poor credit histories, prone to financial problems, yet their ability to repay differed widely. A study from the Federal Reserve Bank of Atlanta has found that what makes the difference is the borrower's basic numeracy. They gave a simple quiz to a group of subprime borrowers who had similar personal circumstances and had taken out the same type of loan. They found that those who flunked the test were much more prone to defaulting than the numerate, who were much more likely to manage to keep paying.
The numeracy quiz that the study's authors gave to their sample of borrowers was hardly rocket science. Click here for our quick version of it: take it yourself, and see how you would have fared.
Copyright © 2010 The Economist Newspaper and The Economist Group. All rights reserved.
Here is the quiz reffered at the end of the article;
Numeracy quiz
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?
$200
$150
$450
$120
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?
100
10,000
1,000
200
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?
$9,000
$4,000
$8,000
$9,999
If 5 people all have the winning numbers in the lottery and the prize is $2 million, how much will each of them get?
$100,000
$500,000
$400,000
$200,000
Say you have $200 in a savings account. The account earns ten per cent interest per year. How much will you have in the account at the end of two years?
$224
$240
$242
$220
In print;
Numeracy and the subprime crisis
Numbers game
May 13th 2010
From Economist.com
Many defaulting subprime borrowers flunked a simple numeracy test. Dare to try it?
IN AMERICA'S subprime-mortgage meltdown, why did some borrowers manage to struggle on, keeping up with their payments, while others defaulted? Subprime borrowers were all, by definition, people with poor credit histories, prone to financial problems, yet their ability to repay differed widely. A study from the Federal Reserve Bank of Atlanta has found that what makes the difference is the borrower's basic numeracy. They gave a simple quiz to a group of subprime borrowers who had similar personal circumstances and had taken out the same type of loan. They found that those who flunked the test were much more prone to defaulting than the numerate, who were much more likely to manage to keep paying.
The numeracy quiz that the study's authors gave to their sample of borrowers was hardly rocket science. Click here for our quick version of it: take it yourself, and see how you would have fared.
Copyright © 2010 The Economist Newspaper and The Economist Group. All rights reserved.Here is the quiz reffered at the end of the article;
Numeracy quiz
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?
$200
$150
$450
$120
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?
100
10,000
1,000
200
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?
$9,000
$4,000
$8,000
$9,999
If 5 people all have the winning numbers in the lottery and the prize is $2 million, how much will each of them get?
$100,000
$500,000
$400,000
$200,000
Say you have $200 in a savings account. The account earns ten per cent interest per year. How much will you have in the account at the end of two years?
$224
$240
$242
$220
If the answers to the quiz are needed let me know.
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