Poor maths raises risk of repossession
Mortgage borrowers who are bad at maths are more likely to have their home repossessed than those with decent mathematical skills, according to a Swiss study of borrowers.
The study surveyed 339 people who took out subprime borrowers in the US between 2006 and 2007, and asked them a raft of questions aimed at establishing their grasp of compound interest and their ability to calculate percentages.
Those with the worst results spent about 25% of the time in arrears on their mortgage payments compared with only 12% for the best performers.
Economists said that people with worse numerical abilities appeared to have got worse mortgage deals, but that this explained only about one third of differences between the best and worst performing groups.
Budgeting problems and an overall lack of understanding about the mortgage they had taken out were also likely to have played a part, the researchers said.
The study’s author, Professor Lorenz Goette of the University of Lausanne, said:
“It’s always possible for people to spend too much, regardless of their income.
“Recent studies have found changes in financial education curricula in high schools have important effects on financial decisions later in life, that foreclosure counselling can reduce incidences of foreclosure and mathematical skills in general may be more malleable and less genetically driven than previously thought.
“If financial education can reduce sub-optimal financial decision making, this could have profound effects on household behaviour, as suggested by our results.”