Study Reveals Confidence in Math Skills Leads to Better Financial Outcomes
By Lindsay Frankel
New research reveals that an understanding of one’s capability when it comes to math skills is key to making the right financial decisions. That means to achieve the best outcomes, an individual must have both numerical ability and confidence in their skills. People who have low confidence but are skilled with numbers or people who lack math skills yet have confidence in their ability fared the worst.
The hypothesis is that those who are confident in their numerical ability are more likely to take control of their finances by thinking through their choices, which leads to better outcomes. The study measured positive financial outcomes with items like not carrying a credit card balance or not having a current payday loan.
Nearly one third of U.S. adults, or about 73 million people, lack the numerical ability to make informed financial decisions. They’re unlikely to be able to recognize that they are trapped in debt because they don’t understand how to calculate interest on the amount they owe. When they make financial decisions, they’re more likely to listen to narratives than facts and be influenced by emotional information.
People who work well with numbers, on the other hand, trust and rely on numerical evidence more when making decisions. When faced with financial choices, they can evaluate the numerical outcomes of their behavior.
Analysis from the study revealed that people who were mismatched in terms of confidence and numerical ability would have to earn significantly more to achieve the same financial outcomes as their highly numeric and confident peers. Those who were both confident and capable reported an average of 82 percent of positive financial outcomes, compared to 78 percent for the group that had good math skills but low confidence. In order for an individual with mismatched confidence and skills to achieve the four percent difference in outcomes, they would need to earn about $94,000 in additional income each year.
To improve numeric confidence and achieve better financial outcomes, researchers suggest practicing math tasks while keeping a positive outlook about your abilities. Self-assess your skills so that you don’t doubt your abilities if you are good at math. And if you find that you struggle with mathematical concepts, ask for help with financial decisions to avoid negative outcomes.
This is especially true when it comes to borrowing money. High-risk forms of borrowing, such as payday loans, can leave you with insurmountable debt if you’re unable to calculate how much you’ll owe after a given period of time. Often, lenders do not communicate interest rates in a way that is easy for borrowers to understand, so ask for clarification when necessary. And because payday loans are risky, look into other alternatives with the help of a financial counselor.