Numeracy and the subprime crisis
Numbers game
Many defaulting subprime borrowers flunked a simple numeracy test. Dare to try it?
May 13th 2010 | From The Economist online
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.
Numbers game
Many defaulting subprime borrowers flunked a simple numeracy test. Dare to try it?
May 13th 2010 | From The Economist online
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.
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