I apparently owe a lot to my 9th grade math teacher. Every Friday, Mr. Smith would have the class play a game. He would write a series of numbers on the board, and the goal was to use basic math to make the first four numbers total the last one.
For example, he'd write: 1 6 8 3 10
You'd have to come up with the right mathematical equation. In this case, ((6*3)-8)/1 = 10 would be the right answer. I loved that game. I was one of the better players in the class--so much so that a classmate wrote something about it in my yearbook. I was honored, although, looking back, it was probably a jab at my incurable nerdiness. While I could never translate my basic skills into nuclear engineering, I was being trained, unwittingly, to become financially successful.
Your Math and Memory Skills Influence Your Money Skills
A study by the RAND Corporation, a nonprofit think tank, showed a direct correlation between numeracy (a fancy word for math skills), delayed recall (the ability to remember something you've seen after some delay) and your future wealth. Researchers gave a basic numeracy test to participants, and matched scores to household wealth. the results were stunning. For households where both spouses scored zero correct answers on the test, the average wealth was $200,000. For households where both spouses got all of the answers correct, the average wealth was $1.7 million. That's an 850 percent increase for the highly numerate families compared to the innumerate families. The results were similar, although not as dramatic as the numeracy scores, for recall capabilities--the ability to remember a word set after a break of a few minutes. Families with high word recall scores were approximately 350 percent as wealthy as those with low word recall scores.
The Blind Lead the Seeing
Gender differences showed up too--and not in ways that make the most financial sense for families. Because of historical norms, men tend to be the ones who do the finances in the family. In this study, it was no different. In 62 percent of households surveyed, men were responsible for the finances. The trend is more pronounced when the man is older, and at least 10 years older than his wife. When the man was in his 70s and the wife was more than 10 years younger, the man was responsible for the finances 82 percent of the time.
Even if the man is a numerical incompetent, he's still just as likely to make the household financial decisions. If cases where the male in the couple scored zero on the numeracy test, he was still the one making the financial decisions 50 percent of the time. In other words, gender norms dictate who makes money decisions rather than letting skill dictate financial responsibility. It's absurd.
Let's look at the financial impact that this has on couples. We'll look at two pairings: First, let's look at the case where one spouse scores zero on the study's numeracy score and the other spouse scores a two (out of a possible three). We'll look at the average wealth of these families depending on who's the financial decision maker:
Total wealth when the zero-scoring spouse is the decision maker: $548,500
Total wealth when the two-scoring spouse is the decision maker: $684,500
Even narrower differences in the numeracy score make a big difference when it comes to handling financial decisions. Here's the same wealth comparison when one spouse scores zero on the numeracy score and the other scores a one. We'll do the same wealth comparison:
Total wealth when the zero-scoring spouse is the decision maker: $339,800
Total wealth when the one-scoring spouse is the decision maker: $388,400
There were no 0-3 pairings. Apparently, math nerds keep to themselves.
What Can You Do to Promote the Math Whiz in Your Family?
Determine who has a higher numeracy. There are several numeracy quizzes online. Take one, and put the winner in charge of the finances. This doesn't mean that the less numerate spouse gets no say. You should still plan family budgets together and talk about investment strategies, as well as joint long-term goals. But someone has to control the conch (probably the only Lord of the Flies reference you'll ever see me make), and, as the RAND study shows, the math nerd should hold it.
Improve your math skills. Play games. Play Sudoku. Do math puzzles. Having basic numeracy is a very important skill to help you survive and get ahead in the world, whether you have to work with numbers in your day job or not. We're not born with an innate ability to figure out integrals and derivatives; we learn those skills.
Improve your memory. The second consequential factor for determining household wealth was the ability to recall information which had been previously presented. By improving your memory, you'll be able to recall the heuristics needed to appropriately apply your math skills. You'll remember rules of thumb such as how much of your paycheck you should set aside, or what percentage of your investments should be in equities.
Next time you see someone on the plane who's whizzing through Sudoku puzzles, don't think "dork." Instead, think "next Warren Buffett." Thanks, Mr. Smith.
Jason Hull is a candidate for the CFP(R) Board's certification, is a Series 65 securities license holder, and owns Hull Financial Planning.
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