math skills determine wealth

Turns out, my high school math teacher was right.

Math is important. 

At least according to an article I read this morning. 

The St. Petersburg Times reports "According to a recent study conducted by the Rand Corp., couples who scored well on a short test of math skills accumulated more wealth by middle age than couples who scored poorly. Researchers found that when both spouses correctly answered three math questions, family wealth averaged $1.7 million. That compared with $200,000 for households where neither spouse answered any question correctly. Household wealth rose sharply as scores of either the husband or wife rose, the study said."

Interested? So was I. 

Here are the three questions:

1. If the chance of getting a disease is 10 percent, how many people out of 1,000 would be expected to get the disease?
2. If five people all have the winning numbers in the lottery, and the prize is $2 million, how much will each of them get?
3. Let's say you have $200 in a savings account. The account earns 10 percent interest per year. How much would you have in the account at the end of two years? 

(Answers at the bottom of this post.)

What do you think? I think it's pretty surprising that answers to three simple math problems could be so determinative of a couple's future wealth. 

Other findings of the study:

• As the math score of each spouse rose, the percent of a family's portfolio held in stocks rose.
• In 62 percent of the households studied, a man was the financial decision maker.
• Even when a husband scored zero out of a possible three points in the test, there was essentially a 50-50 chance that he was the financial decision maker. This male bias was smaller among younger couples in the study's 50 & up age group.











ANSWERS:
1) 100   2) $400,000  3) $242

*Source: Rand Corp.; St. Petersburg Times, November 19, 2010 from the Pittsburgh Post-Gazette.