Poor math skills contribute to Canadian debt problems

Not knowing some basic math skills can result in severe money problems, including out-of-control personal debt, according to three experts in math, accounting and economic education. Arithmetic is essential for budgeting and you've got to understand percentages to comprehend interest rates. 

Better math skills, better finances

Chart: Canada ranks 14th in OECD math survey.

Sidebar: 8 myths about learning math. Many Canadians cringe at the thought of math, but knowing the tricks to learning math can help. 

"A lack of basic math skills is an enormous problem that leads a lot of people to get in over their heads," says John Mighton, the founder of the educational nonprofit JUMP Math. "They don't understand what would happen if interest rates went up even slightly."

But math skills among Canadians are lacking. According to Statistics Canada's 2003 International Adult Literacy and Skills Survey, 55 per cent of adult Canadians struggle with simple tasks involving math and numbers. A more recent study of numeracy in 24 countries belonging to the Organization for Economic Co-operation and Development found Canada ranking 14th -- slightly below average but ahead of the United States, Italy and Spain (see chart).

Financial problems and possible solutions
We asked Mighton and two other leading minds in the field to weigh in on how weakness in math is related to consumer debt, and what average Canadians can do about it. Mighton has a Ph.D. in mathematics from the University of Toronto, and founded JUMP Math with resources that help students have fun while discovering their submerged math abilities. Elena Simonova is principal of research and policy at Certified General Accountants Association of Canada. Gary Rabbior is president of the Canadian Foundation for Economic Education.

Q. How much are math shortcomings a root cause for the current rise in consumer debt?

Mighton: I think poor math skills are a concern in a number of ways. For one thing, we've seen these personal finance problems because people don't even bother looking at the numbers carefully. They don't think they can understand figures nor do anything with them.

They also don't have a sense of how small changes can add up. For instance, if someone was paying interest at 0.5 per cent and that rate rises to 1 per cent, at first that looks like there's only been a 0.5 per cent change. But in fact, the interest rate you have to pay has doubled.

Simonova: Numeracy skills certainly play an important role in understanding and assessing the consequences of borrowing based on individual circumstances. However, it is financial literacy (rather than just numeracy) that enables individuals to make choices that are appropriate to their circumstances.

The key skills that underpin financial literacy include numeracy, but also embrace document literacy, problem solving, scientific literacy and oral fluency skills. The ability to apply these skills when making financial decisions and the ability to understand personal and broader financial matters are likewise important determinants of borrowing-decision quality.

Math skills may enable individuals to ‘crunch the numbers' whereas financial literacy enables people to interpret the calculation results as they pertain to personal circumstances.

Rabbior: In many cases, even people with good incomes are struggling to make ends meet.  And when they can't, they are enticed by the cheapest debt available in history. Although unfortunate, I don't think it is surprising that people are borrowing more than they probably should, given that credit is more readily available at low cost.

The numeracy issue comes in when Canadians don't bother to do the math -- or don't want to do it. They often don't track expenses to know where their money is going.

In short, as more people cope and contend with current realities, they are less able to plan, look ahead and consider consequences -- which is when math and the ability to extrapolate, compound, and calculate comes in really handy.

Math skills may enable individuals to ‘crunch the numbers' whereas financial literacy enables people to interpret the calculation results as they pertain to personal circumstances.

Elena Simonova
Certified General Accountants Assn of Canada

Q. What would you say to someone whose poor math skills hold them back from budgeting or tracking their expenses?

Mighton: The good news is that they don't need to learn a lot of mathematics. Material around a grade 8 level and maybe early high school with ratios, fractions, percentages, interest rates and things like simple operations is really enough to understand your finances.

Simonova: First, ensure that you know where and how to get help if you run into a stumbling block. For instance, if it is about budgeting, have at hand a step-by-step description of how to do budgeting, or a link to online tutorials. Knowing someone you can ask for advice may also be useful.

Then, divide the task at hand (i.e., budgeting) into a sequence of small tasks and take one step at a time in completing each small task. Do not give up but go get help if you run into difficulty. Remember, math is only a small part of budgeting.

Rabbior: Use some of the online tools and calculators to help you. There are many good ones. They can help you with math that you could never hope to be able to do on your own -- and give you great information on which to base your financial decisions.

Q. Do spreadsheet programs, online calculators and smartphone apps really help consumers do the math for managing their debts more wisely?

Mighton: It's a very complex question, so the answer is yes and no. When you're learning math, you have to be careful about using those tools as a crutch. I'll give you an example. For the past 20 years or so, schools haven't focused on teaching times [multiplication] tables because the thought was that, for the deep conceptual understanding of math, you could always get the number from a calculator.

The problem is that cognitive sciences are finding that if you don't know the basic times tables, your working memory is overwhelmed trying to remember them. That is, you don't have any room left in your brain for problem solving because you're just trying to remember the facts. And you'll never see a pattern, you'll never make a prediction -- you won't even know if the number coming out of a calculator is correct.

It turns out that it's really important that kids develop a facility with numbers. It makes a huge difference to their being able to solve problems later on. So in that sense, these tools can be a crutch that we want to avoid.

But for a person who understands the basics, can make estimates and knows whether the answer coming out of the machine makes any sense or not, then those tools can be very helpful for extending your analysis and being able to crunch numbers more quickly.

Technology can be very effective when people are estimating how an interest rate increase can impact your debt, provided you have a basic understanding of percentages.

Simonova: Spreadsheet programs and comparable smartphone applications may be useful tools in a variety of aspects of financial management. They may be particularly beneficial when calculating financial figures, and presenting and tracking financial information.

Because such programs often include built-in mathematical functions, they may ease some of the difficulties faced by math-challenged consumers.

Rabbior: Online tools and apps can be of great assistance, although it may be unfortunate that we have become so dependent on them. Since we have educated people to be more dependent on these tools, let's make sure they have access and can use them effectively.




See related: Flaherty pushes better financial education; Expert Q&A: The ABCs of financial literacy
Updated September 17, 2014

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