The study examined several hundred borrowers who held mortgages issued in 2006 and 2007 — right before the mortgage meltdown. Of the study subjects, 25% of the borrowers who scored in the lowest bracket for math skills had defaulted on mortgage payments within five years of getting the loans. Meanwhile, only 5% of those in the top tier for math skills defaulted.
Previous studies suggest that people who struggle with simple math also struggle with handling their finances, according to Gerardi. This group tends to budget less carefully, misuse credit cards and mishandle financial emergencies, such as temporary income losses. When they hit a rough financial patch, they may not understand the math well enough to negotiate the most favorable settlements with lenders. Homeowners can be saved a lot of trouble if they understood money matters. Balancing their finances is the difference between paying your mortgages or loosing your home.
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