Being bad with numbers could cost you financially

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If you want to be wealthier, brush up on your math skills.

A forthcoming study in the Journal of Economic Psychology found that, after screening for differences including education, risk tolerance and financial knowledge, people who are better with numbers tended to be wealthier and accumulate wealth over time. The study tracked 1,000 Dutch adults over a five-year period.

Understanding and working with numbers like discounts, fees and interest rates are key in making smarter money moves, said study co-author Catalina Estrada-Mejia, an assistant professor at Colombia's University of the Andes.

For example, the marketing of "buy one, get one 50 percent off" is less attractive once you realize it's at best a 25 percent discount on the total purchase. A $34 finance charge for a three-day, $24 overdraft is less innocuous than when expressed as a loan with a 17,000 percent APR.

"Consumers need to be aware of the fact that they will always be confronted with numerical information when making financial decisions," said Estrada-Mejia, who conducted the study as a doctoral student at the Tilburg Institute for Behavioral Economics Research in the Netherlands. "Their ability to use this information in a meaningful way can have a significant impact on their financial outcomes."

The 2014 Organization for Economic Cooperation and Development assessment — a large-scale international study of financial literacy among 15-year-olds — also tied math skills to financial literacy. "From the data, we see a very strong correlation," said Annamaria Lusardi, a professor of economics at George Washington University.

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"Normally, being very good at math captures a type of mind and reasoning that is very good for decision-making," said Lusardi, who chairs the OECD committee that designed the personal finance assessment.

Countries whose students performed well in the math portion of the study tended to perform even better in the financial literacy portion. (The United States was in the middle of the pack with a ranking of at best eighth and at worst 12th, based on the range of scores for the 1,133 students tested.)

The Shanghai region of China topped the personal finance assessment despite not having dedicated financial literacy curriculum, said Ted Beck, president and chief executive of the National Endowment for Financial Education. "They're very focused on math," he said.

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But don't assume a knack with numbers means you're set for financial success — or, if you're bad at math, that you're out of luck. "Financial literacy is more than math," said Lusardi. It's also about your ability to reason through financial decisions and understand financial terms. Not all of that is math based, she said.

(In the OECD assessment, for example, only 28.8 percent of American teens could correctly read a pay stub and determine how much pay would be automatically deposited into a worker's bank account.)

Thinking you're bad at math, whether you are or not, can also color your decisions. You're more apt to discount the numbers and rely on other factors, like your mood, said Estrada-Meija. "For financial decisions, this is probably not a good idea," she said.