“We’re not going to improve our financial literacy rates until we start doing better at math”Arne Duncan, US Secretary of Education (2014)
This was what the US Secretary of Education said after the Organisation for Economic Co-operation and Development (OECD) published its Programme for International Student Assessment (PISA) test results indicating that almost 1 in 5 US students did not meet their financial literacy proficiency standards.
The PISA test, which serves as an international benchmark for student performance, found that of 48 000 students that participated in the assessment, one in four 15-year-olds were unable to make even simple decisions on everyday spending and only one in ten could understand more complex issues, such as income tax.
Shanghai (China) was, however, placed at the top of the financial literacy table despite no formal financial literacy being taught in the curriculum.
“All the teaching and learning in Shanghai focuses on conceptual understanding”Andreas Schleicher, director of education at OECD
The PISA results suggest that having a strong foundation in and conceptual understanding of mathematics can help young people navigate the complex financial environment.
So how deep is this link between math and financial literacy?
Digging into the data
A number of studies have been done to track the link between mathematics, numeracy in particular, and financial literacy.
- A study of Mexican students ages 15 and 18 finds that students who perform better in mathematics scores on the OECD tests also perform better in financial literacy scores. The results showed that for each mathematics question a student got correct, the financial literacy score rose by a corresponding 0.12 deviations.
- A British Cohort study of 17,000 individuals born in the UK in 1970 found that maths scores captured by age 10 showed a statistically significant correlation with net wealth at age 42.
- A Swedish study of 2000 adults found that high numeracy levels were the most significant predictor of strong financial literacy.
- A study in India shows that low numeracy is associated with a 4.8% reduction in financial literacy, while a high level of numeracy is associated with a 5.6% increase.
As these studies show a strong association between math and financial literacy, we can make improvements by starting with the basics.
Timothy Ogden of the Financial Access Initiative recommends that children get “good with numbers” and that they should simply take more mathematics courses in order to improve their money management skills.
But what does “good with numbers” actually mean? The UK Money Advisory Council defines this as strong numeracy skills.
Not all math is created equal
Numeracy, at a basic level, is the ability to understand and work with numbers in the real world.
The UK Money Advisory Council defines it as:
“Having the confidence and competence to use numbers and data in everyday life to make good decisions, including financial ones.”
Breaking this down, we have three focus areas: competence + confidence + real-world application.
How does Math for Money help develop numeracy?
Math for Money is an app that incentivizes children to solve math problems to unlock their pocket money.
The math problems we provide help children practice the skills most closely associated with numeracy. These include arithmetic, number & operation sense, computation, and basic statistics to name a few.
Our approach to developing numeracy is as follows:
- Competence — We only focus on core numeracy skills.
- Confidence — We set age-appropriate questions for children to solve. The difficulty of the questions adjusts based on the child’s ability.
- Real-world application — We provide world problems that are linked to real-world scenarios to ensure that knowledge is applied.
It is noted in some of the studies (OECD, British Cohort) that reading also plays an important role in financial literacy — hence our focus on word problems.