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Could your ability to solve basic math problems be a predictor of your family's future fortunes? The answer may be as simple as 1-2-3.
New research suggests that couples who score well on a test of numeracy appear to fare better financially by middle age than their counterparts who fail to make the grade on such a test.
Researchers explored the link between cognitive traits - particularly numeracy - of both spouses on the family's financial outcomes. They also examined who is typically responsible for making financial decisions in the household and why.
Numeracy is the ability to use or understand numerical techniques of math.
For the study, published in this month's edition of The Economic Journal, researchers relied on the Health and Retirement Study funded by the U.S. National Institute of Aging, using a sample of more than 11,000 people.
The HRS is a biennial, nationally representative longitudinal survey of Americans over age 50. Its objective is to monitor economic transitions in work, income and wealth, and changes in health status.
"As you start getting into the 50 and older age group, basic cognitive attributes may start to matter a lot, like memory, and how intact one is when it comes to their decision making about anything financial," said study co-author James Smith, senior economist with RAND Corporation, a non-profit research organization.
"Since it is a financial decision and financial decisions usually involve basic arithmetic at some level - like, `What is the basic rate of return of this asset? How much risk is attached to this asset?' - you would like to think your ability with numbers might matter."
Starting with the 2002 HRS, three questions were added to the core interview to test the numerical ability of respondents.
Researchers wrote that household wealth "increases sharply" as the numeracy score of either spouse rises, with vast differences between couples earning a perfect score compared to those who got zero.
When both spouses answered the three numeracy-related questions correctly, their family's wealth averaged $1.7-million. Meanwhile, among couples where neither spouse answered any questions correctly - which occurred in 10 per cent of cases - the average was $200,000.
What's more, researchers found other cognitive skills, including memory retrieval and intact mental status, had far less influence on a household's wealth than numerical ability.
The man was the financial decision-maker in 62 per cent of the households studied. The preference is particularly evident when men are older and more educated than their wives.
However, even when men scored zero on the test, there was still a 50-50 chance they would be the household's financial decision-maker.
Mr. Smith said if a man is a college grad, in 75 per cent of the cases he's making the financial decisions no matter what the level of the wife's education.
For example, in the case of a 60-year-old couple who were married at 25, the decision of how family finances would be managed was probably made when they tied the knot - far different than how things are done now, Mr. Smith said.
One of the problems with letting men make the financial decisions is that since women typically outlive them, wives will be left with the responsibility and may not be particularly prepared because there may not have been many conversations on the subject, he said.
With people in their 20s and 30s, who have their own bank accounts and portfolio funds, there is no longer a completely shared set of financial assets where one person makes the decision, he said. Even within the sample, when comparing people in their 50s to those in their 70s, a change was noticeable.