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Are you a numbers person? Britain’s inaugural National Numeracy Day next week has been set up with the aim of encouraging more people to answer with an emphatic “yes”.
However, the answer is apparently “no” for half of the UK workforce. About 17m workers possess the numeracy skills of a primary schoolchild, according to research by National Numeracy, the charity behind the event.
It estimates poor numeracy could cost the economy £20bn per year, arguing that a widespread lack of confidence with numbers contributes to the UK’s sluggish productivity performance.
As well as making the workforce less efficient and productive, poor numeracy skills also have big implications for the nation’s personal finances. By extension, our failure to grasp figures could also be boosting the profits of banks and financial services companies.
If so many consumers are struggling with numbers, could this explain why so many are on poor-value mortgage deals, fail to make the minimum payments on their credit card every month, pay over the odds for investment charges or do not save enough for their retirement?
Experts argue that the way financial information is presented makes it too easy for consumers to default into states of inertia that are bad for their pockets, and good for the finance industry.
Some basic number crunching could be all it takes for people to compare products and change their habits, so the campaign — launched on Wednesday May 16 with the social media hashtag #numberspeople — seeks to give everybody the confidence to pick up a calculator and get stuck in.
Encouraging people to put their number skills to the test is a big part of National Numeracy Day. Its website offers a slickly-designed online assessment with multiple choice answers (calculators are allowed). But it is not like a standard maths exam. The questions reflect many real-life situations which consumers could encounter on a daily basis.
At first, they are fairly easy.
If today is March 27, what will the date be in seven days’ time? Which fraction (1/4, 1/2, 1/3) would give you the biggest share of the chocolate bar?
If you get the answers right, the questions become progressively harder.
Books are priced at £5 each. Which is the best deal: buy one get one half price, or two for the price of one?
Then there was: Choosing from a range of pound-dollar exchange rates, which firm is offering the best deal on your holiday money? And if the price of a new TV is £750, how much is the VAT?
If you breeze through these, you will be given more challenging tasks. For example:
How long would one million seconds be in days?
My immediate response was “I don’t know the answer to that”. But then I broke it down: 60 seconds in a minute, multiplied by 60 (minutes in an hour), then by 24 (hours in a day). Dividing that number into a million gave me the answer.
Mike Ellicock, National Numeracy’s chief executive, says this response is typical. “People often have a defence method of saying ‘I don’t do maths’ when faced with a tricky question,” he says.
Many respondents have trouble with a much-easier question:
You’re paid £9 per hour and you get a 5 per cent pay increase. What’s your new rate of pay?
“Between a quarter and a half of the population will get the answer wrong,” Mr Ellicock says. “That’s not because of their cognitive capacity. The barriers are much more attitudinal — it’s about engaging with numbers rather than folding your arms and saying I can’t do it. You need to use numbers and data so that you can make good decisions in daily life.”
Marked out of 100, an online test score of above 80 means you have the “essentials of numeracy”. But it doesn’t end there. The quiz is designed to test different areas of numeracy — if you fall down in one area, such as percentages, the website will push you towards help and resources to improve those skills.
Everyone, Mr Ellicock argues, can be a “numbers person” — and the financial rewards are well worth any pencil-chewing effort.
The charity quotes research suggesting that those with a basic grasp of numeracy command a wage premium of up to 26 per cent. “Even when you split out every socio-economic factor, it’s still about 10 per cent,” Mr Ellicock says.
There is also the beneficial impact on people’s personal finances to consider.
Although not included in the National Numeracy quiz, here are some further questions to ponder. What is the rate of interest on your mortgage? And your credit card? How do these compare with the best deal on the market? And how about the return you are achieving on your investments compared with what you pay in fees?
If everyone in Britain worked out the answers to these questions, would this reduce the 30 per cent of borrowers that the Financial Conduct Authority estimates are on poor-value mortgage deals? Or the number of investors who continue to pay over the odds for “closet trackers”?
The maths isn’t terribly complicated, but again, it comes back to whether consumers have the confidence to engage with their finances and find out if they could be getting a better deal.
Mr Ellicock says the key is being able to use simple maths in complex situations. “However, what we learn at school tends to be ever-more complex maths in very simple situations,” he says. “There’s a false assumption that one leads to the other.”
His concern is shared by Bobby Seagull, FT Money columnist and National Numeracy supporter, who sets out his views this week on how to reform GCSE maths.
Even adults with good numeracy skills can be nudged into making poor decisions. Here’s another test for readers to try at home. Get your credit card bill. Put it on the floor. Take two paces back. What’s the only number you’re likely to be able to see?
The answer is the minimum payment amount, typically a tiny percentage of the overall bill, set out in a large bold font with a box around it. Defaulting to this could cost you dearly.
“Both credit cards and overdrafts can lull consumers into a false sense of affordability,” says Peter Tutton, head of policy at StepChange, a debt charity.
“The minimum payments or daily charges look like very small amounts of money. However, they are very expensive over time. These are features that rely on a lack of people’s awareness to make it more profitable.”
Moneysavingexpert.com estimates that a 21-year-old who borrows £3,000 on a credit card then only makes the minimum payment will be nearly 50 by the time they pay it off — notching up nearly £4,000 in interest.
Describing maths as “the lifeblood of good money saving”, Martin Lewis, founder of Moneysavingexpert and a supporter of the National Numeracy campaign, says: “There is no better way to empower consumers.”
So why are so many people apparently number blind? Look again at your credit card bill, and the amount of interest owing the next month if you meet only the minimum payment will be on there — but usually in far smaller print.
“Credit card companies give you lots of flexibility to spend money in a very expensive way,” Mr Tutton adds. “They are designed for short-term borrowing, but if you repay over years it will cost you — and nothing really makes that clear.”
Calling for “better disclosure and better product design,” Mr Tutton hopes regulators will consider nudging up the minimum percentage payment (currently about 2 per cent) in an effort to reduce problem debt.
“Demand for help with problem debt is at the highest level we have ever seen,” he says, providing some worrying numbers of his own. “In 2017, StepChange was contacted by one person every 51 seconds, and two-thirds of those seeking help were aged under 40.”
Educate or regulate?
Encouraging people to get to grips with their calculators is one way of changing entrenched patterns of consumer behaviour but Natonal Numeracy’s research also throws up questions for regulators to answer.
“In so many areas of financial services, there’s an assumption built in to the current models of market behaviour that assumes people are numerate — but that’s not a safe assumption,” Mr Ellicock says.
He highlights the energy market — “we broadly have poorer, less-educated customers subsidising rich customers who are more likely to switch” — and the high number of new cars financed through personal contract plans (PCP). Although consumers can spread the cost over a long period, they pay a premium to do so.
Mr Tutton says the same can be said of the UK’s free in-credit banking model, where the poorest customers bear the heaviest burden of fees and charges.
“The FCA’s high cost of credit review showed that in 2016, more than half of unarranged overdraft charges were concentrated on 2 per cent of account holders,” he says.
StepChange supports National Numeracy day as it “raises awareness of financial capability in a broad sense”. The hardest nut to crack, Mr Tutton says, is for consumers better to understand the options available to them, compare the cost and make the right choices.
Technology could also provide part of the solution. The advent of Open Banking, while derided by privacy campaigners, has made it easier for consumers to compare the costs of overdrafts, personal loans and mortgages.
Providing consumers give consent for their banking data to be shared, a new generation of smartphone apps can identify the best-value products. In the energy market, companies such as Switchcraft and Flipper are making it easier for consumers automatically to move to cheaper price plans.
Whatever your age, and whatever mathematical qualifications you might hold, Mr Ellicock urges readers to take the test and encourage colleagues, friends and family members to face their fears.
“The crucial thing is can you use simple maths to make good decisions — and that’s what we’re here to help people with.”
National Numeracy Day takes place on May 16. Try the online numeracy test at nnchallenge.org.uk
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