The connection between math skills and financial decisions does not seem like a stretch. Recent research has made some nice connections between individuals’ understanding of mathematical concepts, like percents, interest and the impacts of those of those on long-term costs for a consumer and individuals’ behavior with respect to their mortgage payments. Numeracy and the Subprime Crisis, an article in the Economist based on research by the Federal Reserve Bank of Atlanta examined the numeracy skills of subprime borrowers to try to determine how math skills connect to one’s likelihood of defaulting on his or her mortgage. They used a quiz like this, to examine individuals’ math skills:
I found the quiz in this article to be particularly interesting not only because it make a strong connection between common middle school mathematical concepts (percents, fractions, etc) and financial decisions, but it also raised for me a less discussed notion that people need not just understand these ideas, but they must be able to make sense of them quickly and in potentially stressful situations. At times of large purchases, like homes or car purchases, or for that matter, college, people often may not have a concrete idea what they are getting into as compared to what they can really handle (as evidenced by the recent US housing crisis). People tend to think of purchases like this at fixed monthly expenses, but in truth the decisions are even more complicated. One is not just buying a house and incurring a mortgage payment, he or she needs to know what they would do if the roof leaked, if the washing machine broke, etc. These decisions are complex beyond being able to calculate a sale price based on a percentage discount or the likelihood of winning the lottery (although those kind of calculations and understandings are important to financial decisions).
This raises questions for me about two things, first – how can we help students build fluency (that is their ability to do mathematical calculations quickly and accurately in their heads) with the concepts presented in this quiz in meaningful ways beyond (or in addition to) repetitive practice with contexts they think they will never use (or without context at all); and second – are there ways we can use the math classroom to help students make more sense of these kinds of decisions and how to model the true costs of home ownership, car ownership, the penalties (costs) of not making timely payments and other realistic scenarios.