“Well, there is no use studying math, you’re either good at it or you’re not.”
“When will I ever use this in the real world anyway?”
As a high school teacher I hear complaints about math constantly (well… I just hear many complaints period). There is this widespread general attitude towards numeracy and math as if it were some kind of magic that a few chosen practitioners can wield, while the rest of us commoners are left helpless in the dark. This is logically ridiculous, but that makes it no less a constructed reality. The sad fact is that many of us – probably a solid majority – do everything we can to stay away from math after we leave the public school system.
According to the PISA test (the most widely used international standard – and a really good baseline) Canadians aren’t that good at math to start with (depending on how you read the statistics – we’re better than the OECD average, but roughly two years of education behind Shanghai) – and we’re getting worse. When you factor in how little most of us engage with math after high school I highly doubt many of us get more comfortable with the subject.
A High Correlation Between Knowing Percentages and Understanding Interest Rates…
Interesting enough, I might be the exception to the rule. I graduated from a small school and didn’t have many comparison points with which to rank myself. My good friend was a math wizard and since graduating he has finished an engineering degree at an advanced rate while being covered under an all-expenses-paid scholarship in Europe. Compared to him I knew I wasn’t a “math person”. I didn’t intuitively engage with more abstract calculus-related concepts very easily. I did well enough with some good teaching, my friend’s help, and a lot of extra homework, but I knew I didn’t want to depend on math skills the rest of my life.
In university I got my first taste of the mainstream attitudes towards math. Because I was relatively weak in math and didn’t have a passion for it, I enrolled in a course called “Topics in Math”. Essentially it was a math course designed to get humanities majors their math and sciences requirement for their undergrad degree. I hoped that it would be relatively painless and that I could get through without harming my GPA too badly – I wasn’t a “math guy” after all.
What I was exposed to on Wednesday nights that year was absolutely astounding. Here were students that had gotten into university, who literally could not begin to grasp math I had learned in grade 9. It turns out I was a math all-star and had just never noticed it ;). In all seriousness I couldn’t believe how many people could not do basic stuff with fractions, percentages, basic trigonometry, and beginner algebra. Even stuff like measurement appeared to draw blank stares. Three years later I would see many of these same attitudes in a place that should be very worrisome for the rest of society: in faculties of education.
Don’t Hate The Mathematician – Or The Game
As I began to delve deeper into this whole personal finance thing I realized that it wasn’t just people in easy-credit math courses and faculties of education that hated and feared math – it was people in general. Intimidated by and/or dislike are not strong enough words to describe the relationship many (most?) Canadians have with basic math. Once again, I need to clarify. This isn’t like the techie at Future Shop calling you dumb for not knowing something they find straight forward in regards to the latest gadget.
I have no inclination to go into engineering or any career that would depend on my mathematical abilities. On my best days I can follow the math that guys like Nate Silver put out there, but would never think to do any analysis like that myself. I’m talking from the perspective of someone who is confident in their practical math and numeracy skills. The literacy-based comparison would be the idea that I like reading the newspaper and I’m good at it, but I wouldn’t touch writing a book or reading a thick novel.
Is A Lack of Math Knowledge Hurting You?
So, back to the original question – how does this math deficit impact our personal finance actions? Not having math as a large part of your identity is ok. Leaving high school without a clear understanding of grade nine math principles is not. Thus we identify one of the great myths of the financial industry and money gurus everywhere – the math we need for personal finance really isn’t that hard. Heck, budgeting is basically grade 3-6 math concepts and most of us are still trying to wrap our arms around that.
Most people could get by using passive investing methods which consist mainly of understanding basically percentages – in other words grade 8-9 math. If you want to get somewhat complicated as a retail investor and look at ratios like P/E or something similar – those are basic fractions. From what I can tell, success for 99.999% of retail investors could be achieved by using gr.10-11 math. There isn’t anything there that is as hard as quadratic equations or advanced algebra!
The problem is not the actual math itself – although many of us didn’t really learn that subject area all that well. The problem is the fear of engaging with the issue at all. If you told most people, “Ok, when we talk about how much a company is worth, we like to compare the current price tag on the company with how much money they made the year before. In order to do that we invented a statistic called the price-to-earnings ratio. All it is a basic fraction. We take the price of the stock (how much the company is worth) and divide it by how much money the company made.
This is one way to tell if we think it is a good idea to buy a part of the company or not.” I like to think most people would understand that, but as soon as you show something like: APPL P/E 13.44, then people get all flustered. It seems that Canadians have an inherent fear of basic math problem-solving and I’m not sure where it starts. Maybe it’s something we pass down from parent to child, maybe it’s the fact we severely lack good math teachers – especially at the primary level – in our public school system? I’m not sure, but the fear is definitely there for many of us.
Hard To Intelligently Invest With a Math Deficit
I believe that because we are afraid of math, the behavioral handicaps that we as humans have (see here for details) become that much harder to overcome. If you can’t understand the basic math behind index investing or the futility of trying to pick mutual funds, then why would you be swayed by logic in any direction?
Instead it’s by far the path of least resistance to listen to whatever someone sitting in front of you in a semi-expensive suit and tie is saying. It’s much easier to just make minimum payments on your credit cards because that number is in large print on the top part of the statement and will cause you the least immediate pain/sacrifice. Don’t think about the long-term interest you’re paying because there is no way that will lead to instant gratification and it will force you to confront something you’re not comfortable with – grade 9 math.