trueblueky wrote:I tutor adults in GED math (if you know high school algebra and geometry, you can pass; otherwise, not). Some don't know they know the math facts they do know.
Example: Ask them to divide 200 by 25. Much struggling.
Ask how many quarters are in two dollars? Easy, although it's the same problem.
From my experience teaching mathematics, I more often see the opposite problem, translating English into mathematics when the mathematics itself isn't hard. And this contributes to the correlation between numeracy and wealth.
What is 1/12 of 18% of 1000? With these numbers, the arithmetic is simple as long as you remember what % means.
If you carry a balance of $1000 on a credit card at an 18% interest rate, how much interest will you owe each month?
Solve for x: (1-.2)(1+x)=1. Simple algebra.
If your investments lose 20%, what gain do you need in order to break even? It's a lot harder to see 25% here.
If x*(1+y)^10=1000, solve for x when y=.05 and y=.06. You'll need a calculator, but the algebra isn't hard: x=1000/(1+y)^10.
What happens to the price of a 10-year zero-coupon bond if its yield rises from 5% to 6%? This is the number bond investors need to know, as it explains how risky the bond is; in this case, it loses 9% of its value. (And there have been many posts on Bogleheads about investors overestimating the risk; if rates rise 1% in the next year, Total Bond Market will lose about 3%, not a crash.)
At other times, the problem is a failure to try the mathematics, or to recognize that there is mathematics to try.
What is (300,000*1.01-10,000)/1.02? What is (300,000*1.03-10,000)/1.04? These are almost equal.
If you have $300,000 in the bank, need to withdraw $10,000 this year, and earn 3% interest when inflation is 4%, do you need to change to a more aggressive investment if you earn 1% interest when inflation is 2%? The money illusion has caused many investors to go chasing yields.
What is .99 to the 30th power? Easy with a calculator.
If you pay 1% fees on an investment, and hold it for 30 years, what fraction of the potential investment value have you lost to fees? Few people work out the math; getting either the correct 26%, or a reasonable estimate of 30%, is a good reason to avoid such investments.