Wednesday, April 18, 2007

My Powers of Prediction

As I suspected, the students in my gen-ed class have been declaring their love for the financial math chapter. They love formulas! They think this is the greatest!

Unfortunately, while they are able to describe how a Möbius strip differs from a cylinder, show that a carefully selected infinite set has a greater cardinality than the natural numbers, and rattle off Euclid's proof that there are infinitely many prime numbers, they are completely useless at financial math.

If you listen to AM radio, you hear people calling in about their dire financial circumstances and the stupid things that they did to get there. In a few years, that will be my students. They'll be the ones who had NO IDEA that the rate on an adjustable rate mortgage could adjust and that could make it so that they can't make the house payment. They're the ones who will think that it's a good deal to lease a car because you can get a low monthly payment. Heck, they might even be taken in by Nigerian spam.

We started on the basics of financial math on Monday, and I spent the 50-minute class period talking about what interest is, and how to calculate it (on an annual basis). We also learned how to calculate the account balance after several years if interest is compounded annually. I did several examples, and I distributed a handout that summarized the lesson. My recollection is that this sort of stuff was taught in my seventh grade math class. Only back in seventh grade we weren't allowed to use calculators, so you had to multiply your balance by 1.06 by hand, using rules of arithmetic with decimals.

One homework question had you deposit $500 into an account earning 3% interest, compounded annually, and asked what the balance would be after four years. Most of the students got it right. However, one student calculated the answer as $25,465.60; another student calculated $28,118.04. I also assigned a problem in which they were told that an investment that pays 6.4% interest earns $50,000 in interest each year; they were asked to calculate the principal in the account. Some said $53,200. Others said $46,992.48. Someone else found $4,699,298.12.

My students are disappointed that this material will not be on Friday's exam. They don't seem to realize that if I ask questions about material that they can't do (but like) that they will score lower than if I ask questions about material that they understand. And when I'm supposed to be teaching a college-level math class to students who can not work with percents and who can not do algebra and where the pass-rate should complement my university's retention initiative, it's not like I have a lot of choice in the matter.