Allowance & Incentives

Listening to NPR the other day I heard this story about "Allowance Economics: Candy, Taxes & Potty Training." I thought it was pretty interesting and that there was some fun math involved. In college I took at class on Law and Economics and I recall that there is a lot of thought that goes into how penalties are set (disincentives), for example speeding tickets. If you set them too low, people won't mind paying them and they will not work as a disincentive. If you set them high enough they should work well for the majority of people. There are also associated costs for enforcement, and people speed or don't speed based on some combination of the disincentive associated with the potential cost of being caught speeding and the likelihood of being caught. I know, from past experience, that when driving from PA to MA, I used to be particularly careful in CT because legend had it that their tickets where very expensive and their enforcement was good.

In this story, the parent is willing to pay for "essential" items, while the kids will use their allowance for "non-essentials." In addition, the parents levied a tax on "non-essentials" that were also bad for them, like candy. I was thinking it would be fun to play with various tax rates and models in which students would or would not be willing to buy certain items depending on the tax rate. Would they still by candy if the tax to their parents was 10% vs. 100%.

US Department of the Treasury Requests Comments on Financial Education Core Competencies

The Treasury Department has released a proposed set of Core Competencies for Financial Education and has asked for public comment on them. You can follow the links from the page above to see the competencies and how to submit your comments.

"The goal of the Core Competencies is to define what consumers should know and be able to do to successfully understand and make informed decisions about their personal finances." There are 5 "core concepts," which include: Earning, Spending, Saving, Borrowing and Protect and for each core concept relevant "knowledge" is listed and "action/behaviors." As I look at this list, I think about the mathematical knowledge that is needed for each action/behavior, or in some cases if mathematical knowledge is needed. 

Core Concept:  Saving

Knowledge: Saved money grows

Action/Behavior: Start saving early. Pay yourself first.

Core Concept:  Protect

Knowledge: Identity theft/fraud/scams

Action/Behavior: Protect your identity. Avoid fraud and scams. Review your credit report.

For Savings, there is a lot of mathematics behind why it's important to start saving early, but the habit of paying oneself first is more behavioral than mathematical (the behavioral economists have plenty to say about the best ways to do this and to automate it). Under the category of Protect, I would argue that there's some great mathematics to help consumers understand fraud and scams, but strategies to actually protect one's identity and to review one's credit report are not inherently mathematical.

I certainly don't think each financial education skills needs to have math behind, but as a math educator, it's nice to look at these topics to think of entry points for real world experiences into the mathematics classrooms.

What do others think when they look at the proposed core competencies?

Preparing Teachers to Include Financial Education in Their Lessons

This article reports on a study commissioned by NEFE, entitled "Teachers' Background & Capacity to Teach Personal Finance," (this is the same study that Michelle Singletary wrote about in the Washington Post several weeks ago) and notes as Singletary did that teachers are not prepared to teach, nor confident in their ability to teach financial education to their students. It raises questions about how to include such training in teacher preparation programs and how to train current teachers whose states standards related to personal finance. One of the more interesting things I took away from this article was that although 44 states "have adopted personal financial education standards or guidelines," this article goes on to say that "the study found no influence of state standards on whether a teacher had taken a course in personal finance, taught a course or felt competent to teach a course." This makes me question to the adoption of standards by states as anything more than a nod to the importance of personal finance and that without further support, training and development of useful materials the impact of a move such as changing the standards will be minimal.

Numeracy and Defaulting on One's Mortgage

Numeracy and the Subprime Crisis, a recent article in the Economist based on research by the Federal Reserve Bank of Atlanta examines the numeracy skills of subprime borrowers to try to determine who is more likely to default on their mortgages. What do you think of the quiz and the role that mathematical understanding plays in financial decision making?

Banks in Schools

Recently I have seen a handful of articles about banks in schools. This article in the Washington Post and this post on a financial blog called The Sun's Financial Diary. As I read more and more about bank in school, I see them as a great opportunity to create awareness about money management, savings, investing and more. I also wonder how schools and teachers are taking advantage of these opportunistic.

• What role are students playing in operating the banks?
• How are teachers incorporating the material into their classes and in which subject areas do they include information on banks and banking?
• What role are the banks playing in providing educational material or support?

My initial thoughts about topics that could be explored in math classrooms are:

• what does a bank do with your money and how do they make money?
• savings and growth
• interest (for savings and borrowing)
  
• lending
• account fees and models for how much various ways of managing ones money might cost
  

Does anyone have experience with banks in their schools?
Are there other math concepts that make sense to people?

~Valerie

Financial Calculators

I think bankrate.com has some great calculators that allow you (or your students) to play with various models for savings and borrowing and all the components that affect interest earned or paid.

The image on the right shows the savings calculator and it's a great tool for helping students explore the impact of different interest rates, contributions, etc.

Similarly, it offers calculators for mortgages, credit card payments, car loans and more.

Do you know of any other good sites with financial calculators? Maybe ones that have graphing along with charts?

~Valerie

Michelle Singletary's Washington Post Column

Michelle Singletary had a nice column in the Washington Post this weekend discussing a NEFE funded study that found that "most instructors don't think they are suitably trained to teach their students the basics of personal finance." She also notes the importance of financial education at home and questions the role of schools as the primary educator in this area. I agree with her and suspect that this type of education should take place at home as well as in schools. But I would argue that schools are not taking advantage of a valuable opportunity to offer good education around how financial matters work and the math behind them. I say that recognizing, as NEFE does, that we'll need to provide good education to teachers on these topics as well before we can set high expectations for what teachers can do in schools.