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volgo

Some of the skills tested in the study seem more like arithmetics rather than financial skills:

- "About a quarter could not work out how much change they should receive from a shop..."

- "About one in three adults struggled to work out the price they had to pay.. per litre or per kilo"

- "About half could not read a simple financial line graph"

- "Most struggled to calculate discounts involving more complex calculations"

I mean.. people can't do math in their head. Who cares? In my opinion, the most important financial skills are simple things like monitoring your credit, your spending, creating a budget, pay off credit card in full, pay down high interest debt ASAP, avoid pay day loans, don't spend money on stupid things, invest in high quality index funds, etc.

These skills are mostly psychological and will help your financial health WAY more than calculate price of chicken per pound in your head.

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Especially when you consider that most supermarket labels will also include the "price per unit weight" or "price per unit volume" on the shelf with a smaller font, it becomes trivially easy to compare which bottle of soap is going to get you the most for your money. Or maybe you neglect to do this (simply opting for the container that looks the most appealing rather than optimizing for the amount of liquid per dollar you'll receive) and as a result you have to suffer the catastrophic consequences of spending $9 per month on dish soap when you could have spent $7.20 instead.

The funny thing is that some of the asked are all arithmetic are constructed in such a way that you will get a "wrong" answer if you treat them as practical financial questions as opposed to purely arithmetic ones. For example, one of the sample questions in the article is "If a litre of cola costs $3.15, how much will you pay for a third of a litre?" This seems to be asking you to take $3.15 and divide it by three, but as a practical matter, it would be folly for me to take the price of a 20 oz soda bottle and then assume that I could calculate the cost of a 12 oz can simply by multiplying by 0.6. This question isn't a test of practical or financial literacy; it's purely arithmetic.

I've started noticing some sneaky math in my local supermarket. When comparing two items, both list the unit price, but they list the price in different units. Example: A 1.4-lb package lists the price per oz, while the 0.8-lb package lists the price per lb. In every case, the intent seems too be an attempt to induce math errors and cause someone to accidentally purchase the package with the higher true unit price.

Just multiply or divide by 10s or 100s or whatever. It's not hard.

Oh.. oh yeah. ;)

That's not going to work with imperial units :-)

And heaven knows programmers can't multiply by 16.

Only bad programmers multiply by 16.

The good ones use a bit shift.

For about the last 15 years the compiler will generated the same code in either case. Thats really old advice!

I've noticed this as well here in Sweden. Take for example bacon - product A is listed in terms of price/slice while the other is listed as price/weight. It's ridiculous.

Some supermarket chains have an ethics policy against shelving like that with mixed units and if you catch it, and report it to a manager they will apologize and correct it.

I recall Kroger used to have a big focus on it, but a quick skim of current ethics policies on their website doesn't show an explicit mention. However they still have "honesty" as a guiding goal, so supposedly it's still worth reporting.

Yeah, Whole Foods in particular often lists the price "per item" (one package of 14.5 oz at $8.25 "per item" and another of 12 oz at $6.10 "per item") which makes a mockery of the unit pricing law. I wrote to the A.G. a few years ago but nothing happened.

I’ve noticed some weird anomalies as well like if there is a small, medium, and large size package the large sized package isn’t always the cheapest per unit - as they assume customer will just assume the largest packages has the lowest per unit price

I've noticed a similar thing. I always assumed it was negligence, not malice.

same in the UK, some items priced per kg and others per 100g - not insurmountable but just another slight hump in the road to easy comparison when you're stood there.

You think someone who can't solve arithmetic problems is going to understand the consequences of compound interest and the TCO of revolving debt?

People are mixing "solving arithmetic problems" with "solving arithmetic problems without paper or calculator". Furthermore, GP's example mixes "can't calculate price per pound" with "Can't read a line graph". The former is okay, the more I advance in graduate training as a mathematician, the less I'm able to do mental math. The latter is bad.

There are good reasons for teaching mental math to children, but for adults, really, calculators exist. If you can't calculate price-per-pound with a calculator, you have a low IQ (can't translate a simple written instruction to pressing buttons on your phone) and should be elligible for government aid. But if you can't calculate discounts, compound interest, read graphs, etc -- these can be taught.

Should be taught. For example: banks could condition debt renegotiations to attendance to special financial education classes for adults. Governments could incentivize banks to do so by picking up part of the check for reduced debt.

Back in my college prime and I was knee deep in the stuff, I was the guy that would do an integral in my head and then screw up the subtraction at the end. I've just always been bad at mental arithmetic, and don't put in the practice to get better because it just doesn't affect my life that much.

So yes, we exist.

I have extreme issues doing any sort of math in my head and have been like this since birth - I failed a general level math course in high school. I can't add 2 two-digit numbers in my head at all, forget multiplication.

However, I understand compound interest and consumer debt very well - I pay my credit card in full every month, I save for retirement, I actively budget. I've also had a career in the computer and Internet business for 25 years. A calculator solves a lot of problems.

Yeah. I suck at arithmetic. For the soda example, I just round down to 3 and say: "about $1". Much faster than worrying about 5 cents.

But I also know how to solve for discount percentages, where most people would not, the article states.

Those are not all that much related.

>...catastrophic consequences of spending $9 per month on dish soap when you could have spent $7.20 instead.

Indeed, for the poor, it doesn't take too many of these $1.80 differences to add up to catastrophe.

I feel like a lot of people don't realize how much small changes can add up. For a lot of people living paycheck to paycheck, they would be broke regardless of whether they earned $1500/ month or $2000/ month, because their spending adjusts upward any chance they get. If you optimize your purchases on the margin, you can escape this trap much easier.

If you can plan, purchase and store in bulk then you can save money on essentials. That's about it. Then you have to get rid of as many subscription based items you can.

> Especially when you consider that most supermarket labels will also include the "price per unit weight" or "price per unit volume"

My local grocery does this.

Whenever it stocks multiple items, though, they are never in the same units of measurement. So, you get one brand of any given priced in $/ounce, and another priced in $/pound, or heaven help me, $/serving.

I have no doubt that they pull this bullshit on purpose, to make comparing prices more difficult.

I guess the problem for the older generation, especially here in the UK, is they were raised on imperial units and have never really gotten used to metric.

Not saying that excuses it, but it could explain part of the reason why some people don't fully grasp the £-per-X calculations

If you could/can work out the change from a pound on a 4s-6½ (four shillings and six and a halfpence) packet of fags (circa 1050s), you'd hardly be likely to have much problem with metric.

[As was: 1 pound = 240 pence = 20 shillings i.e. 1 shilling = 12 pence]

I don't think they had tobacco in the 1050s.

Well I'm not that old so maybe it's different but as an American raised on imperial units I find metric absurdly easy to learn because it is just shuffling a decimal point around.

Going from metric to imperial must be challenging.

I'm also American raised on imperial, and metric conversions often confuse me _because_ of the uniformity of the conversions. Each imperial conversion has a unique number, making it easy for me to associate the unit with the number, but metric tends to get jumbled up.

Note: $9/month (or $7.20/month) of dish soap is a ridiculously vast amount of dish soap for an ordinary family to be using. My wife and I have been on the same $10 (?) bottle of dish soap (yay Costco) for over 5 years and it is just now running out. (Not that this affects your main point.)

Anything involving the stock market is far from simple. And "don't spend money on stupid things" is more class signaling than financial advice. Who decides what is "stupid?" If it's important to you, why not estimate how much of an impact the purchase will have on your budget, and decide based on that? That requires math.

I dunno, I do arithmetic in my head just about every day. I can't imagine engaging in any sort of business transaction without that skill. Even just going to the grocery store, not being able to round, add, and multiply, means you're always going to be surprised at the cash register. I'd much rather know how much I'm going to spend before I get to the cash register so I don't look silly asking them to put things back for me.

> "don't spend money on stupid things" is more class signaling than financial advance.

If it weren’t for the sneering tone of the GP, the advice could have been meant as “don’t buy transient things that are beyond your means”

That proves my point even further. The "beyond your means" part is where math starts being needed again.

I think what we're seeing here is a class difference? For some people, if the grocery bill is higher than expected, you just shrug and try to do better next time.

> For some people, if the grocery bill is higher than expected, you just shrug and try to do better next time.

I knew I had crossed some class boundary when I found myself not paying close attention to the running total at checkout. There is a difference in mindset for people whose budgets are rounded to the nearest $1, $10 or $100 respectively.

While your point is literally true, having basic arithmetic proficiency does go some way in making sense of the world. Quick mental calculations to see when you'll reach a certain place, ability to compare things when they're in different units etc. It's not only the skills but the overall mental model that they help create. The world starts to become a little more rational and sensible when you can do this.

Tell that to every maths teacher. "Show your work" was a nightmare.

As a kid, it was. As a secondary level student, I found it useful sometimes to write things out in detail when I was stuck and all the mental models I had didn't work. Good maths teachers can tell the difference and in my case, often did.

> like monitoring your credit, your spending, creating a budget, pay off credit card in full, pay down high interest debt ASAP, avoid pay day loans, don't spend money on stupid things, invest in high quality index funds, etc.

IMHO this all starts with the fact that many people I've encountered simply do not understand the difference between income and assets. In fact, I run into this all of the time on HN with people here who say "I can't believe that's a billion dollar business".

I would love for them to do this experiment and ask the common person what the Time Value of Money is. I bet the results are way worse.

I'm convinced that there are serious externalities to all of the financial innovation that has happened in the last 40 years that we simply choose to ignore and it hurts the common man.

In the US, at least, this is possibly because a not-insignificant number of people have zero or even negative net assets:

https://en.wikipedia.org/wiki/Wealth_in_the_United_States

It's hard to comprehend something you've never had (or, in some cases, even imagined you could have). I have friends who live paycheck to paycheck. For them, budgeting, saving, investing, long-term financial planning, etc. are completely foreign ideas. Part of this is an intergenerational legacy of poverty: their parents weren't in a position to think about these things either, so they were never raised to think about it - and so, like many North Americans, they spend money they don't have on things they don't need, work punishing hours at close to minimum wage to make up the difference, and are left with no time / energy afterwards to learn better.

To compound the issue: even if they did have the time / energy to learn better, they can't secure the kind of credit that would enable them to quickly pay off their high-interest debts. It's deeply frustrating to watch, but this is what one step above abject poverty looks like. You have a lot of (well-meaning!) people telling you "just do X", without realizing that X often requires you have up-front capital, good credit, spare time, or any of the other things people in more stable financial situations take for granted. (I've been that person a few times, advising them to do things that to me are common sense - only to find out that, for them, those "common sense" steps are impossible.)

In that sort of environment, it's meaningless to ask someone what the time value of money is; they have more serious structural problems with their finances that no amount of high-level philosophizing will solve.

I think the Time Value of Money is one of the most important concepts any lay person should understand but most don't. I came out of college (an Ivy league school) as a physics major with zero understanding of finance. At my first job, one of the first things my boss asked me was, "What would you pay me today in exchange for me paying you $100 in one year?" That, of course, led to a lesson on the time value of money. Not a difficult concept to grasp, but despite a great education, I had never had an occasion to think about it and understand it. Once you get that concept, everything else about finance and investing is pretty straightforward.

I wish every high schooler had a basic finance course that started with that same question. Then moved on to personal finance basics like understanding interest (credit cards, car loans, mortgages, etc) and net worth (assets) v. income.

There is a great set of Khan Academy videos on the subject.

https://www.khanacademy.org/economics-finance-domain/core-fi...

How are you supposed to monitor your spending if you cannot figure out how much you paid for chicken?

You don't need to "figure out" how much you paid for chicken; it's printed on the receipt. The only thing to "figure out" is "what's the cost per pound if I paid $7 for a 2.3 pound chicken" and maybe you want to do that arithmetic, but for a lot of people, "this chicken cost $7 and I estimate that it will feed me and my partner for maybe 2-3 meals" is the only 'calculation' that needs to happen.

Larger calculations like "how much did I spend last month on groceries" are easily assessed simply by looking at a credit card statement. Being financially responsible does not necessarily entail knowing the exact dollar-to-calorie or dollar-to-weight ratio of every item in your shopping cart.

If you can't make basic calculations with ratio and percentages, it seems unlikely that you can compare different costs per unit weight/volume or do the maths to figure out how much food you need without waste.

Yes, you can look at a chicken and say "that's enough for 3 people". Yes - in the UK - it's quite likely (legally required?) that all products are labelled per 100g or per kg (although I'd contest people failing these tests are likely not to be understand or care for that labelling). It's a tough argument to make that these skills have no impact on on budgeting at all.

Not by counting pennies. Estimate, get a rough order of magnitude - things you can actually keep in your head and get an intuition for instead of math to maybe forget in a checkbook somewhere if you record the calculation at all. Check your balances. Savings going up is good, savings going down is bad.

If you need to get detailed, or your estimates don't line up with what your savings account is actually doing, you can also harness the power of online banking records do half the work for you. I semi-recently went over three quarters worth of transactions and aggregated them by category: "Food", "Home Expenses", "Car Expenses", "Food", "Health", "Shopping", "Subscriptions", "Charity", "Unknown". (Not well covered by this exercise alone but easy enough to add to account: taxes.)

This already was overkill for me. I did nothing but fact check my gut (which was wrong on some details but right on all the macro points that actually mattered - rent, living expenses, and entertainment - exactly as you'd expect with estimates.) Monitoring total spending already tells me I'm where I need to be - with a good rainy day fund, a good savings fund growing at a good rate.

Chicken? Don't know don't care. Food totaled bellow my estimates, which were already low enough I didn't feel them worth the opportunity cost of trying to optimize. That time would be better spent learning how to better negotiate raises and hiring, or learning new career skills. Unknown? Ditto. I happened to subdivide "Food" a little when initially categorizing out of ease and curiosity into "Groceries", "Caffeine", and "Eating Out". Could've saved $633.45 between 1/1/2017 and 8/16/2017 by not buying caffeine, didn't use a lick of manual arithmetic to figure that out. Computers did it for me, and it probably wasn't worth the electrons to even do that.

> If you need to get detailed, or your estimates don't line up with what your savings account is actually doing

I think the point is that the ability to count pennies when called upon is part of what keeps your rough intuitions properly calibrated.

If one literally cannot do exact arithmetic when necessary (whether mentally, manually, or with a calculator), then how does the gut learn what to pay attention to, and when it might be wrong?

This reminds me of the myth of the "Latte Factor".

http://www.slate.com/articles/business/the_united_states_of_...

Yes the amount of smashed avacados you need to eat to be equivalent to a house deposit is more than the lethal dose.

It's an exaggeration more than a myth, IMO. It's directionally correct, meaning no re good would be done by people considering it than ignoring it.

What instead of the "Latte Factor", they said...

- buy a house that is well below your means or even move some place where your cost of living compared to your money earning potential is favorable.

-Get a degree in something that can make money instead of a BS in Ancient Chinese Art History.

-Don't go into debt getting a degree from a prestigious college to be a high school teacher. Go to a cheap state school.

-Buy a car and keep it for longer.

My family spends money on a lot of little things that some people would think was frivolous but we also bought a house in the burbs that had a mortgage that was less than 20% of our monthly net income, we don't drive expensive cars, or try to keep up with the Joneses. My wife still brags about how much money she saves shopping at the thrift store and I'm always looking for a bargain because I don't care about the brand of clothes.

On the other hand, I'm very aggressive about my salary and told my (step) kids to pursue careers (or trades) that had income potential.

In other words, it's not the little decisions you make that make a difference it's the big ones.

You can only by definition, cut spending by so much, but you can make choices to make more money.

After we got married about six years ago, my wife and I by working together have increased our income by 33% by her taking a job that has good benefits but low pay (that she enjoys) that gave me the flexibility of aggressively changing jobs for higher salaries without worrying about benefits.

Majority of students go for practical or practically sounding degrees. And those who dont are clustered among students from more rich families. The "students are choosing impractical degrees" is just a way to ignore actual economy problems and blaming result on students.

What is the breakdown of degrees? What source leads you to think most have practical degrees?

I found this link, https://nces.ed.gov/programs/coe/indicator_cta.asp, that says “Of the 1.9 million bachelor's degrees conferred in 2015–16, over half were concentrated in six fields of study: business (372,000 degrees), health professions and related programs (229,000 degrees), social sciences and history (161,000 degrees), psychology (117,000 degrees), biological and biomedical sciences (114,000 degrees), and engineering (107,000 degrees).”

I don’t know how you define practical, but this makes me think many, perhaps most are not practical if you mean worth going into substantial ($50k+) student loan debt.

Definitely practical in order: business, health and related, engineering, biology, psychology. Some of science, whether history or social or biomedical wont be practical. How did you came to "most are not practical" from that breakdown?

The worst off are those who did not finished school, but still paid some of it. These are not in your stats, they have no degree.

Besides, those who finished college do better then those who did not in pretty much all stats. They do worst then previous generation. You people make it always sound as if average college graduate was worst off then high school drop outs. It is not the case at all, while college graduates dont have great lives on average, those who finished with high school have it even worst - on average.

https://www.washingtonpost.com/news/grade-point/wp/2017/01/2...

But not all business majors are created equal in the job market. Research shows that students who major in general business and marketing are more likely to be unemployed or underemployed, meaning they hold jobs that don't require a college degree. They also earn less than those in more math-focused business majors, such as finance and accounting.

I said that students go for "practical or practically sounding degrees". He said that they should "Get a degree in something that can make money instead of a BS in Ancient Chinese Art History." Moreover, it is not clear where in the parent breakdown finance and accounting would be. They seem to fit the most under business as "related support service" I guess.

Students choose general business and marketing because they hope it will get them job and because they think they can finish it. It is not nearly "Ancient Chinese Art History" (which is not even major, more like a course). I am not saying that students are flawless oraculum in their choices.

However, they are not massively choosing weird arcane majors. The "students need to be told that business majors are less practical then they sounds like" is much different statement then "they need to be told not to go for bachelor in Ancient Chinese Art History".

I should have explained my math.

The called out categories sum to 1.1M. This is 57% of the total 1.9. So I guessed that removing some of the business and some of the social science take it under 50%.

But would definitely need to see all the degree types to know definitively.

I agree with a lot of what you say. I think from a practical standpoint, a latte factor blog post can get people interested in a way that a checklist of 10 big things that would all be "better" never will. Latte factor seems totally doable.

Get them in the door with latte factor. Let them read the whole rest of Mr Money Moustache in due time.

(Not to take much away from the results of your job changes and negotiations, but that's just under 5% CAGR. If you are early in your career in tech, lots of people can meet/beat 5% annually. Later is harder of course.)

Let's just say I'm not early in my career and 33% is taking into account a $15000 paycut by my wife and we still ended up in the 90th percentile of household income....

I'm not bragging. Any dual income household with one being a senior developer in a major city could do it.

>Get a degree in something that can make money instead of a BS in Ancient Chinese Art History.

I know plenty of places that are looking for intelligent people they can train up. The roles are often non technical but "BS" degree is often a good way for them to get their foot in the door.

I meant BS = Bachelor of Science.

The "Latte Factor" is a real thing. Not necessarily by itself, but it is indicative of a larger systemic problem.

The systemic problem is not your discretionary spending much of the time. You can easily adjust that up or down as the need arises. It's the lifestyle inflation - buying a bigger house, nicer car, etc.

Those aren't easy to ratchet down quickly.

Yes and no. Yes certainly the skills you describe are more in the financial category and help more, if you need to choose. But one really should be able to do both monitoring and simple calculations in one's head, at least getting into the range of the actual result. If you pay your single chicken leg with a $50 note and don't expect "more than $40 change" in return, then this can be bad for your finances as well.

> I mean.. people can't do math in their head. Who cares?

I kind of agree. I guess I can answer to the first question :

"If you bought four packs of tea: chamomile ($4.60), green ($4.15), black ($3.35) and lemon ($1.80) with a $20 note, how much change would you get?"

but to be honest, it would take me an embarrassing long time to do it, and in the end I could very well have made a mistake.

Don't get me wrong : mental calculus is an awesome skill and it so happens that I have lately been trying to improve in this regard. But the fact that not everybody masters this art should not be a surprise.

My reply would be "around five dollars, and if you want more let me whip out my phone's calculator". :D

Now that I use a calculator, the tea adds up to just under $14, lower than my estimate of 15, but the taxes we non-Oregonians pay end up bringing it to a bit over $15. `sum(ceiling(price))` seems to be a useful way to estimate when the prices are small.

Hah, the tax calculation almost certainly would mean that I would get it wrong!

I would have given the plain arithmetic answer.

I’m not sure whether your comment was serious or not.

If you can’t figure out change in your head, nothing will help you be able to budget.

After all, budgeting can be looked at as a more complicated version of calculating change (albeit from a paycheck). And of course, without a good budget, your credit won’t be good, etc.

Id agree it would be more useful to understand your jurisdictions tax system and basic things about the stock market works ie what is a p/e ratio - how the bond yield curve works etc.

This! I'm horrible at mental arithmetics and I have a degree in engineering. Everyone has access to a calculator in their pocket anyway, and ... Who's going to pay with cash within a couple of years?

To add to what you said: I think explaining basic concepts is the way to go: Explain compound interest, how much 1$ today will be worth in their retirement at a fixed rate. How does money devalue with inflation, and other basic personal finance aspects. But above all, give people the intuition rather than just say "you should invest your savings"

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