Wednesday 6 August 2014

Are you a numeracy expert?  Updated...


In 2006 a numeracy survey was conducted in NZ (and around the world) to determine the distribution of numeracy skills in the adult population.

We didn't do so well...

Anyway, below is the toughest question in the survey.  If you got this (and a few others) you were likely to be placed in the 'expert' level (level five to the L&N folks).

Good luck!

Problem

You deposit $1000 into a term deposit that gives a rate of 7% interest per year, and you leave it for ten years.  Assuming nothing else changes, will your money double?

Well, guess what - only about 5% of the population actually managed to get this one.

Solution 

Here is what you need.

Where 'x' is the total and 'p' is the principle, 'i' is the interest rate and 'n' is the years.

x = p (i + 1)^n    

Here is a little project for you.  Write this as an excel formula into excel and make it work.  Plug in the numbers above and see if it doubles (right now someones is saying, 'just give me the ----- answer').

UPDATE: 

Okay, here is how you solve it.  

Remember Bodmas/bedmas?  They (depending on what year you went to school) define the order of operations. Brackets and exponents first, then multiplication and division, and finally, addition and subtraction.

Knowing this we can just plug the numbers into the formula and use a calculator.

p = $1000
i = 7% = .07
n = 10

1.  So, brackets first = (i + 1) = 1.07
2.  Then exponents = 1.07^n = 1.07^10 = 1.97 
3.  Then p x 1.97 = 1000 x 1.97 = $1970

Now most folk get stuck on step 2.  Remember that with exponents you are multiplying the number by itself.  You do this ten times (once for each year).

1.07 x 1.07 x 1.07 x 1.07 x 1.07 x 1.07 x 1.07 x 1.07 x 1.07 x 1.07.  DO NOT do this on paper or in your head.  Grab a scientific calculator and use the  'x to the power of y' button.  All your phones have this. 


Just enter 1.07, then push the button, then enter 10, and hey presto!  You have your answer.  

Does $1000 double in ten years at 7% interest? No.

Adult numeracy

Now, while this is a type of skill that we each need to thrive in the information age, it's your attitude that counts.  It's not just about being able to solve this one task, but rather possessing the courage, AND the skills to actually have a go at it.  Numeracy = skills and agency (your power and proclivity to act). 

If you are happy to just let others do it for you, or to use an existing formula calculator - haven't you given up some of your independence as an adult?  Are you vulnerable in some sense?  That's what the architects of the question thought.  Do you agree?

Final question:  At what percentage interest point does your money double in ten years?    

2 comments:

  1. Ummm... I think my brain is sweating... I won't fire my accountant. But perhaps I need a better financial adviser. Actually, perhaps I need a financial adviser.

    ReplyDelete
  2. They probably wouldn't recommend banking $1000 over ten years anyway! Who would? This is where the ALLs question are a bit contrived.

    And I think accounts are only subtraction experts ;).

    I tell you though, the old '72' rule is good. Divide 72 by your interest rate and it'll tell you how many years before it doubles.

    ReplyDelete