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In the UK, the Rooker-Wise amendment requires tax brackets to rise automatically in line with inflation, unless the government explicitly passes legislation to vary that.
The question doesnât say 3% per year; it says 3%, So the time-frame doesnât matter at all. Youâre just comparing 105 with 103 and deciding which is the larger number.
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Number 2 ignores mortgages. If I have a big mortgage and then my income doubles, prices double and my mortgage repayments stay the same, I can afford a lot more than I could previously. This is why high inflation is actually good for mortgagees, and why the UK housing market is suffering from our recent prolonged period of low inflation and low interest rates.
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I did those first two rounds in my head, estimated the trend, and confidently said âsomewhat over $150â and thought that was a fair hit without breaking out a calculator or paper.
The ability to use (and know when to use) a bit of dead-reckoning is a much more important skill in financial literacy than getting it perfectly right to three decimal places!
In real-time bargaining or negotiations, being able to quickly understand
- if a 6-pack of one size at one price compares favourably with the per-unit price of a different size,
- or taking the first year interest free vs a $200 rebate balances out one way or the other
is the real skill. Never mind the decimal places.
Being able to come up with an answer +/- 10% (and not get paralysed by the perfect answer being too hard) is enough to make you a better buyer immediately.
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How many lenders do you know who offer a loan without a term?
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None, but thatâs not significant. You must answer the question thatâs written down, not the question that might apply in the real world where things are more complicated. Question 2 would be fine if theyâd simply added âAssume you have no debt or savings, and your other circumstances will not changeâ to it.
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Even if the brackets donât rise, the only variable is income tax (VAT is a flat rate, so it remains the same).
As far as I know, in most countries (if not all), the fact that your income before tax increases doesnât mean youâll end up with less money. Usually, income tax works as follows (the currency doesnât matter):
- Letâs say the first bracket means 5% tax up to 10000. If you earn 9000, youâll pay 450
- Letâs put the second bracket as 10001-20000, with 10% tax. If you earn 10001, it doesnât mean youâll pay 1000.1. You pay 5% on the part of your income thatâs within the first bracket, and 10% on what is within the second bracket. Here, it means 500.1.
I feel itâs important to state considering the number of people I talk to who arenât aware of how income tax really works.
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Thatâs how I got to 146.41, but then I couldnât remember what year I was on.
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Iâve found that quite often in questionnaires you donât answer what you would actually do, but what you expect the maker wants you to answer.
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All true. But Iâd rather have a correct answer when it comes to numbers Iâm agreeing to in the setting of a legally binding contract. Iâve always been really bad at mental math, and my schooling always stressed being able to do arithmetic mentally. But I just donât have the âcacheâ necessary.
My working memory can reliably hold three numbers, while doing operations on two of them. If I have to hold any more than that while doing operations, Iâm going to screw up. Over and over again. I need pencil and paper if Iâm supposed to hang onto a number from the start while doing stuff with other numbers, then doing stuff with the result and that âsaved numberâ. Itâs just a fact of my brain. I spent my entire school career trying to get better at it, and failed. I think it has to do with my ADHD.
Anyway, I always have a calculator Iâm comfortable and fast working with to do the boring, working memory intensive stuff. I graduated high school with a 3.9 in calculus. I can understand how to symbolically manipulate. I just canât rely on my brain to hold values.
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Thatâs a good read, thanks.
As you can imagine by my original post above, I totally concur with his arguments.
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In my experience with students, thatâs honestly pretty good.
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But they asked real world people, who donât live in the fantasy world posited in the questions.
If youâve never had any extra cash, a question about how many different investments you should sink your imaginary capital into is crazy talk.
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You say itâs pretty good, but in sixth grade, I was literally the only one in the whole class of 120 who couldnât do 25 2-digit by 2-digit multiplication problems mentally in 5 minutes. Everyone except me could do it after a week or two. Then after a month of me failing this every day, everyone started saying âwhatâs wrong with you?â then after a couple months of people thinking thereâs something wrong with me and expressing it to my face, I started to believe that I was mentally broken. That I really was stupid. That hurts a lot, and lasted a long time.
Eventually I said fuckem. The abacus has been around for thousands of years. Maybe theyâre the ones who are wrong here. Maybe Iâm normal, and theyâve just figured out conditioned responses and donât understand the math at all. Too bad that was long after the damage was done.
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If every single bank youâve seen has folded or been robbed to the ground in the last 2 years, it doesnât make sense to posit a question about interest rates over 10 years. You would say that itâs better to invest in a goat, or some gold or non-perishable commodity that you can discretely hide away, rather than putting it into a bank which has a huge target painted on it and a sign out front saying âROB ME! THE GOVERNMENT HERE DOESNâT EVEN INSURE INVESTMENTS!â
Thereâs a lot of places like that. These questions only make sense even conceptually, to the global 1%, which is most of us here on the BBS, but a tiny minority of the entire world.
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i suspect you are being hyperbolic. if you look at the quiz at the quartz link and answer the questions you will find that majorities of populations in places like scandanavia and central europe answered the risk assessment question correctly; that majorities in places as diverse as bhutan, croatia, israel and uruguay answered the inflation question correctly; that people in turkmenistan, estonia, and the u.k. answered the simple interest question correctly; and people in scandanavia, senegal, and myanmar got the first compound interest question. these countries range from first to third world countries. some of the difficulties people had with the questions, to be sure, stems from the financial culture of the country they live in as you suggest, but that canât be the whole story. as a recovering math teacher (now a science/social studies teacher) i can tell you that in the states people generally feel very little shame at being bad at math. i had parents tell me they couldnât help their kids with their 6th grade homework assignments because it was too hard for them without any trace of shame, apology, or defensiveness-as if stating a fact of existence like we need oxygen to survive or a clear sky generally appears to be blue. if the math culture of a nation is like what iâve experienced here i can easily understand people being unable to look at a problem like the last three and making an informed guess. some places have better ways of teaching number concepts than others and even in places where the education system is inferior there is still a sense of pride in knowing how to be good with numbers.
i see now that iâve rambled a bit but iâm going to go ahead and post the reply. iâm not really trying to do a takedown of your entire argument, just quibbling around the edges.
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The âcorrectâ answer to #2 seems like very shallow financial thinking to me. It doesnât take into account tax brackets (as already mentioned) or the affect on savings. I kind of assumed it was going to have a gotcha in there and try to teach me something, but I guess they just wanted the dumb answer?
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Yes, I know how tax works. But when doubling your income, SOME of your money is taxed at higher rate. So you pay MORE than twice the tax.
You are dead-right about the âmost countriesâ⌠In the 70s, Sweden had a marginal tax rate higher than 100% for high earning self employed people, so there you DID end up with less money if your income increased. The lunacy! Look up âPomperipossaâ in wikipedia.
There is another problem with number 2: things you buy are not your main cost.
Assuming that cost of housing doesnât increase, you can buy more.
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