Tag Archives: financial literacy
This weekend’s financial math class is all about payments, in particular, mobile payments and mobile wallet💰.
Mobile wallet 移动钱包 are digital forms of wallet that people carry (or used to carry) in their pockets. As we do not tend to carry large amounts of money in wallets, mobile wallets are convenient for small payments (as opposed to payments in larger businesses).
📳 They hold digital information about payments including credit and/or debit card, bank account, pre-paid card, virtual currency information, coupons and loyalty membership, and wallet holder identifications.📟
A mobile wallet is a software application (app) 💻that does the following:
- Secure enrollment of the holder (application download, identification)
- Securely store user information such as phone number, email address, and mailing address
The flow chart below summarizes the history of technology and events that evolve over the last eighty years.
In China and many places around the world 🌎, mobile payment is accounting for most of the retail payments. So you should know about how it works. Next class we will talk about the math that goes into making mobile payment secure.
Social credit score 社(shè)会(huì)信(xìn)用(yòng)分(fēn) means rating how trustworthy you are based on your spending habits, social connections and your online behavior on social media. Traditional credit scores are what lending institutions use to judge how likely you will pay back the money before they lend you. Traditional credit score use information such as whether and how long you have a job, how much money you owe relative to how much you earn, and so on. Social credit is being used in similar ways with a different set of data. Tencent Credit 腾讯信用分 and Sesame Credit 芝麻信用分 are the prime examples.
For example, social credit score can be like a test score number that ranges between 300 and 850 and made up of five dimensions/categories 5 个维度:
- social connections
- consumption behavior
WSJ reported in 2016 on social credit in China with an article title “China’s New Tool for Social Control: A Credit Rating for Everything“. The words “social control” and “Big Brother” have bad connotations. However, politics aside, we do appreciate people who have good social credit.
What can social credit scores be used for? Traditional credit scores are used by banks or other lenders to approve loans, used by employers to screen candidates, and some other kind of approvals. Likewise, social credit scores can be used for similar purposes. Alibaba’s affiliate Ant Financial opened a strictly online bank called MyBank that serves small businesses and individuals. This online bank takes deposits the same way as Synchrony or AlyBank in the US do. But it also gives out unsecured loans (without any collateral) up to $850,000. That is a lot of money to lend without collateral (by the way, mortgages are secured loans collateralized by the house). Underlying the decision to lend or not to lend is social credit score, calculated based on huge amount of online transaction data.
Back to the US, which companies may have data that can generate a full or partial social credit score? I think Airbnb, Amazon, Facebook, Lyft, UBER and etc. all have huge amount of data that can be used for credit scoring. Due to the high regulatory cost (banks are highly regulated), it is not likely that any of them would want to become a bank. But they can take some of the businesses that banks always have been doing. For example, Amazon has Amazon Cash and variations of it in various countries such as the U.K. Also, UBER has recently offered UBER cash. These are banking businesses: they allow people to shop or ride without a credit or debit card as long as you load your account with cash.
We often get asked with this question “why is that you focuses on financial math as oppose to broader math?” “Focus” is the right word to describe us. We have many reasons. First and foremost, because if we don’t have money we don’t have a place to live or any food to eat! 因为如果你没有钱你没有住的地方或任何吃的东西 ！
Money is one of the most important things in a social economic society. Although Fibonacci series in nature is worth studying, it is more of a nicety than necessity. Without getting into arguments of chicken or egg first, it is safe to say there would have been little progress in math (or anything) if not for economic motivations.
Knowing some financial math is essential to one’s financial well-being. There are many well-trained and hardworking people who make good money but have little net worth. Had they been trained on financial math just a little, they might have become millionaires instead of living paycheck to paycheck.
At a personal level, I want my children to learn, overtime, what is interest rate, what financial institutions (large is not necessarily evil) do, essentials of income tax structure, basic accounting and investment, credit score, pros and cons of using credit, etc., that are to equip them with the necessary knowledge to make important monetary decisions for themselves. As a mother, I do not know what is better way to love my children than to help them become independent, strong and successful—for this and for the lack of it in school education, we choose financial math.
I volunteer at a financial literacy program jointly sponsored by PBS and HSBC. The program is catered to high school students. The experiences with the high school seniors reinforced my focus on financial math for children.
These seniors are very close to 18 years of age, which means they would be legal to vote soon. We talked about getting money for college and finding jobs. But none of them knew how social security tax worked. None of them knew the two ways the US government raised money: tax and borrowing. It is not their fault. They had not been taught somehow. So we have to do something about that!
Below is a video of a series of interviews with college students. They know pop trivia very well but not at all about their financials. Quite a few mention their parents take care of the finances (and therefore they don’t have to know). The young urgently need to learn about financial math. We need to make financial math plain, simple, fun and everywhere.
- Revenue – Expense = Profit,
- Net worth= Asset – Liability
My dear children learned while we were shopping at IKEA that:
revenue = money coming in expense = money going out
profit = revenue – expense
Money that mommy earns from her work is revenue
Apartment rental income is revenue
Money we spent paying for everything we use is expense
asset = things that bring in profit
liability= things that do not bring in profit
Can you please tell me what are the assets and what are the liabilities that you know?
Money （钱）is very important in life, although it is quite pointless to compare it with things that are best not to be measured in money. Money is money. It does what it does. It is very important. Period.
I ask my children “If you have $100 and you spend $100. How much do you have left?” “Nothing left”. “Likewise, if you have $1,000,000 and you spend $1,000,000. How much do you have left?” “Zero!”
That is right. To be rich, it is not only important that one needs to make money, but also save money (节省）. My children know that we should buy things on sale as much as possible.
We were looking at historic prices of properties in Zillow.com. I showed them the time series of prices and point to the trough in 2009 “this is sale price” and the peak in 2005 “and this is the full price that we should never pay for. ”
When we go shopping, I try to let my children pay. Before we come to the cash register, if our shopping cart is not that full, I will ask them to try to sum up how much the total is and compare how close our calculation is to the actual.
There are just so many places and so many things to learn. I have explained to my children what a bank does, interest rate, what collateral means and so on. “Why do you think the bank employees are so nice to us by giving us candies/hot chocolate when they are helping us to keep our money?”