Tag Archives: financial math

Credit and debt in the world | 信贷和债务 xìn dài hé zhài wù

This weekend’s financial math class started big: we looked at all the credit (money lend out as loans) or debt (money borrowed) from around the world.🌎🌏🌍

At any given moment, there are hundreds of trillions of debt or credit. You can “have a look” at All of the World’s Money and Markets in One Visualization from Visual Capitalist.  The information was from 2017, but you get the sense.

Debt (or credit) can be categorized in 4 groups: government, household💳, financial sector and non-financial companies.💰💶💴💷💵💸

We looked at the United States government debt in previous classes.   You can check the numbers from the Treasury Department.  The link is easy to remember too: treasurydirect.gov/NP/debt/current

You can get the numbers of other countries from IMF (International Monetary Fund), the World Bank, and some other organizations.

A company called Visual Capitalist summed up the government debts from all the countries, the number is $63 Trillion!😲🤑

This means that the US government debt is one third of the world’s grand total government debt.🗽

World Government Debt -Visual Capitalist

Mobile payments | 移动支付

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.

copyright (C) Magic Math Mandarin

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.

What is social credit score | 什么是社会信用分

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
  • security
  • wealth
  • compliance

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.

Financial math equations

  1. Revenue – Expense = Profit,
  2. Net worth= Asset – Liability

My dear children learned while we were shopping at IKEA that:

Revenue & Expense by Elizabeth
Revenue & Expense by Elizabeth

  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?

Let kids learn about money and finance 钱

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?”

Financial math for kids in grocery shopping


苹果 by Elizabeth

Grocery shopping can be a fun, practical and time saving activity for teaching children financial math and economics besides food and nutrition while getting the chore done.

  • Reading grocery store ads are family math time for us.  We discussed things like:
  • How to compare prices (price per unit)
  • Why we should buy things on sale as much as possible?
  • Why most items are priced with numbers that end with .99, e.g.3.99
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