Who's counting?

It’s not so much who is counting as how we are counting.

Ways ignorance about maths and probability can hurt you.

There is a scene in a Simpson’s episode where a psychologist is giving a ‘team talk’. He makes the statement, ‘You are all very good players’. The team members mimic the psychologist, ‘We are all very good players’. Then the psychologist says, ‘You will beat Shelbyville!’. And the team, again in unison, reply, ‘We will beat
Shelbyville!’ By this time the psychologist is raising his voice, and he shouts, ‘You will give 120 per cent!’ But the team, still in unison, reply, ‘But hold on, that’s impossible. No one can give more than 100 per cent. By definition that is the most anyone can give.’

Many of us are not as smart as homer’s team and have problems dealing with maths. Maths anxiety is found in people who find arithmetic stressful and panic about mathematical problems. This can affect people who are perfectly competent – and this can affect many investors. Some of the feelings that prohibit us from feeling comfortable dealing with numbers are quite natural responses to uncertainty, to coincidence, or to misconceptions about the nature and importance of maths.

For example, if we have a bank investment offering us 7 per cent, we still take out tax at 39 per cent, and inflation at 3 per cent. Our real rate of return is … not 7 per cent.

A recent survey to test our level of financial knowledge found specific areas of weakness in mortgages, compound interest and investments:

- 25 per cent of people with home loans did not know that increasing the frequency of repayments from monthly to fortnightly reduced the amount of interest they would pay over the life of the loan.

- Only 30 per cent identified that a range of shares would make more money than fixed interest investments and savings accounts over 18 years.

- When tested on their understanding of compound interest, only 53 per cent correctly identified that they would earn more interest on a one-year term deposit when the interest was paid back quarterly into the term deposit, rather than paid at the end of the term.

-20 per cent thought they could reduce risk by investing only in property.

Compounding: The Eighth Wonder of the World

Imagine you came to work for me. I offer you $1 million for one months work payable on day one of the 30 day period, or $1000 on the first day, doubling everyday.

The first option sounds great but if you took the $1000 and doubled it everyday, at the end of two weeks you would have $8.1 million. At the end of the 30 day period, the figure is in the billions.

Some Lotto Facts

-Ticket purchasers are not interested in small prizes and they purchase at higher levels not worrying about the price hikes which come from larger prizes.

-Charity links mean consumers dont see ticket purchases as gambling

-In the US 25 per cent of the population see the best chance of saving for their retirement is lotteries

What are the odds?

-Being killed by terrorists while traveling: 1 in 650,000

-Royal flush opening hand: 1 in 649,739

-Winning anything on a lotto lucky dip: 1 in 20

-Winning lotto division one on a lucky dip: 1 in 373,838

-Winning on one lotto ticket brought weekly for 5o years: 1 in 150

-That you will keep buying and not win that jackpot after 50 years: 149 in 150 (99.33 per cent)

-Winning Powerball Division One on a power dip: 1 in 3,070,704

-Winning on one Power Dip ticket purchased weekly for 50 years: 1 in 1,250 (99.92 per cent don't win at all in that time)

-Being hit by lightening during your life: 1 in 7500

-Getting cancer sometime in your life: 1 in 9

-Suffering an unprovoked shark attack: 1 in 6,000,000

-Drowning in your bathtub: 1 in 685,000

-Dying in a car crash in New Zealand: 1 in 9000

-Dying from slipping, stumbling or tripping: 1 in 6548

-Dying from fireworks discharge: 1 in 615,488

Obviously the chances of winning lotto are not that high. but people still persist in buying tickets.

Read Money, Money, Money, Ain't it funny...For more information on this.

Finally, a joke

Man: Study here says women talk twice as much as men.

Wife: Of course we do. We have to repeat everything we say

Man: What?

Well it does have some relationship to numbers- women talk twice as much as men....Get it?