Math Calculation and Financial Literacy: The Incidence of Geometric Progressions in the Calculation of Financial Interest

Abstract

Calculations about compound interest serve as the basis of most financial decisions; therefore, it is imperative to explore what mathematical knowledge people need to correctly calculate simple and compound interest. The aim of this study is to analyze the relationship between college students’ competence in calculating simple and compound interest and their understanding of the arithmetic and geometric progressions. It is also pointed out whether the results vary according to gender. Population proportion tests are carried out, and gender proportion differences are considered for inferential analysis. The dichotomous Probit model was used for correlation analysis. Results demonstrate that 59.8% of students know how to formulate a whole-number succession, and only 30.9% in the case of fractional numbers. Less than 50% of students can calculate compound interest, but 76.7% can calculate simple interest. There is no significant difference between men and women. The results show a positive relationship between male students’ competence in calculating compound interest with the possibility to correctly formulate a geometric succession. Findings can be useful for mathematics teaching strategy design and its applications in finance contexts with the purpose of training students to be better at finance decision making.