Correction appended October 16, 2014
In her excellent book, Building A Better Teacher, the journalist Elizabeth Green tells a story of a new hamburger that the A&W Restaurant chain introduced to the masses. Weighing 1/3 of a pound, it was meant to compete with McDonald’s quarter-pounder and was priced comparably. But the “Third Pounder” failed miserably. Consultants were mystified until they realized many A&W customers believed that they were paying the same for less meat than they got at McDonald’s. Why? Because four is bigger than three, so wouldn’t ¼ be more than 1/3?
Green uses this example as one more piece of evidence that Americans suffer from a collective case of innumeracy, the math equivalent of not being able to read. But the A&W anecdote could also be used to underscore another national crisis: financial illiteracy. Even after a catastrophic recession—prompted, in part, by millions of us not grasping the terms of adjustable mortgages or the perils of an economic bubble—the subject of finance might as well have an “R” rating affixed. Come and see what all the fuss is about once you turn 18. It is the rare high school—much less middle school—curriculum that offers economics, and the rare K-12 curriculum that imparts simple lessons, such as the promise of compound interest or the peril of spending more income than you earn.
Put a dozen educational consultants in a room, ask them how to teach financial literacy, and you’ll get at least a dozen responses. There was once consensus that relevance and context are key. Show a sixth grader a supply and demand curve, it’s unlikely to be effective; instead, ask that same 11-year-old, “If the ice cream store has a line around the block, what would happen if they raised their prices?” But even that is up for debate. “The work often overwhelms the interest of the context,” says Dan Meyer, a former math teacher now studying math education at Stanford. “Calculating—putting numbers into a formula and then working out the arithmetic—is boring. Important, but boring. The interesting work is coming up with the formula.”
However, we would contend that there’s one context, popular among kids (increasingly of both genders), that is tailor-made for introducing basic concepts of economics and math, and a lot less boring: sports.
Just as a game is packed with fractions, probability, equations and even multi-variable calculus if you’re so inclined, so too is it a laboratory for risk assessment, principles of finance and behavioral economics—an emerging field that looks at the effects of psychology and emotion on economic decision-making.
In the aisles of Walmart or the listings for real estate, round numbers are powerful motivators, either to hit or to avoid. We’ll buy a 99¢ Coke, but are less inclined when it’s $1. We take pains to list homes for $99,999, not $100,000, when the difference is laughably negligible. And we do the same in sports. We hand a fat contract to a .300 hitter, but are less likely to do so to a batter that hits .299, never mind that the difference could be as little as two hits (or official scorer decisions) over the course of a season.
Sports also provide a context for probability. Broadcasters may ask questions hypothetically, but real answers exist. Jones is only a 40% free-throw shooter but he makes both. What are the odds of that?
If only one day a response would come: Well, I’ll tell you, Bob. Forty percent is 4/10. Multiply that twice for the two shots. 4/10 x 4/10 = 16/100 or 16%. Not good odds, but not extraordinarily rare, either.
And there are other examples. What is cutting a player from a roster if not taking a short position? A balanced line-up is a classic diversification strategy. Drafting a player at the same position as your star can be seen as a hedge against asset depreciation. That the baseball season started in Australia is a vivid example of international expansion and an attempt to alter consumer habits. Basic probability will explain why no one came close to winning the Billion Dollar Bracket Challenge that Warren Buffett sponsored during last March’s NCAA Tournament.
As Meyer notes, coming up with a formula might be more important than mere calculating. But, here again, sports can help. Sabermetrics in baseball and advanced stats in other sports are based on the premise of improving predictive models and deriving formulas. Half the fun of winning your fantasy league is the implication that you outsmarted (came up with a better formula than) everyone else.
If nothing else, any kid who’s been to both a hockey game and a basketball game knows the difference between thirds and quarters, and, in turn, would have picked the right burger.
Correction: The original version of this post misstated the title of Elizabeth Green's book. It has been corrected.
Jon Wertheim is the executive editor at Sports Illustrated. Tobias Moskowitz is Fama Family Professor of Finance at the University of Chicago. Their 2011 book Scorecasting was a New York Times bestseller. Their new book, The Rookie Bookie, attempts to combine sports, statistics and financial literacy for kids.