In the book “Money for Nothing and Your Stocks for Free,” author Derek Foster asks why we force kids to spend so much time “calculating the hypotenuse of a triangle,” something he can no longer remember how to do, when skills like this “are never used by most people in the real world.” He advocates spending more time teaching kids financial literacy.
I agree that schools could do more to teach financial skills. However, I’m not sure how to keep vested interests from influencing the curriculum. We may end up teaching our children to buy expensive mutual funds, hire expensive real estate agents, and pay transaction fees on all purchases.
The first part of Foster’s argument is that much of the math he was taught wasn’t very important. A curious thing about discussions like this is that people who lack a certain skill are often the ones who assert that the skill isn’t important. For example, I might say that knowledge of Russian literature isn’t important in investing. In reality, I don’t know if this is true or not because I know little about Russian literature.
The reason that few people ever calculate the hypotenuse of a triangle in their daily lives is mainly because they can’t. Further, they wouldn’t recognize a situation where it might be useful. For example, measuring out a 3-4-5 triangle is a way to get a square corner when laying out a football field.
If you have to lay out bases on a baseball diamond, it can be useful to figure out that second base is 127 feet, 3 inches from home plate by calculating the hypotenuse. I once helped a volunteer who had no measuring tape figure out where to put a new pitcher’s plate by figuring out that it should be about 3 feet in front of the line from first to third base. Opportunities to make use of a skill are often impossible to recognize unless you have the skill.
Getting back to investing, I’m not arguing that you need to know calculus to succeed. In fact, people who delve too far into mathematical topics like efficient market theory and modern portfolio theory often get caught up in details and can’t see the forest for the trees. When a writer comes up with incorrect conclusions and baffles his readers with math, don’t blame the math; blame the author.
Any skill is potentially useful when investing. Some are clearly more useful than others. Basic math is obviously important for investing, and I think that more advanced math can be helpful. Common sense, curiosity, and the ability to stay calm are beneficial as well.