A ONE Institute
Jun 8, 2024
I would like to discuss considerations for students who enjoy and are interested in math but do not want to major in STEM. Before we start the discussion, let’s first spend some time explaining some background knowledge.
We’ll start with Jerome Powell, the chairman of the FED. A student asked why the U.S. economy, which is inflating, needs to raise interest rates at this point. This question leads us to today’s discussion.
Inflation ultimately occurs due to the demand and supply of the economy. Inflation is triggered when supply decreases and demand increases.
In the U.S., there is a bank governor every week, and a regular meeting called the FOMC meeting is held by selecting a few of them. You can think of the FED as a bank for banks. If a bank has surplus money, it deposits it in the FED, and the FED pays interest to those banks.
Bonds can be thought of as certificates that are exchanged when borrowing money, and bonds are released when lending money. Paying back the borrowed money can be thought of as bond repurchase.
For example, if a bank’s balance increases, the phenomenon of buying things you wanted to buy increases demand, and if there is a lot of demand, prices rise. In order to supply in response to demand, factories produce goods, and eventually, the price rises due to the surge in demand for raw materials.
Since supply cannot be infinite, supply has to stop at a certain level. This ultimately triggers inflation.
However, in an inflationary situation, if you want to buy something, if you think the price will rise due to expected inflation in 1-2 years, the desire to buy it immediately increases. As a result, demand surges again, prices of goods rise, inflation intensifies, and it becomes a vicious cycle.
So the government is trying to prevent inflation.
The condition to prevent inflation is to slow down the speed of bond repurchase, slow down the speed of money release, and think about how to recover money.
The best and most effective way is to raise interest rates, and if the interest rate is high, it is more valuable to deposit than to invest somewhere else or buy something, so people deposit in banks and the money in the market goes into banks. Therefore, it is natural to raise interest rates in an inflationary era.
Looking at historical statistics, let’s take a brief look at what happened in the United States. In 1982, the 39th President Jimmy Carter passed the 401K law, and there was a perception that the U.S. financial industry could not fail. However, in the 2000s, when the dot-com bubble and the 9/11 incident made the people difficult, money was released through quantitative easing. As a result, inflation came, and when inflation came, interest rates were raised, and eventually, there was a financial crisis in 2008.
The problem with raising interest rates is that not only deposit interest rates but also loan interest rates rise. Eventually, people with a lot of loans become unable to repay, and defaults occur, leading to an economic crisis. Again, quantitative easing was done to overcome the 2008 crisis, and the U.S. had an economic boom until Covid-19.
Due to the pandemic, the government lowered the market interest rate again and gave the stimulus package to the people, releasing money through QE Quantitative Easing. As everyone expected, inflation came.
Ultimately, the economic situation of inflation is to slow down the speed of bond repurchase, delay the release of money from banks to the market, and choose a way to raise market interest rates to suck up market money.
When predicting economic situations, you often look at past information, but even if it is a similar event to what happened in the past, it can bring different results in different times. Therefore, a process of comprehensively thinking about statistical data is needed.
The graph above shows the change in U.S. interest rates so far.
Interest rates are drastically lowered, gradually raised, and when an economic crisis comes, interest rates are lowered again, and when inflation is hit, interest rates are raised, which is repeated.
The graph above is a table showing the CPI consumer price index.
The consumer price index CPI on the far left and the bar graph on the far right represent the CORE CPI, which excludes food and energy.
When expressing the consumer index, it is compared based on one year ago, but in recent Core CPI, food and energy are excluded, but costs such as services, appliances, rent, and education are included.
The largest portion in the CPI is ‘housing’ as you can see in the chart.
Ultimately, you spend the most money when buying a house.
Because a lot of costs go into the house, Americans take a lot of Mortgage Loans. The graph above shows the credit card default rate and the Mortgage default rate. In 2007, the credit card debt and mortgage default rates were similar, but in the last 30 years, the Mortgage Loan default rate is close to the lowest. This tells us that Americans are financially sound.
The graph above is a chart showing the unemployment rate in the United States, and in 2008, the unemployment rate increased sharply, but recently, the unemployment rate is very low. It is the lowest unemployment rate in the last 50 years.
In this way, when explaining the economy, you need to analyze comprehensively and find commonalities/differences between previous events and current phenomena to predict the future.
Statistical parts need to look at previous data, so history is important, and since policy orientation affects economic direction, you need to consider this as well.
Until a few years ago, if you studied Economics, Policy and History fields were emphasized a lot, but these days, Statistics with a deep understanding of math is becoming important.
Among Economics majors, the top 10 jobs in salary are Quantitative Analysts. If you are good at math but do not want to major in STEM, I recommend Quantitative Analyst, also known as a quant.
A Quantitative Analyst is defined as an expert who specializes in the design, development, and implementation of algorithms and mathematical or statistical models to solve complex financial problems. Quants who receive high salaries are people who develop trading apps, develop insurance products at insurance companies, and make laws and logic about what is right to invest when making investment products at investment companies.
Skills required for a quant
• Calculus
• Linear Algebra and Differential Equations
• Probability and Statistics
If you are thinking of a quant, you need all the math courses from high school. It is good to take all the math courses that can be taken at the high school level, such as calculus, multivariables, and probability statistics.
Skills and Education for Quant include
• Strong abilities in data mining and data analysis logical thinking
• Extensive Financial Knowledge and comprehensive economic knowledge
• Programming and software skills skills related to computer science
The software that quants deal with varies, When making a trading app, the language is C++ For statistical analysis, MATLAB, SAS, S-PLUS For Pricing knowledge, use Java, NET, VBA. Since you can’t learn all computer languages, the two I recommend are Java and MATLAB.
If a student likes math but does not want to major in math or computer science, I would like to say that it would be good to consider Economics and apply.
The table above is an EC list that students who want to major in Economics can refer to.
The one in the left box is a bit stronger EC, and the one in the right box is a bit easier EC than the left.
You don’t need to win all, but I recommend you to challenge.
When selecting Economics students at universities, they prefer not just people who are good at math, but students who are strong in basic qualities, Social, and English while being good at Math.
You must show your strengths in Social and English as well as mathematical excellence.
Today, I introduced Finance for students who like math but do not want to major in STEM, and also told you about the EC list that fits it, and Quantitative Analyst, quant. I hope this was helpful and I will end today’s posting here.
If you are interested in majoring in Economics through this posting, please contact us, A-One Institute, anytime and we will kindly answer. Thank you.