Financial Mathematics: The Maths That Runs Your Money

Financial mathematics covers interest (simple and compound), depreciation, percentage change, GST, and annuities — the regular payments that underlie mortgages, superannuation, and insurance. Simple interest grows linearly: A = P(1 + rn). Compound interest grows exponentially: A = P(1 + r)ⁿ. The difference between these two formulas is enormous over long time periods, which is why compound interest on a mortgage can cost more than the original loan if repayments are only the minimum.

Fibonacci and the merchants of Pisa

Interest calculations are among the oldest mathematical applications — Babylonian tablets from around 2000 BC record loans with interest. In 1202, Italian mathematician Leonardo of Pisa (known as Fibonacci) published Liber Abaci, introducing Hindu-Arabic numerals and practical commercial mathematics — including interest calculations — to medieval Europe. The book was largely a manual for merchants, and it transformed European commerce. Compound interest was well understood by the Renaissance banking families. Albert Einstein reportedly called compound interest 'the eighth wonder of the world' — he may or may not have said it, but the sentiment is right: given time, compounding is extraordinarily powerful.

Why financial maths matters for real life

A home loan at 6% interest over 30 years on a $600,000 principal will cost around $700,000 in interest alone — roughly doubling the cost of the house. Understanding this changes how you think about repaying loans faster. Superannuation works in your favour by the same mechanism: money invested early in your career has decades to compound. Credit card debt at 20% annually is a financial emergency even at small balances. Car values depreciate (usually exponentially) — knowing the depreciation rate helps you decide whether to buy new or used. Financial mathematics is the one area of secondary school maths where the stakes are genuinely personal.