Question

A bank developed a model for predicting the average checking and savings account balance as balance = -17,732 + 367 * age +1300 *years education + 0.116 * household wealth.

a. Explain how to interpret the numbers in this model.

Answer 1

The coefficients in the bank's model reflect the average change in account balance associated with one unit increase in age, years of education, and household wealth, with $367 per year of age, $1300 per year of education, and 11.6 cents per dollar of household wealth.

Step-by-step explanation:

The student is asking for an explanation of the numerical coefficients in a model developed by a bank to predict the average checking and savings account balance based on several variables. To interpret the numbers in the model balance = -17,732 + 367 × age +1300 ×years education + 0.116 × household wealth, each coefficient represents the average change in the balance associated with one unit increase in the corresponding variable, holding all other variables constant:

• The number 367 indicates that for each additional year of age, the balance increases by an average of $367.
• The number 1300 means that for each additional year of education, the balance increases by an average of $1300.
• The coefficient 0.116 indicates that for each additional dollar of household wealth, the balance increases by an average of 11.6 cents.
• The constant term -17,732 represents the estimated balance when age, years of education, and household wealth are all zero.

This model assumes linear relationships between the balance and each of the predictors (age, years of education, and household wealth).

Answer 2

We are given with the equation
balance = -17,732 + 367 * age +1300 *years education + 0.116 * household wealth

-17,732 is a constant amount credited from the savings acount
367 is the amount saved per year of age
1300 is the amount saved per year of education
0.116 is the amount save per household wealth