Question

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

Predictive analytics is used to predict the future by reviewing historical data, looking at patterns and relationships of the data then applying the relationships. This allows the bank to predict the balances by applying the numbers in the formula. This problem has three variables. Those variables are age, years of education and household wealth.

b. Suppose that a customer is 32 years old, is a college graduate, and has a household wealth of $150,000. What is the predicted bank balance?

Answer 1

a. Given that the model is as follows: average checking and savings account balance as balance = -17,732 + 367 x age + 1,300 x years education + 0.116 x household wealth

What this means is that -17,732 is the expected withdrawal by a person. The balance is positively correlated with the person’s age as well as years of education with factors of 367 and 1300 respectively. The balance will also increase by 0.116 times the household wealth of that person.

b. Here age = 32, years of education = 16 (being a college graduate) and household wealth is $150,000. Thus predicted bank balance = -17,732+(367*32)+(1300*16)+(0.116*150,000)

= -17,732+11,744+20,800+17,400

= $32,212.