Finance for the next generation
Over the weekend I attended a workshop hosted by the Turkey Technology Team Foundation. The workshop was a forum that brought together leaders of the financial industry and academics to discuss what they would like to see in a science and technology learning center. It's a topic that attracted a lot of heated debate and on which I have been giving a lot of thought recently.
While topics in finance may not be associated with science and technology in the classical sense, the "new normal" is a world in which the finance industry is generally at the cutting edge of technology. "Fintech" companies are hiring rocket scientists away from NASA just as they are quants from investment banks. Finance is perhaps the one discipline that many college graduates have practically zero exposure to and therefore promoting financial literacy is now as important, if not more important, than promoting literacy in geology, especially to the next generation of minds.
The now "historical" events of the Great Recession, the near-collapse of Fannie Mae and Freddie Mac, more directly impact the lives of today's youth than do wars fought centuries ago. Despite this, you'd be hard-pressed to find a decent analysis of the events of the economic crisis in many history books. Promoting financial literacy has been a passion of mine since my tenure as secretary general of the Financial Analysts Society of Turkey several years ago. My interest in financial literacy isn't only because it's a topic I find fascinating, but that lack of this literacy directly and adversely impacts the lives of everyone daily. The vast majority of people that carry balances on their credit cards don't know what interest rates they are being charged and can't plan accordingly to pay off such debts. Teaching people to understand simple concepts in finance often leads to immediate benefits and is immensely gratifying.
So what topics in finance are the most important to teach? What concepts should middle school aged children be exposed to in a museum setting? The answer to this question has changed considerably since my childhood. I remember being taught about "certificates of deposit" and how investing in high-yield savings accounts would grow a person's hard-earned cash. While Einstein is said to have remarked that compound interest was the most powerful force in the universe, he did so during a period of fluctuating interest rates. If I had invested $100 for 15 years at interest rates during the year of my birth, 1980, I would have a return on investment of 1500 percent. If my daughter had done the same thing at interest rates during the year of her birth, she would have a return of only 4 percent over 15 years. Times have changed.
Secular stagnation may be around for the foreseeable future and in such a world, high-yielding, "risk-less" savings accounts no longer exist. The generations of tomorrow should be learning about the advantages of equity financing and investing in technology. They should be learning about the importance of team building and the "value" of currencies and how goods and services are actually traded. Domestic currencies may become obsolete in the near future and whatever replaces them will be the only "dollars" tomorrow's youth know. While we were taught the benefits of free market economies and producing goods in which you have a comparative advantage as children, the next generation may grow up in a world of protectionism and nationalism where the term "free trade" has become a profanity.
In negative-interest rate economies, the only way to make money is to innovate and compete. Even for the very well-off, returns on equity are becoming increasingly more difficult to find and thus forcing them to leave the shelter of the "risk-less rate." Learning to attract and grow such equity will be the "balancing a checkbook" lesson for the next generation.
Whatever exhibits are ultimately put together for this learning center, the most important lesson they need to teach is a sense of self-confidence and hopefulness. Education has never been easier to access and the playing field has never been more level. "Emerging markets" may emerge much faster than in the past as "rich" countries may become poor and "poor" countries may become rich. In such a world, focusing on innovation and investment for the mutual benefit of all mankind may be the most important lesson anyone can teach.
While topics in finance may not be associated with science and technology in the classical sense, the "new normal" is a world in which the finance industry is generally at the cutting edge of technology. "Fintech" companies are hiring rocket scientists away from NASA just as they are quants from investment banks. Finance is perhaps the one discipline that many college graduates have practically zero exposure to and therefore promoting financial literacy is now as important, if not more important, than promoting literacy in geology, especially to the next generation of minds.
The now "historical" events of the Great Recession, the near-collapse of Fannie Mae and Freddie Mac, more directly impact the lives of today's youth than do wars fought centuries ago. Despite this, you'd be hard-pressed to find a decent analysis of the events of the economic crisis in many history books. Promoting financial literacy has been a passion of mine since my tenure as secretary general of the Financial Analysts Society of Turkey several years ago. My interest in financial literacy isn't only because it's a topic I find fascinating, but that lack of this literacy directly and adversely impacts the lives of everyone daily. The vast majority of people that carry balances on their credit cards don't know what interest rates they are being charged and can't plan accordingly to pay off such debts. Teaching people to understand simple concepts in finance often leads to immediate benefits and is immensely gratifying.
So what topics in finance are the most important to teach? What concepts should middle school aged children be exposed to in a museum setting? The answer to this question has changed considerably since my childhood. I remember being taught about "certificates of deposit" and how investing in high-yield savings accounts would grow a person's hard-earned cash. While Einstein is said to have remarked that compound interest was the most powerful force in the universe, he did so during a period of fluctuating interest rates. If I had invested $100 for 15 years at interest rates during the year of my birth, 1980, I would have a return on investment of 1500 percent. If my daughter had done the same thing at interest rates during the year of her birth, she would have a return of only 4 percent over 15 years. Times have changed.
Secular stagnation may be around for the foreseeable future and in such a world, high-yielding, "risk-less" savings accounts no longer exist. The generations of tomorrow should be learning about the advantages of equity financing and investing in technology. They should be learning about the importance of team building and the "value" of currencies and how goods and services are actually traded. Domestic currencies may become obsolete in the near future and whatever replaces them will be the only "dollars" tomorrow's youth know. While we were taught the benefits of free market economies and producing goods in which you have a comparative advantage as children, the next generation may grow up in a world of protectionism and nationalism where the term "free trade" has become a profanity.
In negative-interest rate economies, the only way to make money is to innovate and compete. Even for the very well-off, returns on equity are becoming increasingly more difficult to find and thus forcing them to leave the shelter of the "risk-less rate." Learning to attract and grow such equity will be the "balancing a checkbook" lesson for the next generation.
Whatever exhibits are ultimately put together for this learning center, the most important lesson they need to teach is a sense of self-confidence and hopefulness. Education has never been easier to access and the playing field has never been more level. "Emerging markets" may emerge much faster than in the past as "rich" countries may become poor and "poor" countries may become rich. In such a world, focusing on innovation and investment for the mutual benefit of all mankind may be the most important lesson anyone can teach.