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They've come from
countries where they speak Spanish, they're adults, they do
not know very much about our
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financial system because they
just got here. And a lot of them have had negative experiences
with the financial systems in
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the countries where they came
from. And so material that is aimed at that community, helping them
plug in to our financial system
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as soon as possible and not get
ripped off and be able to send money back to their own
countries, to remit money with—
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once again, without getting
ripped off— this is a community that has very specific needs,
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and we want to
address those needs. Welcome to The Ripple Effect, the
podcast that takes you on a
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journey through the minds of
Wharton faculty. I'm your host, Dan Loney. And in each episode,
we'll be diving deep into the
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inspiration behind the
groundbreaking research that Wharton professors have
conducted, and exploring how
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their findings resonate with the
world today. Well, financial literacy is receiving greater
attention these days, as
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educators look at new and
innovative ways to improve the knowledge, especially for
younger individuals, as we move
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forward. Pleasure to be joined
here in studio by David Musto, Professor of Finance here at the
Wharton School, who is involved
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in a lot of these areas
right now. David, great to see you again.
Thanks for your time.
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Nice to be back.
Nice to be back. Let's start with just, I guess,
your general thoughts about
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where financial literacy stands
at the moment, kind of in our culture, what it's missing, where
we need to go moving forward.
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When you think about today's
high school student—which is what we're focusing on a lot, and we
can talk about that— they
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haven't had a lot of
opportunities to make financial decisions. And they haven't had
to think, to some extent, about
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things that you and I had to
think about a lot when we were kids, like inflation, until
recently. Right? It didn't even come
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up. And yet they have so many
big financial decisions ahead of them. Not just student loans
that loom very soon in their
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lives, but also responsibility
for their own retirement, election campaigns that hinge on
financial issues that are hard
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to understand. The demands on
them to understand finance are greater than ever, so maybe
literacy might not be lower than
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it was 40, 50, 100 years ago. But
the demands to be adept are much higher than they used to
be.
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And it seems like in many cases,
the resources to be able to provide that information are not
there as much as they probably
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should be. Hopefully, they will
increase in the years ahead, but still a ways to go.
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I've been involved in developing a
financial literacy course for high school students, and it has
been an education to see how
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little they've already seen, and
how little is already out there. So it's been a great opportunity
for us to go in and— and really
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be helpful and add some value to
their lives at a key moment, too, when— when all these
decisions are just
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about to come
up in their lives. So tell us about what the course
entails and— and at what—
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how you've been able to develop the
relationships with a lot of these schools in order to
provide this information.
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Okay, so the course that I'm
talking about is Essentials of Personal Finance. Penn calls it
Finance 2, and that's
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important. It's actually a Penn
class. These students are taking it. 500 students are taking this
class right now, at schools all
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around the country. And they are
getting Penn course credit. They get a transcript from Penn
showing this course on it. It
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covers the whole range of
financial issues that are relevant in their lives right now.
Like if you are working at
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checkout at a store, what's
coming out of your paycheck and why? What does that get you?
Where's that going? And then
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student loans, which are coming
up for a lot of these students right away. Well, how do those
work? And it also covers some
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topics that really are about
being an educated voter. So when people say the Social Security
Trust Fund is running out. Well,
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what is that? What exactly is
that? It's not a stack of dollars somewhere that's running
out. But it— but it does mean
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something, and it is running out
soon. So what does— what does that mean? And the different
candidates say different things
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about that. Well, what do you
like? What— what does that mean for you? A lot of low hanging
fruit there that we are going
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out there and providing. And the kids
not only get a chance to learn this material, they get Penn
course credit. And I should add
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that what's really made this
work for us is a partnership between my center, the Stevens
Center, our global youth program
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that— that reaches out to high
school students, and a nonprofit in New York called the National
Education Equity Lab, which has
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a lot of that last mile outreach
to these Title 1 high schools around the country. So that
teamwork between my— the two centers
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here at Wharton, and this New
York nonprofit is what's made this work. So we have students
thousands of miles away from each
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other taking the same course.
- Now it feels like maybe in the past, maybe
we've underestimated the
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importance and the value of
having this type of education, and the understanding and having
all of this kind of in their
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lives at a younger age, so they
can be better prepared when they leave high school.
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Oh, for sure, yeah. And I— we
noticed that specifically, in the case of student loans. Kids
are 17 years old, having made
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almost no financial decision in
their lives. And here's this enormous financial decision to
make, borrowing tens of thousands of
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dollars, when they've never
borrowed anything, and having to deal with all the different nuts
and bolts of that. They're at a
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perilous moment there and ripe
for being taken advantage of too. And so just to make them
astute and adept is very
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rewarding. I should say, also,
for our Wharton students, who are the synchronous instructors
for this class, too— I made the
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videos, but we have our Wharton
students who are actually the in- class, over— you know, over the
internet— instructors to these
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students all the way from
California to Florida. So I understand one of the other
areas that you focused on is
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the development of an app that can help this process
out as well. Yes. When we started the Center
five years ago, and were
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looking around for, what's a way
we can reach out to the Penn community that's grounded in
finance, and that would mean a
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lot to the Penn community? And
we thought: student loans. For the same reasons I just gave. Huge
decision, very early age. And so
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we thought, what people could
use is an app to help them think about taking out a student loan.
And not only that, what would be
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really terrific is to bring high
school students here to Wharton and have them build the app. So
they not only learn the finance
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involved in student loans by
building the app, but they'd learn everything else having to do
with essentially a little
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startup company. We have a very
clear goal of what we want to deliver, and different pieces of
the project. And different teams
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of students are working on
different elements. And it's all coming together. In fact, we're
having a launch on April 19, of
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this app, trying to get it into
the hands of students as soon as possible. So the students are
learning finance, and they're
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also learning about
entrepreneurship, building a company, getting it done. It's just been a great experience.
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Larger scale, how important
can technology be, do you think, to enhancing the level of financial literacy
that we have in our kids?
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I think it's a huge impact. And
specifically— and this is what's come up in the student loan app—
financial decisions are decisions
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you're making under uncertainty.
Right? You're taking out a loan, you're gonna have to pay it
back. You don't know what your
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circumstances are going to be in
the future. You have a hope, you have an aspiration for what
you're doing with this money and
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how it's going to pay off, but
you don't know for sure. And so then trying to visualize, "I'm
taking out this loan, the
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consequences include" — you know,
think of a bell curve. A left tail, where things have not
worked out, and now what? And a
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right tail where my aspirations
have come true. And everything did work out. That kind of
scenario analysis is what you
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have to do in your mind somehow,
when you take out the loan in the first place. And I think
technology can have a great
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effect in helping people do that
scenario analysis, think about the diversity of consequences
that could follow from a
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decision, and then make the
decision that's best for them. Longer term, what do you hope is
the impact that the app has on
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these kids in their lives? Well, I think there are several
moments where the app could add
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a lot of value. Naturally, the
number one scenario we picture is you've gotten into a college,
you get a letter just spelling out
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your financial aid, where they
say, "Well, here's our sticker price for the college, here's
what we're actually going to
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charge you. And here's what you—
what we expect you to borrow and your parents to pay," and all
that. And you look at that.
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You get that from one school,
and then you get that from another school. And you think
about "Well, I could go to this
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school and finance it that way,
I can go to this school, finance it this way, what should I do?"
And we would help you think
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through, you know, the consequences of
those different paths, at least the diversity of consequences
that could come out of either
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decision and help you think about
that and make the decision that's best for yourself. So
that's one scenario. Another
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scenario is, you're applying to
college in the first place, you haven't even applied yet. And
you're thinking about where
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should I apply? And if you know
more about the actual net cost of colleges— and sitting here at
Penn, I should say that Penn has
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a very high sticker price. But
for many students, an extremely low net price to many students.
And a lot of them don't even
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know that when they're applying.
And Penn is not the only school like that. And the more you know
about that, the more you
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understand where would be a good
place to apply. And then once you've gotten in, then— and this
is something we talk about in
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our financial literacy class—
you are in a position to bargain between these schools. When
you've gotten into several
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schools. And we have some
students we've worked with who have bargained very successfully
with a terrific outcome.
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I understand you're also looking
at the issue of financial literacy from the perspective of
other cultures as well, for
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people that are here in the
United States thinking about things like the Spanish-speaking
community as well.
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Yes. Well, this is something that was
inspired actually by a financial services provider who contacted
the Center, saying, "Well, I see you
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have English language material,
but I have potential clients, they've come from countries
where they speak Spanish,
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they're adults, they do not know
very much about our financial system, because they just got
here. And a lot of them have had
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negative experiences with the
financial systems in the countries where they came from.
And so material that is aimed at
00:10:31
that community, helping them
plug in to our financial system as soon as possible and not get
ripped off, and be able to send
00:10:38
money back to their own
countries, to remit money— once again, without getting
ripped off— this could be
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tremendously valuable." And at
first, we thought, "Oh, well, we could just put captions on the
material we already have." I
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thought, "No, that's not right.
This is a community that has very specific needs. And we want
to address those needs." And so
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we are now working with our
Wharton Latin American Students Association, to develop the
courses that we're going to
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offer. And then they can be the
onscreen talent. They can be— it's a joint project with them.
And, you know, hopefully, by the
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end of this calendar year, we
can roll it out and then make this available to new arrivals
in our country.
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Safe to say that it also
potentially opens the door to looking at the banking industry,
and the changes that it may need
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to be to be more inclusive and
more— more well-rounded in terms of the information and how they
present it to all types of
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individuals?
- Yeah, well, certainly there are some—
if you just look across the big
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banks in the country, some of
them make a big effort to reach out to immigrant communities and
other underserved communities
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and others don't. But it would
certainly help to have material they could provide that would
just be— you know, it's not
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marketing for their bank. It's
just, this is what it's like in the US. Here are the
opportunities. Here are the
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risks. Here are the safeguards.
And sort of introduce them to our financial system. And then
they can make financial
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decisions, which once again, are
both astute and adept. We can bring people to that point, then
hopefully, you know, every bank
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would feel comfortable doing
business with them. We're obviously— it feels like
we're in a better situation
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right now around financial
literacy than maybe we were a decade, two decades ago. But are
we at a point where we have
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reached the level of recognition
where we understand how important having these elements
of education are going to be for
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kids, as they continue on down
the line? Not just this generation of kids in high
school now, but the next several
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generations as well?
- Yeah, well, I think that we look at our own
lives and see how much
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responsibility we have for our
own financial well-being. Far more responsibility than people
had many years ago. And even
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though there's so much to learn
in high school— so much that you need to boot up on to enter
society— finance just has to be
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part of that. You know, it's how
you save up what you've produced at one time in your life, to be
able to spend at another time of
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your life. Or to borrow against
your future production to get something you need now. It's
just fundamental to life to make
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financial decisions. And, you
know, the sooner you can do that with a clear mind and
understanding the consequences
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and own your financial decisions,
the better for everybody. David, great to see you again. Thanks
very much.
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Great to be back. Thank you. David Musto, Finance
Professor here at the Wharton School.
00:13:30
Thank you for listening
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00:13:35
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