Prof. Michael Roberts Wants Global Youth Students to Discover the ‘Elegant Simplicity’ of Finance

Wharton Finance Professor Michael R. Roberts sees finance as a life skill. His mission to level the financial playing field for everyone has led him to develop an innovative student-focused curriculum that integrates personal and corporate finance concepts and promotes the exploration of how these concepts can be applied practically. This summer, hundreds of high school students enrolled in Wharton Global Youth’s Essentials of Finance program will get the opportunity to experience Professor Roberts’ approach to financial education. The first of four two-week sessions begins on June 6, 2022. 

Wharton Global Youth spoke with Michael Roberts about his unique financial curriculum and what he hopes students will take away from it. An edited version of our conversation appears below.

Wharton Global Youth Program: You have said that finance should be mandatory for every high school student. Why is this critical?

Michael Roberts: We start making important financial decisions as early as high school. Questions like: should I go to college? How much should I consider borrowing for college? How will I repay school loans? These are questions that need to be answered by high school students and their families, and to answer them one needs at least a basic understanding of finance. There are also broader principles related to saving, budgeting and planning that are relevant for high school students while they’re in high school and after they graduate. Getting kids to understand and appreciate the value of finance as soon as possible sets them up for better decision making for the rest of their lives.

Wharton Global Youth: The latest state to pass a law requiring financial literacy in high school is Georgia. Others include Florida, Nebraska, Ohio, New Jersey, Rhode Island. How do you feel about these educational mandates? Are they necessary?

Roberts: I’m certainly encouraged by the mandates. I think they’re great in theory, but how they’re implemented remains to be seen. Finance must be taught well to ensure students appreciate and enjoy the benefits of finance for their entire life. We want to level the playing field for everyone by replacing ignorance and fear with knowledge and confidence. People should feel comfortable and confident engaging with the financial system because they will have to do so for most of their life. The best way to accomplish this objective is to give them the knowledge and tools to do so as early as possible.

I like the following analogy. I learned to ski when I was in my 20s by reading some magazine articles and following my friends down green ski slopes until they got bored with me. Despite having skied for over 20 years now, and having taken a number of proper lessons, I’m not as good a skier as my 12-year-old daughter. Why? Because she was taught by professional instructors from day one and at an early age. She had no bad habits, no preconceived notions, and no fear. Skiing is second nature for her, no different than riding a bike during the summer. That’s what finance can be for everyone if taught properly. And, while it’s never too late to learn finance, it’s better to learn earlier than later.

This is why the idea that finance should be an integral component of high school education in this country is obvious to me. I’m not just saying this as a self-interested finance professor, but as someone who had to make very difficult financial decisions early in life. Understanding how to make those decisions and the ramifications earlier would have benefited me.

Wharton Global Youth: What financial decisions did you have to make?

Roberts: Many! I took on too much credit card debt after college and had to liquidate my savings from work to pay it off. Only now do I appreciate just how much that really cost me. I also had to take out student loans for graduate school without any thought to the future consequences. I was lucky. The loans were relatively small and I went on to get a job that allowed me to quickly pay them off. Even when I was working at companies, I didn’t really understand what they were doing financially, and I found this limiting in terms of my ability to progress in my position. Sound financial training would have helped me personally and professionally.

“There’s only one finance. I realize people like to bifurcate it into personal and professional, or personal and corporate…But there’s only one set of finance principles. They don’t magically change from application to application.” -Wharton Professor Michael Roberts

Wharton Global Youth: How do you define finance? What is your brand of financial literacy for youth? Personal? Corporate? A blending of the two?

Roberts: There’s only one finance. I realize people like to bifurcate it into personal and professional, or personal and corporate, or corporate and asset pricing. But there’s only one set of finance principles. They don’t magically change from application to application; they’re always the same. Rather than teaching finance in a piecemeal approach, a collection of loosely connected topics, I present it as one set of intuitive principles that get applied in a variety of different ways. The idea is to equip students with a fundamental knowledge of finance so that no matter what situation they find themselves in, they know how to approach the problem from a first-principles perspective.

The tools we use to decide whether we should go to college, whether we should refinance our mortgage, whether we should invest in a certain stock are the exact same tools companies use to decide whether they should build a new factory, acquire another company, finance themselves with debt versus equity. The only thing different are the labels and lingo. When students realize this, there is an amazing aha moment because the mystery is removed. They realize that the jargon and acronyms are just obfuscating the elegant simplicity of finance.

So, my brand of finance is very simple. There’s one finance. It rests on two intuitive principles: costs and benefits, and risk. Every financial decision revolves around identifying the costs and benefits, and the corresponding risk. That’s it. Everything you will encounter in your personal or professional life is just an application of those principles.

Wharton Global Youth: The Wharton School has long been synonymous with finance. Do you believe that you are introducing a new way of thinking about finance to Wharton students?

Roberts: I don’t know if it’s a new way of thinking, but I do believe it’s a different approach. I try to make finance personal for students by teaching it through applications that resonate with students. That accomplishes several goals. First, it gets students interested. Second, more interested students are more engaged students, which really elevates the classroom discussion. It’s livelier and more fun to be in the classroom. Third, more engaged students learn more. Finally, better educated students become ambassadors for finance. They help their friends, their colleagues, their family members. We get a fantastic diffusion of knowledge beyond the classroom.

So, while I’m not reinventing finance, I hope that I am getting more people to appreciate its value and recognize that they are every bit as capable of harnessing its power to benefit themselves, their loved ones, and society.

Wharton Global Youth: Why has there been such a bifurcated approach to teaching about finance, rather than integrating these concepts more holistically?

Roberts: I think there are several reasons. Different subfields of finance have their own institutional, regulatory, and legal environments in which they operate. Not unrelated, different subfields of finance have their own lingo, jargon, and acronyms. The different environments are economically significant. They impact decision making. So, one must understand those environments, and the corresponding language to operate and communicate effectively in that subfield.

Let me give you an example. If I buy a house for rental-income purposes, I might put down a down payment and take out a mortgage. But, financially speaking, this decision is absolutely no different from a corporation making a strategic investment that it decides to finance with a mixture of debt and equity. Similarly, traders of different types of securities (bonds, stocks, options) almost surely couldn’t understand one another despite their success being dictated by the exact same goal of buying and selling cheap and expensive securities. In other words, the financial principles are always the same. What differs are the environments and language, which have important implications for the numbers that go into the financial machinery. So, it’s important to understand those different environments and languages, which is why we have so many different electives here at Wharton.

But, if students are taught from the beginning that the financial machinery is all the same…boy, does that make life easier. It’s easier to learn about the specific environment. It’s easier to learn the language. It’s easier to learn more advanced concepts. It’s easier to discover or invent new concepts.

Wharton Global Youth: You have created a two-week Essentials of Finance program for Wharton Global Youth. How does your course material reflect your brand of finance and balance personal finance concepts like retirement and interest rates with more corporate themes like financial statement analysis?

Roberts: The way I like to teach is illustrating through applications. I don’t like to lecture and in my mind I don’t. I converse with and moderate discussions among students, at least that’s how I see it. So, every class revolves around a financial decision that students have already confronted or will confront at some point in their lives. I’ll use those applications to introduce finance concepts so they can see how the concept is used and appreciate the importance of it. For example, I’ll start off by having students develop a retirement savings plan. In doing that, they’re forced to understand the time value of money and concepts like discounting, compounding, annuities, and taxes. Then I’ll talk about financing a home, getting a mortgage, refinancing a mortgage, understanding whether you should pay down your mortgage quickly. These applications allow me to introduce compounded interest, amortization tables, periodic interest rates, term structures, and yield curves.

Next, we’ll move on to talk about business decision making and capital budgeting. How should firms make their decisions? What’s interesting is that firms should make financial decisions the same way people should make financial decisions. I’m going to refinance or pay down my mortgage when it’s financially beneficial to me to do so, and we learn how to identify when that is. And, firms should make decisions when it’s financially beneficial for them to do so. There’s a direct correlation between the two. That’s how the class proceeds. We’ll talk about investing in stocks and bonds and I’ll say, ‘What does it mean to own a stock? How do you make money or lose money? Same thing with a bond?’ Then I’ll point out that the flip side to buying a stock or a bond to save money is that some company issued that stock or bond to raise money to invest. We’re just looking at two sides of the same coin. So, any money we earn as investors is money the company pays to raise capital to invest.

I really want students to see the connections. By distilling finance down to its essentials, students realize that they can tackle any problem in finance. You just start from first principles and go from there.

Wharton Global Youth: How do case studies help to illustrate these lessons?

Roberts: We do several case studies. One is a classic capital budgeting case that puts students in the shoes of a product manager who’s trying to understand whether or not to move forward with the production, distribution and sale of a new golf club. Students must develop a business case that includes building a discounted cash flow (DCF) model and performing sensitivity and scenario analysis, as well as learning how to communicate their results and make an argument one way or another for their case. Another case on the personal side would be the retirement savings plan I had mentioned. That’s something they can walk out of Wharton or high school with and say, ‘OK, I’ve got a plan and I know what I’m doing. This is going to be the foundation for me for the next 60, 70 or 80 years.’ Another example is I have students explore the effects of incorporating cryptocurrency into their investment portfolio. That’s a fun one.

Wharton Global Youth: Your Essentials of Finance curriculum is debuting on June 6. What do you hope to learn from the high school students enrolled in this program?

Roberts: This is definitely an experiment. The question is to what extent they can manage and appreciate the material. Mathematically, there’s nothing here that they can’t handle. I’m not worried about that. Finance can be taught at many different levels quantitatively, but to get 90% of it you really only need basic arithmetic and maybe a little bit of probability and statistics. I think the real challenge to finance are the applications and being able to think logically through a problem and fit those pieces together. I’m excited to see how they respond.

Wharton Global Youth: What is the broader vision for your approach to financial education?

Roberts: Honestly, I think about my kids, who are 10 and 12. My hope is that when they’re in high school, there is no discomfort or unease with engaging with the financial system and making financial decisions. They know how to do what they need to do. They’re just one example of what I hope for more broadly, which is generations of people in this country and beyond who are financially competent and confident engaging with the financial system. That’s what I mean by a level playing field. Finance doesn’t have to be difficult if it’s taught well. To be clear, I don’t want to make everyone into a financial analyst. I only want to equip everyone with the requisite skills to get the most out of their lives – personally and professionally.