Interview With Peter: Transcript
A little background, family finance, where did you go to college/study
I grew up the son of two economists which makes my background to be a little upper middle class. Talking a little bit about my financial background in terms of being the son of a couple economists, I was raised in an environment where money and the theoretical backgrounds of personal finance type decisions were something that were talked about a lot.
Being an economist doesn’t mean you’re a personal finance genius. Personal finance definitely stems from economics, but that background gives you the tools to understand key principles like spending within means, avoiding high interest and low return debt, saving during your prime earning years. I have a background in economics and money in terms of how people manage their finances and how people manage their money.
I actually didn’t think that I would follow this course when I went to undergrad. I went to William & Mary where I started off on a hard science course of biology and chemistry. I really loved chemistry, loved those classes, but I found that the economics courses just felt like they were a little bit higher impact. I could see myself working in that field more easily so I gravitated towards economics and that lead me to the Federal Reserve Board.
Can you describe why you got into working at the Federal Reserve Board as opposed to somewhere in the private sector. Why government?
What drew me to economics most is the impact that knowledge, good knowledge, about how to manage finances and money can have on your life. If a family knows how to maintain a responsible amount of debt, to take out debt in a way that increases their wealth, that doesn’t put them in a financially vulnerable position, that’s so valuable.
Economics as a practice, is a field that does a lot of work to try and figure out where that line is. What’s a valuable investment? what’s a dangerous loan? Those sorts of questions really interest me and here at the Federal Reserve, especially in my section that deals with household finances. We really drill down into those decisions about how major financial choices affect the wealth and financial well being of families and households.
Do you feel like this background, how did you apply it to actually managing your own finances.
As I mentioned, economics and personal finance are brothers, but not the same. Personal finance might teach lessons on rules about how it’s wise to save a reasonable percentage of your income and types of debt to avoid, but what I love about economics and what economics has taught me is some of that theoretical background.
For example, an economics principle that I’ve gained a better understanding of at my job: Lifetime income models. Everyone probably has some general intuitive background into what lifetime income is. Before you are an adult when you don’t make a lot of money you might go into a substantial amount of debt to finance your education which hopefully you’re doing because it’s going to get you that return when you have a degree that’s valuable.
Then you enter your prime earning years. You have a starting salary, maybe it increases a bit, especially when you’re still building yourself as an employable young adult. Then you age and as you get older maybe your’re able to designate less time, less energy and eventually you want to retire at which case, hopefully you have saved enough money to retire. And we all see “yeah of course you don’t make a lot of money until you’re an adult,” and at some point you retire and you’re only making money for a few decades and even though you’re spending money for a lot more. But understanding how that looks from the financial perspective of families and understanding how that plays out in the real works has taught me a lot.
Did you have any student debt through college or was that something you avoided?
A: I personally went in state to avoid student debt.
Do you feel that this helped you in the future, do you feel that other people should do the same thing or is it more circumstantial?
I think it’s circumstantial. I say there’s nothing inherently wrong with debt. In the Federal Reserve Board’s Fed-Ed program we like to say that you can either have good debt or bad debt as a simple heuristic and that heuristic is that good debt is debt that’s making you wealthier in the long run whereas bad debt is debt that is making you poorer in the long run.
So in my case, there was an instate school that I though really matched up with my personality and my interests. It matched up just about as well as the out-of-state and private options. For me, that meant that the extra money I’d have to spend out of state or at a private university wouldn’t be so much more likely to increase my wealth in the long term because I wouldn’t be getting that marginal gain from going to a school that was really going to fit me better and pepare me to make more money in the future.
Someone else who maybe thinks that the school that’s really going to fit their interests, that’s going to fit their background that has the program that their most interested in, if that’s out of state and its more expensive, but if they look at their lifetime income projection, thinking about it, you can’t predict perfectly but give it a little thought and see that having more financial success and life success having followed that course. Then I would say that that’s potentially a good investment for them to have some student debt, but to make that choice carefully and to really give it thought before making a commitment.
Shifting a little bit to your work at the Federal Reserve, can you describe the FedEd program and what it does to help people?
We engage students in two primary ways. Our bread and butter is in-school presentations. We send trained presenters to schools to teach classes on debt, credit, saving and the role of the Federal Reserve.
Last year we launched a program we call the FedEd Speaker Series where we bring in students to tour Board facilities and a presentation from a senior Board official. We are tremendously grateful for the support we’ve received from the Board leadership so far. This year we had Governor Lael Brainard and former Dhair Janet Yellen speak to students at different events which is a super special experience.
We use a couple of different tactics to try and engage students. The people who work for FedEd are all from the research assistant job category, which is a group of young economic and finance employees who are generally fresh out of undergrad. Because we’re this youth, our young professional position is probably our primary tactic. Because we’re just a few years older that the students we present to, it’s much easier for us to connect to the students. We’ve successfully navigated the challenging transition that the students are just beginning in high school and we remember it well. The students can see themselves in us. I’ve spoken personally with presenters who have had the awesome experience where students come right out and say, “Wow I didn’t know that there were normal people in jobs like that” which really has happened. We’re so happy when we have that response because it shows use that we’ve meaningfully demystified this world of personal finance and money.
To describe a couple of other tactics, we try to use a lot of class discussion. Engaging students in conversation ensures that we’re teaching at the right level and cover the right material. We also try to incorporate activities as much as possible to help students get actively thinking about financial decisions and we usually engage through teachers, we’ll engage with student groups and entire schools, but our primary point of contact, for example, if you want to engage with FedEd is through the teacher. And these teachers, these student group leaders we always work carefully with them to tailor our lessons to their need, because our lessons are the most fun when they compliment the rest of the coursework.
Do you usually present to high school students or university students.
A: We primarily present to high school students, some university students, even occasionally some younger students.
Do you feel that these approaches are effective, have you been able to see an impact that’s being made?
The most clear indication of our effectiveness is the fact that once we form a relationship with a teacher, or a program, once we engage them, we almost always have them back the next year. If we don’t have them back it’s probably because that teacher went to a different district or something. Because they’re happy with us, they don’t just say, “Hey that was great,” they back up those words with action and that’s helped us grow up every year. Were on pace to double our student contacts this year. We’ve had interactions with students that show out effectiveness as well. I mentioned students saying “Wow I didn’t realize there are people like me who are in your spot in just six years time.”
Talking a little bit more about how we’ve arrived at the tactics we feel are most effective. We’re cognizant of the fact that we’re not teachers. We have a lot of expertise in economics and personal finance, especially this program has really put together over the years and with all the people that have been involved a truly astounding amount of knowledge on personal finance. But because we’re not teachers, we try to stay away from lectures, just talking in front of a class. Instead we focus on engaging students and kinda taking that barrier down between the speaker in front of the class and the students sitting in the class to create a more comfortable flow of information from us experts, to the students who are interested in learning.
I had one really special interaction that I am particularly proud of: We had a group who visited the Board on spring break trip from a merit high school in Rhode Island. Their teacher put together an awesome itinerary during which they actually had a sit down conversation with both of their senators, which is obviously mind blowing, and they got to ask the senators questions about the issues they thought were most important.
When other people asked the students what they thought was their favorite part of the their tip to DC, for this week-long incredibly involved trip to DC, people actually responded that their [favorite part was the] trip to the Board where they sat down and had lunch with FedEd volunteers and they played this game called the Chair the Fed.
It’s a simulation that’s available onthe San Francisco federal education website. The students sat down and we talked them through it as they tried to make decisions on interest rates to control inflation and unemployment. There were students who looked at that and thought that that was the highlight of the entire trip, over talking with both of their senators.
In a different vein, what approaches that have been taken do you feel haven’t been effective? What doesn’t work when trying to communicate and make people more aware about their finances?
So this is specific to us, but we’ve evolved our presentation and our communication strategies overtime. Early on, they were much more lecture style, and now they’re primarily activities, or centered more around activity and conversation. We’ve received feedback from teachers and students it’s just more engaging and more effective, and its been very clear that the hyper-separated lecture style is less effective.
Do you have a rough estimate of about how many students you talk to over the course of a month or year?
This year we’ll be talking to around 1,600 students.
Shifting a little bit to less specifics, but if you could just send a message, maybe on a billboard that all young people would see about personal finance, what would you tell them?
Start engaging early. Start engaging often. I say begin with thinking about your career paths just generally and how much money you might making in the future. Think about the biggest choices you’re making now and in your later life, higher education, car, house, family, and see if those choices align with the image you have of your finances, your career track and your financial goals.
Don’t worry about getting things perfect. Just see if you can get a preliminary picture of your personal financial future. Then with that basic idea in mind, make an annual plan and see if you can stick to it.
There are some shortcuts out there that can help you achieve your goals. If you’d like to save 10% of your income, see if you can automatically contribute 10% of your paycheck to your 401(k) through your employer. People might be surprised with how far a little bit of brainstorming and advance planning can get you. So get started. Not quite sure how you put it on a billboard, but get started early and do it regularly and you’ll see, I think, quite a bit more return than you expect.
What would you say is the reason right now that many young people don’t have a strong understanding of their finance, and why the US is not ranked very highly in terms of adult financial literacy internationally?
That’s a good question. Personally I would say that young people do actually have a strong understanding of their finances, a good vision of what their finances are in the current moment.
The problem is that finances for people in a K-12 situation like the high schoolers we usually talk to, the simple nature of their current finances is nothing like the complex nature of what their finances will look like in just a few short years.
Someone finishing high school can easily borrow more money in their first year of college than they have spent in their entire life up to that point. They might not have a bank account, and now they’re being assailed with credit cards offers, student loan issues, rent payments. Then in a few more years, they’re graduating and it’s probably time to start saving for retirement. That’s whiplash.
My experience with high schoolers and university students is that they’re wise enough to see the change coming, but with such a dramatic change it’s very difficult to navigate as there is so much to learn. We’ve seen from our perspective how having teachers step in and offer good lessons helps ease this transition a little.
For us at FedEd i’s a huge motivator to see the effectiveness of having teachers and educators step in and be successful. That motivates us at FedEd to be someone who can step in and offer effective lessons.
You alluded to a lack of adult financial literacy. I would say that maybe you were talking about that disconnect between when you’re learning and when you’re young. You don’t have the finances to teach you how to manage challenging finances. Then it happens so quickly, you all of a sudden have so many financial issues so quickly, and you’re in a difficult context where maybe you’re not learning so much anymore because now you’re a young employee and no longer in school. Its a structural situation where there’s quick transition and maybe no more opportunities to keep learning.
What would you feel that the biggest misconception that young people have in personal finances is.
That it’s all about buying and consuming things. Personal finance is about setting yourself up for security, stability, independence, comfort throughout life. It’s about using credit and debt to your advantage, about saving to raise a family, about putting awaynenough money to retire. It’s about the most vital decisions of your life. Even though young people realize personal finance is important, they underestimate just how much the right and wrong choices can change the course of their lives.
Why would you say this misconception comes about?
I think there are two reasons. One is lack of experience. Young people haven’t had the chance to live through life with their peers and see those who started putting away 10% of their income right out of undergrad, put away 50% of every raise they got toward their retirement savings, then were super secure even by the age of 40 in their financial situation, and did not stress about money throughout their life. They haven’t been able to compare that to people who didn’t start saving early. Who maybe got debt to purchase things that they were consuming rather than using debt to try to make investments in themselves.
Two, these decisions are relatively few. You’re not going to buy more than a few cars in your lifetime. five or six, probably not double digit cars. You’re going buy 1 maybe 2 houses in your lifetime. You’re going to college once maybe gradschool. You’re only going to retire once.
Because there are so few of these decisions, people don’t have the opportunity to do trial and error to sort of learn by experience that much. It’s very difficult to get all the right lessons out of one fiasco of a car buying experience. You might learn a little bit, and then now you’re trying to buy a house and hopefully you learned all the right lessons so that you can buy your house in a way that saves you the most money on interest payments and puts you in the most financially secure position. But because the decisions are infrequent, and people don’t have the opportunity to learn from them.
