Podcast: The ABCs of financial literacy

Announcer: Hi, everyone. Thanks for joining us back at The Intersection, a podcast that brings you candid conversations with members of our community and leaders in our industry. Enjoy today's episode.

Leslie Wojcik: Hello and welcome. I'm Leslie Wojcik, head of global communications at SEI. And today I'm joined by Dan Simon, who is the co-founder and CEO of Vested, which is an integrated communications agency. He's also author of Money Hackers, which is a book that explores some of FinTech's most powerful disruptors and their thinking behind the technology. Today, we're discussing financial literacy and its importance in promoting financial wellbeing and education, especially among our youth. Welcome to The Intersection Dan. It's lovely to have you.

Dan Simon: It's great to be here. Thanks for having me so much.

Leslie Wojcik: All right, so, in Money Hackers, your authors know adjusting, how adults perceive and even interactive quite often, how they do that often stems from their own childhood experiences. Why is it important to highlight this and bring awareness to it?

Dan Simon: Well, I mean not to get too psycho bubbly about it, but I think what happens to us as kids informs us through our entire life in a range of areas, and finance is no different from that. In my author's note, I talk about my own struggle with money, my fears about money, and the irony or juxtaposition of the fact that I have a lot of financial and security as kid, which lead to a lot anticipatory anxiety in me as an adult and a psychological relationship with money that wasn't necessarily healthy.

And how ironic that was given that I spent my life as a story teller in the financial space, working on my books some of the most sophisticated financial institutions and organization in the world, and how despite the fact that I could articulate a story about the most complex financial things when it came to my own credit card, I literally by the way just to bring it up to speed, I just applied for a credit card. My PA was like, "why don't you have a credit card, you could be getting all these points."

So I'm still on this personal journey of discovery with my own money even though I've made a lot of money and built a lot of successful, number of successful firms that work in and around the financial space. So, I don't think my situation is particularly unique. I think we don't really have very much in the way of formal financial literacy or training in schools anymore. There's no what we would have, in the UK when we grew up there was something called home economics, "home ec." And we don't really do that anymore, we've moved away from that culturally.

 And a lot of families per the Rich Dad, Poor Dad story, a lot of families don't talk about money. They don't instill financial, a finance first mentality in their children. And that's a real shame because today we're in a society where sadly about 50% of Americans don't even have $500 in emergency saving. And so we're in a pretty powerless state when, in terms of financial freedom and financial literacy is concerned. And that's part of the reason why I think I wrote a book about it. And why I was drawn to technology as part of the solution of the financial literacy problem.

Leslie Wojcik: That's amazing. I'm really amazed that you just got sign up for your first credit card Dan.

Dan Simon: I got the paper works through yesterday and was like, congratulations you get your first credit card. I mean it's not entirely, probably I was an immigrant. So when I came to this country, I had what we, in the landing space, I think it's called a fin file right, so I actually had no credit history. Which is another problem by the way. It's another issue that we have in this country and a lot of other countries like it is that in order to get credit you have to be able to borrow money and spend it and pay it back.

And in order to do that you need credit. And that works great for children of people who had credit and built it that way. But for immigrants like me who came here in their young 20s, it's actually a big problem, it's a really big problem for people coming to this country. It's just one of the many ways that the financial services industry needs to adapt, to changing demographics, changing employment trends and those things. It wasn't entirely because I just had this funky relationship with money. It also had something to do with my immigrant status. But some people don't take 20 plus years to get around to getting that credit card.

Leslie Wojcik: I certainly didn't, that's for sure. One way that you're helping bring awareness to financial literacy, it's for the book that you recently launched, a children's book which I've had the privilege of seeing, and its called the ABC'S of Finance. How can parents and even educators use this book as a tool? And what are some other tools and tips that they can use?

Dan Simon: Sure. So I think, so we did that in co-ordination with the Museum Of American Finance, which is a fabulous organization that I know Lesley you're personally very familiar with. I think you also like me sit on the communications board at the museum. The book itself is a box book for little kids with every letter corresponding to a financial term. This is definitely not a game, so have your children read this book and they will be financially literate. It is at best a conversation starter for you and your kids. I know I had my kid read some of the words and had some good laughs as she was struggling through words like quantitative and things like that. And then as always would ask, what does this mean, some of these were easier to answer than others.

But mostly it also, a conversation started for adults to make us question what are we talking to our children about with regards to money. For other people, money is a taboo subject. I know that, that was a very opaque thing for me with regards to my parents. And that's fine as long as your family is making money. But when my family was unable to make money it created a lot of drama, a lot of Sturm Und Drang, a lot of consternation. And as I said, anxiety, which I think had we been able to have a more rational conversation, a more out there conversation as I was growing up about money, I think it would have demystified a lot for me.

And I think also you come at it, a lot of kids coming out of school today and they're really unsure of how to navigate loans, lending massive amounts of student debt. So I think the sooner you can begin having a conversation with your kids about money, about how, where it comes from. About how to budget it, and crucially about the financial system, which we in the financial industry are guilty of a huge amount of engineered complexity, right. We love to make things more difficult than they need to be, and that's partly, it's partly because some elements of finance are complex. And it's partly because it's a very sticky business and it's never really needed to be consumer friendly.
 Not until the last 10 or 15 years. Has there been this pressure from below, from the FinTechs and others to make financial services, products more accessible. I always say financial services is the only industry in the world that punishes our own users for not knowing how to use our products, right. I mean, in every other industry, if you don't make accessible products, you go out of business. If your car, is GSU, geared sticky, too difficult to use, or if you're a Zune instead of an iPod. Or if you're a Blackberry instead of an iPhone eventually the simpler more elegant, more easy to use, more accessible product wins out.

 Finance by virtue of the fact that it's a very sticky business from the, at the consumer end, it's actually remarkably difficult to get people to rip out their banking relationships and port it somewhere else. We have been insulated from that market force that would otherwise in any other industry may make us create more accessible products and services. And so we've got away for a very long time with this incredibly jargonistic, difficult, inaccessible language and service that would not truck in any other industry.

And that I think that complicates things for kids and for their parents. In some cases the parents don't know the answers that the kids might ask. What's APR, a lot of parents don't know. A lot of parents are embarrassed that they don't know enough about how the mortgage works or how their car loan works. Or how their overdraft fee works or their credit card works, or their credit score works. They don't know this to even explain it to their kids.

And that's partly on behalf, partly we tackled that with better more didactic financial literacy. But partly we sold it with products and services, just more accessible products and services. You don't know how, you don't have to know how to build the car, to drive the car. You don't have to know how to build the iPhone to use the iPhone. You don't need to know how the electricity works to turn on the light switch.

And so what FinTech did in finance essentially is, it said, listen, and this is something that John Stein from betterment once said to me, and I quoted him in the book. He said, "financial literacy is the essence." It's all a matter of user design, which is to say stop sitting your customers down and telling them about compound interest, and trying to teach them about yield. Just make it like the iPhone.

The iPhone is one of the most complicated pieces of kit known to man, but my 94-year-old grandmother before she passed away was FaceTiming me. And my four-year-old just picks it up, swipes doo, doo doo doo doo. She does a bunch of stuff that I don't even know how to do. So through that complexity at the front end is this incredibly accessible device and finance should operate the same way. How much are we going to mandate that people know these things versus the product just works for you. I have a product, I have a savings' app, it's called Digit and it's great. Doesn't have an interface, it's not even an app, it's all done over text. It's a little bot. I text it, hey Digit, how's it going, what's my bank account? Hi, morning, Dan, bank account is this. And unbeknownst to me, whenever it senses some lag in my spending behavior, like maybe I didn't do as much this week as I did last week, and the previous weeks, it'll just steal 10, 20, $30 out of my checking account and stick it into a savings account for me. It's automatic. And then I might hit some magic number $5,000 of savings, and I'll get a text message full of confetti. Woo, woo great news Dan, you've saved $5,000. I didn't know I did it. So we can tell people to save or we can build products like Digit.

Leslie Wojcik: You called out the starling research that reveals that only 17% of students are required to take a finance course in high school. And you were just talking about not taking the complex and making it easy. What impact does this have on students entering adulthood and taking responsibility for their own finances and managing it?

Dan Simon: Well, I think it's the simple answer of course is we should teach people more. Dr. Dave Cowen, who is the CEO of the Museum of American Finance, if we could just teach people about compound interest, we've won. If we can just get them on board with compound interest. Einstein by the way, was asked once what he thought the most powerful force in the universe was. And he said, compounding interest. It's one of my favorite stories. So yes, there's a lot we can do to make stories, finance more interesting. There's a lot we can do to make it easier to understand, didactically easier to understand, right. The best explanation I ever got was that you really need to understand financial services. It is a technology for moving value in the form of money backwards and forwards in time.

That's it. When you take a mortgage for a house, you are borrowing money from your future self, to be able to live in a house today. When you save for your 401k, you are sending money to your future self to be able to afford a retirement. And most finance operates around this principle of sending money backwards and forwards of a value backwards and forwards in time. And when you understand this, there are simple dare I say, an interesting, sexy, fun ways to explain this stuff didactically. But so yes, let's put that in the yes column, that 17% should be 97%, and it should be taught in a way that makes it accessible and fun and not, and demystify, it and makes it not scary.

There are two other things that I would say though, there's no point in doing that if they walk out into a world of inaccessible products and services. And that's the responsibility of the financial services industry. And then we have a sociological or socioeconomic problem, which is that we're sending these kids out with astronomical student debt into a world where income volatility is a fact of life. More and more people today, even those with good college degrees are walking into a world of shift and gig work. And that means that they probably need to interact with products and services differently than their forebears did. 

They need to interact with credit in a way, and they need to understand credit in a way that their parents never had to. For the wealthy, a subset of us, for us happy white collar workers with that classic middle-class income, that steady every month. Your credit for us is something that you do when you want to purchase something that's very big that you can't buy all at once. So a house, or maybe a car, or maybe a new pool or some splashy vacation. For the rest of America, and in fact the rest of the west, credit is used to smooth over the peaks and troughs of income volatility that our parents and grandparents didn't have to contend with.

Money today, no money tomorrow, money the next day, money the next day, nothing the next day, right. And so again, that's where I think FinTechs products and services can also step in to help, and they have to be fair, that there are lots of products and services that are stepping in from real time payment to more flexible credit like products that people can take advantage of, but it's a new world.

Leslie Wojcik: One of the things you touched upon is access to products and services. And the one thing that we've seen as a result of the pandemic is just this huge acceleration of digitization, especially with digital banking. And so do you think that creates opportunities for financial literacy? Not even just, and young adults, but also with adults to learn together at the same time.

Dan Simon: Yeah. I mean, I think, I think all the stuff I talk about in my book, all these FinTech products and services are massively beneficial from a range of perspectives, right. Look at the PPP loan distribution last year, small businesses that had either very traditional banking relationships, were slower to get their money than those that were already on with products like cabbage, which were FinTechs' small business lending providers. Wherever you look, there are examples of FinTech, essentially technology saving time and money, and maybe speed to credit evaluation and other things. So the massive adoption that we've seen over the last 12 months of FinTech products and services is beneficial for everybody, right. Granny doesn't have to stand in line at the bank anymore to do a check, because she's figured out how apple pay works. Or Granny's on Venmo now, so she can send the kids, she doesn't have to go to the mail to get the mail order.

Or go and get the bearers bond and give it to the children and they'll never catch it. I'll just keep it as a family heirloom sort of thing. She can Venmo, Granny can Venmo twenty five bucks for the kid's account. That stuff when you multiply by 300 plus million people, it's going to start saving some really big, some time. So I think it's extremely positive. I always think that many of those tools that we talked about, Venmo's a really good example of very intuitive. Incredibly simple, incredibly intuitive, really take a lot of the mystery out of finance, and the fear out of finance. I remember as a kid, my parents would take me to the bank, and it's like, you have an appointment with a bank manager. You wait in line, it's incredibly intimidating and confusing and way more difficult than it needs to be.

But you think in every one of these categories that a bank had previously bundled, right. Savings, lending payments, remittances, mortgage, car, there is an app for that. And that app like Rocket Mortgage for example is, the whole concept is push button get mortgage. Well, the other thing also, I would just say about finance is that like, okay, I'm a weird nerd and I geek out about this stuff, but most people, for most people finances the means to an end, right. So I just used mortgages as an example. People are looking for a mortgage, just hate to break it to you, people want to buy a house. Actually people want to have a home. The house is part of getting a home. And the mortgage is part of getting a house, right. Most cases, splitting the pizza, Venmo is not the point, It's not the point, right.

The point was to go out with your friends and have a pizza. The Venmo in the splitting of the pizza is just part, it's piece of it. It's actually what I always found most interesting about Uber, right. I used to, I live in New York, lived in New York for 20 years. Everyone knows what taking a yellow cab is like. First of you get in the car, you use to get in the car. The first thing they said is, tell me how to get where we're going. So you had to drive the car. Then they would say, I'm not going to take your credit card. Even though the machine was in the back and it said credit cards. And they said, "why won't you paying me in cash?" And so you'd spend the second half of the car ride just arguing about the transaction, right.

So for me, when I switched over to Uber, yes it's great that it has geo location. I don't know exactly when it's going to show up, but for me the best part of the Uber experience, and I think for many Uber riders was that it doesn't have a transaction piece at all. That's entirely invisible, pre negotiated, done. There's nothing, I walk in the car, I walk out of the car, that's intoxicating. Once you do that, the transaction experience inside a yellow car, if you have to go back to the yellow car, it feels so friction filled. So actually mostly I would argue that when it comes to finance, or financial experiences, most people don't, only weirdos like me get up to think about financial experiences, right.

The rest of the human race, normal people would rather just have the principal experience and have that. And have all the rest of it taken care of for them as they should. And I think something like Amazon is a great example, and touching on this, I mean, I've certainly been over the last 12 months, I've adopted a huge amount of apple pay. I mean, before it would be now and again. The other day I mislaid my wallet for four days and I didn't miss it, I didn't miss it. And I think that's wonderful. And I think the future is a transaction-less future.

Leslie Wojcik: I just bought something last night with Apple Pay, it's perfect. You don't have to fill out anything, you just went right through. One of, when I, you were talking a little bit about going into banks as a child. I remember the lollipop, but one of the lessons my dad taught me, and I'll never forget, is was one of the, I mean my dad was really good about it. But I wanted this, which I look back at now, this really obnoxious, really ugly pair of jeans when I was little.

And I did chores, I worked my heinie off, earning the money. I think it was $20 or something. And my dad took me to go get them, and he paid for them, and he said, take the money that you earned and go put it in the bank and save it. And I'll never forget that. Aside from books like the ABCs Finance for young kids, what are some other resources that parents and children can turn to, to better educate themselves? 

Dan Simon: Well, there are some great places. One place is the Council for Economic Education. It's a council for econed.org. And go, anyone listening to this, and they're like, I would love to try, go to the Council For Economic education. Tons of economic educational resources for K through 12, and as well as links to other places that you can go. I will use this now as a plug for the museum, because I'm obviously, I lead the communications board of the museum. And I'm someone who I like to understand the history of something. It really helps me access it. I happen to think right now also if you're 14, you probably have, or 16, you might have Lin Manuel's Hamilton mix tape on your Spotify or something. 

And with the resurgence of Hamilton as a character, thanks to the Smash Musical, which I have seen no less than 10 times I would say the museum is a great place to check out the history of finance. Very much the history of the financial services industry. Particularly with those talking about that issue with credit, that's all Hamilton, right. When I said the interesting thing is I came here and I had to stop borrowing money and paying it back. That's Hamilton, Hamilton assumes the state debt creates a national bank, creates a national debt, creates the credit, and credit worthiness of the United States. And from, if I keep, famously said, a national debt, if it is not excessive, will be a national blessing. Now we can argue about whether what we have today might constitute excessive. And what you would think if you brought him back, he probably is spinning in his grave if you he knew what the national debt was right now. 

But his idea about assuming, becoming credit worthy by assuming debt, paying it back was a genius conception. And that still exists today. And I would argue that with income volatility that we're forcing on our workforce today, unless there's going to be some massive policy shift, credit is going to be, just continue to be the incredibly present piece of the vast majority of people's lives in the way that it wasn't in our parents and grandparents lives. The other diners club card and yet a mortgage. And that was your understanding of credit. Part of the reason that people have such a problem. It's part of the reason that we persist this negative stereotype of poor people being bad at money because they need credit. 

So in order to understand credit, one of the ways to understand credit is to go back in time and understand the history of the foundation of this country's economic system. So, I think it gives, I think if you want to point your kids somewhere, there's really fun resources at both Council for Economic Education and the Museum of American Finance. But again, I don't want to place the responsibility a hundred percent on parents and children. I think that, they need to, parents, I'm certainly making an effort that my parents didn't make, maybe because we were British in the seventies and eighties. And it just wasn't done, I don't know. I'm talking to my children, my two daughters about money in as drama free away as possible. 

And, I do think that schools and formal education environments should ramp up the amount of economic education that they give. But it's also, as I said, the other two responsible parties are, policy makers and the government, both state, city, local, and federal, to make sure that we don't create an environment full of indentured servants, working paycheck to paycheck. Or hand to mouth essentially, because no amount of economic education will compensate for a society of gig workers. And the second is the financial services industry itself. They have a strong responsibility to do what car makers have done, technology providers have done, hospitality providers have done. It is incumbent upon the banking industry and the financial services industry to create products and services that people want to use. 

Leslie Wojcik: Well, Dan I have to say this has been an absolutely fascinating conversation and as always a pleasure to be in your company. Kudos to the best at team and the Museum of American Finance for this awesome, the ABCs of Finance I think, I'm excited I can't wait for my kids to read it, and I'm actually gifting it to someone. 

Dan Simon: That's good. 

Leslie Wojcik: Thank you so much for joining us today and educating us. 

Dan Simon: My pleasure. Thanks so much for having me on. 

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