Every day we hear a new story about people struggling with student loan debt. At the Initiative, we listen and try to learn from those experiences so we can better help high school students before they agree to take on debt. We know from our own experience, simply researching and writing the module on financing post-secondary education was incredibly challenging. Finding accurate, up-to-date information was oddly difficult. At one point we were having conversations with government agencies who didn’t have answers. If an entire team of experts had difficulty navigating a complex financial aid system, it is understandable how overwhelmed students and their families feel.

When the UChicago team tried to translate the financial aid information for students, there was one major, frustrating issue: the lack of transparency within and across student financial aid award letters. Every college issues their own unique financial aid award letter, making it impossible for students to compare schools. In addition, the type of aid being offered is not consistently labeled, and many colleges do not even make the total cost apparent. Imagine going through the entire college application process only to receive financial aid letters that are difficult to decipher.

We recently came across a study, “Decoding the Cost of College” by New America and uAspire that highlighted many of the issues we faced and brought more to light. Let’s take a look at a few key findings:

— Out of 455 colleges, there were 136 unique terms for unsubsidized loans, and 24 of them did not even use the word "loan.”

— One-third of 515 letters neglected to include detailed information about cost.

— There was no distinction made between types of aid (grants, scholarships, loans, and work-study) in 70% of the letters.

Yikes! If the names of loans aren’t the same, how will students compare? If the final cost isn’t provided, how will students know where the gaps are? If no distinction is made between grants, scholarships, loans, and work-study, how will students be able to distinguish money that must be paid back from other types of aid?

After our finEDge materials are printed, we continue to delve into the content so we can continuously revise the materials to provide students with the most useful tools possible—shouldn’t our universities do the same? It’s time we find a way to make the system work for students rather than the other way around. Until colleges make these letters more transparent, students are going to continue to sign on for more debt than they anticipated and the cycle will continue.

What do two stories, one about an award-winning economist and the other about spa workers, have in common? Quite a bit. The Atlantic recently published two disparate pieces that, collectively, shed light on the history and effects of wealth inequality in America.

The first piece, "The Economist Who Would Fix the American Dream," describes the work of a Harvard economist, Raj Chetty. Chetty is a key brain behind the Opportunity Atlas, an interactive online map of the United States that shows life outcomes for adults based on where they grew up as children, right down to the specific neighborhoods in which they grew up. The map shows that where children grow up is largely determinative of future income and other prospects.

The data seem to belie the story of the American Dream, that anyone from anywhere can make his or her own success. But Chetty is using the data to try to make that story more of a reality. He is identifying the affordable neighborhoods that provide opportunity boosts for those who grow up there; he calls them “opportunity bargains.” Right now, he is working with cities to target housing programs to these opportunity-bargain neighborhoods. In the future, he is hoping to better understand what features or social capital make neighborhoods opportunity bargains and how those features can be reproduced in more neighborhoods.

The second piece, "The New Servant Class," explores the rapid rise of work focused on tending to the needs and wants of the wealthy in urban areas. Termed “wealth work,” it involves services like spa work (manicures, pedicures, facials, massages), fitness training, driving people places, delivering and setting up things, and so forth. The author points out the similarities of this work to the live-in servant work of the late 1800s. Although there are now more rights and freedoms for the workers, the work is not without issues: it pays little, requires long commutes for workers who cannot afford housing anywhere near their clients, and inherently gives rise to questions of inequality between the worker and the client.

Taken together, these pieces may suggest that the more things change in American financial life, the more they stay the same. Wealth inequality has always been, and remains, a huge part of the American story, with data suggesting that wealth disparities are only getting worse. As financial educators, the question becomes how to teach students about these realities while also giving them the tools and autonomy to navigate the economy to the best of their abilities.

We have a few ideas:

• Talk openly about wealth inequality and its effects with your students, no matter your students’ personal backgrounds. Everyone needs to understand wealth inequality.
• Have students explore historical trends in wealth inequality and how those trends are related to local and national policies. Encourage students to suggest different approaches to changing those trends, allowing for a range of ideas.
• Discuss how wealth inequality manifests in your own community (such as in the kinds of financial institutions available in different neighborhoods or differences in school funding). Look for opportunities in your local community to do projects around tackling the roots and effects of wealth disparities.
• Acknowledge that, while financial literacy is important, financial success or failure is not a direct result of a person’s knowledge or actions. Have students explore scenarios where a person made a reasonable financial decision that turned out poorly because of external factors, and grapple with that reality.
• Encourage students not to equate wealth with a person’s success or value to society. Have students consider their own visions of financial well-being in light of their personal values, and share and discuss different visions.

In The Unbanking of America, author Lisa Servon offers a fresh perspective on alternative financial institutions such as check cashers, currency exchanges, and payday lenders. As part of her research, Servon—a professor of city and regional planning at the University of Pennsylvania—went to work at a check casher in the South Bronx, NY and at a payday lender in Oakland, CA. Through her conversational style and the inclusion of personal stories of those who operate, are employed by, or are customers of alternative financial institutions, Servon provides a fascinating, insightful look at the consumer financial industry.

Servon claims that “the American banking system is broken” and no longer serves the needs of an increasing number of Americans. According to Servon, this breakdown has two major causes. First, over the past 50 years, banks have become exponentially bigger and have shifted away from a focus on consumers. Second, an increasing number of Americans are facing ongoing financial instability. The author devotes an entire chapter of the book to describing economic and legislative factors that have contributed to the current state of consumer financial services.

Servon contends that alternative financial institutions fill a gap—providing needed services for the large number of Americans who are no longer well served by mainstream financial institutions such as banks and credit unions. Despite being subject to high fees and other practices that are frequently termed “predatory," customers may be making perfectly rational decisions in using check cashers. So, for example, while the fees for services at check cashers are often quite high, they are clearly posted and easily understood by customers prior to making transactions. On the other hand, consumers are often unaware of or confused by the fee structures at banks, and may be shocked and harmed financially by being charged unexpected fees, which can build up quickly for those living paycheck to paycheck.

Servon explains that uncertainty about when deposited funds will become available is another drawback of mainstream financial institutions for low-income consumers, who often need immediate access to funds in order to cover living expenses. While at an alternative financial service, customers must pay a relatively high percentage of their paychecks in order to gain access to their money—a service provided free at many banks and credit unions. This access to funds is immediate, whereas at a bank it may take a few days for the check to clear. For people who need the money right away to pay bills, buy groceries, and cover other immediate expenses and who do not have a financial “cushion” to fall back on, the fee they are charged upfront at a check casher may be a necessary trade-off for a needed service.

Additional barriers to using mainstream financial institutions involve access. For some people, a barrier may be the lack of physical branches in their communities—known as banking “deserts." Others may have negative banking histories, precluding their use of banks. Information about customers of mainstream financial institutions who have incurred numerous fees, have unpaid fees, or have had an account closed is reported to an organization called the ChexSystem, which may result in people being unable to open an account at a traditional financial institution for years. This disproportionately impacts people with low incomes.

Lisa Servon’s compassion and nuanced exploration of the complexities of mainstream and alternative consumer financial services makes for a highly readable and thought-provoking analysis of the modern American banking system. The Unbanking of America is a worthwhile read that provides insight into the widespread use of alternative financial institutions.

In The Geometry of Wealth: How to Shape a Life of Money and Meaning, author Brian Portnoy begins with a quote from the ancient Stoic philosopher Seneca, which is a tip-off that this is a different kind of money book. The quote itself, “Nothing is so bitter that a calm mind cannot find comfort in it,” seems particularly timely today with markets gyrating and retirement accounts dwindling. Seneca might have urged us to stay calm and to think about stocks “going on sale” instead of markets plunging.

Portnoy ranges widely. He draws on ancient wisdom, especially Aristotle and the Stoics; modern behavioral economics, including Daniel Kahneman’s great book Thinking Fast and Slow; the giants of modern investing, including Charlie Munger and Jack Bogle; and an incredible range of others, from the Dalai Lama to Hunter S. Thompson. It’s a rollicking ride that’s somehow also deep and even philosophical.

Portnoy hangs his key ideas on a simple framework based on elementary geometric shapes: a circle for finding purpose, a triangle for identifying priorities, and a square for the tactics to employ to reach an ultimate goal. Portnoy calls that goal “funded contentment,” which he connects to Aristotle’s concept of eudaimonia, or being healthy, happy, and prosperous. It is eudaimonia, not the short-term jolt of pleasure that we might get, for example, from buying a new flat screen TV, that is true happiness.

A key theme in the book is the way Portnoy connects ideas of money management to true happiness. The goal should be to accumulate not riches but wealth, another term for funded contentment. Adequate financial resources, for example, can help us attain Portnoy’s four Cs: Connection, Competence, and Control, all embedded in a broader Context that gives meaning to our lives. Those four Cs are key to eudaimonia.

Even though Portnoy is philosophical at times, he also provides a great deal of down-to-earth advice on money basics, such as compound interest, cognitive biases that lead us to make bad decisions, dollar cost averaging, and lucky versus good decisions. His book is also an easy read—the style is breezy and there are lots of diagrams and tables that break up the text.

The Ant and the Grasshopper fable.

Horatio Alger stories.

The American Dream.

So many of our financial maxims rely on the idea that hard work leads to success. But a recent feature in the New York Times, entitled “Americans Want to Believe Jobs Are the Solution to Poverty. They’re Not, challenges that premise.

The article uses one woman’s compelling story to show how difficult it is for the working poor to move out of poverty and financial insecurity. The woman, who works in home healthcare, cobbles together as many hours as she can at her job. She raises several children, spending any money she gets on food and trying to save up enough to buy her family basic necessities like towels. And, on numerous occasions, she has to sleep in a car overnight with her family because she’s a member of the “working homeless.” The story is harrowing, difficult to read, and—unfortunately—not uncommon in our country today.

For financial educators, the story provides three lessons that should be imparted to students, likely as part of a broader module on careers and earning.

(1) Getting a job is not enough to secure a decent living. Many students errantly believe that all they need to do after high school is get any job, and they’ll be fine. But, as the article points out, worker wages have not risen in line with actual productivity for 40 years. Low-wage jobs like healthcare worker, daycare worker, grocery store employee, or customer service representative do not provide enough hours or pay for a person to build a stable life.

(2) The social safety net is the only thing keeping many working poor afloat. Whether you agree politically with how the United States government administers a social safety net, the article makes a compelling case that social aid programs (like public housing, SNAP, and the earned-income tax credit) are all that keep many working poor out of abject poverty. Students should learn about the role such programs play in our society, including their limitations and prospects for lifting people out of poverty and how such programs can be used in times of financial distress. As they move into adulthood, students should develop their own evidence-based opinions on the effectiveness of these programs and how they can be structured to promote greater economic opportunity and security for all.

(3) Stereotypes about the poor are untrue and hurtful. The article provides interesting statistics on poverty that dispel many myths about the poor. They work. They want to work more than they are offered. They appreciate their jobs and care deeply about their children and families. They don’t want to be on public services and don’t stay on them if they don’t have to.

In working with students who come from various economic backgrounds, it’s important for us to walk a careful line: teaching ways a person can improve his or her financial well-being, while also noting that a person’s financial standing is not a sign of their virtue. When teaching about jobs, a good way to do this is to acknowledge and respect the hard work of people in low-wage jobs, while helping students learn about and plan for jobs with more security and higher wages.

Is a college degree a ticket to higher earnings than a high school diploma? It may depend on your address, according to Enrico Moretti, economics professor at UC Berkeley.

In The New Geography of Jobs, Dr. Moretti claims that in cities with the highest percentage of college graduates, the average salary of workers with a high school diploma is higher than that of college graduates in cities with the lowest percentage of college graduates. For example, in San Jose, California—a city with one of the highest percentages of college graduates in 2006–2008—the average worker with a high school diploma made $68,009 a year. In Modesto, CA—a city with one of the lowest percentages of college graduates—the average worker with a college degree made $60,563.

According to Moretti, American prosperity is now driven by innovation, as opposed to manufacturing. Innovation involves coming up with new ideas—for technologies, processes, products, and so forth. The innovation sector includes scientific research and development, information technology, robotics, and engineering. However, innovation also occurs in less expected places, such as entertainment. Think, for example, of all of the innovations in animation over the past few decades.

Jobs in the innovation sector are concentrated in certain metropolitan areas—for example, Seattle or San Francisco—which Moretti refers to as “brain hubs.” These communities have relatively large percentages of workers with a college degree or higher. Qualified workers come to these communities for the jobs in the innovation sector, but employers in the innovation sector also come for the large pool of qualified workers.

Salaries for the highly skilled workers in the innovation sector tend to be relatively high, but, so too, are those for workers in other industries in the same communities. Of course, cost-of-living in such communities tends to be higher as well. Further, Moretti argues that, for each new high-tech job in a metropolitan area, five additional jobs are created outside of high-tech, two of which are professional—such as teachers and doctors—and three of which are nonprofessional—such as retail workers and yoga instructors.

The New Geography of Jobs offers a unique perspective on shifts in the American economy, job market, and education. The author explains economic concepts in an accessible way for those without a background in economics and provides compelling arguments for his theories.

Think about the anticipation of entering college. What benefits and skills do you expect higher education to provide?

New research suggests that the skills we expect to develop in college can differ across classes. In "The Subtle Ways Colleges Discriminate Against Poor Students, Explained with a Cartoon," Vox.com writer and cartoonist Alvin Chang examines these findings in greater detail, including the impact of beliefs on college outcomes.

One study finds that first-generation college students tend to pursue college for more interdependent reasons, whereas continuing-generation college students tend to pursue college for more independent reasons. Take a look at the lists below. Which reasons do you think will resonate with you or would have resonated with you as a college freshman?

Interdependent Reasons: Help my family, provide a better life for my own children, give back to my community, and show that people with my background can do well.

Independent Reasons: Expand my knowledge of the world, expand my understanding of the world, explore new interests, and learn more about my interests.

The article discusses how these differing motivations can lead first-generation and/or working-class students to feel out of place or disconnected in college. As the article points out, colleges are often structured to better serve students with more independent motivations.

We are finding the article helpful as we write the next iteration of our curriculum. It’s important to remember that students approach education with different motivations and life experiences. One size can’t fit all, especially when it comes to financial education.

You need a new pair of jeans. How would you pay for it? Many people might say credit card. But what if you didn’t have access to a credit card—what would your strategy be? Would you consider an installment loan?

According to “Would You Take out a Loan for a Pair of Jeans?” by Susie Cagle for the online magazine Racked, installment loans for small-scale purchase are becoming an increasingly popular form of payment. The article examines one company in particular, called Affirm.

The installment loans are presented as a payment option at the point of checkout. If a customer chooses this option, Affirm does a quick credit check. Once approved, the customer is quoted a new price for the product, with interest included. The price is then broken down into a number of equal monthly payments, which can make the product seem cheaper than it actually is.

To illustrate this, the article uses an example of a pair of jeans. An installment loan allows the customer the option to pay off the jeans in monthly installments of $19, which may appear reasonable. However, this option ultimately costs the customer more, as the customer ends up paying $217 for the pair of jeans, when they would have paid $200 had they used cash or a credit or debit card.

Why would vendors offer installment loans as an option for their customers? Per the article, installment loans can increase the amount of sales by 28% on average. It can make purchases seem more manageable to the customer, because the customer doesn’t have to pay the full amount upfront, or even see the full amount of the charge on the credit card. Plus, the credit requirements for an installment loan are less stringent than for a traditional credit card, which means that more people are approved. However, the APR for an installment loan is much higher than for a credit card—the median APR for an installment loan is 19%, which is higher than the median credit card rate.

While these products are less expensive than subprime payday loans that charge interest of over 300%, these products are still designed to make purchases seem cheaper than they actually are. It’s amazing (and frightening!) how financial products are constantly evolving. Sometimes the products that seem easier and cheaper end up costing us much more.

What do a casino dealer, a street vendor, a freelance graphic designer, and a tax preparer all have in common? Workers in these industries—and many others—all see significant fluctuations in their incomes from week to week and month to month, making budgeting and planning difficult. Many teachers who receive paychecks for only nine months of the year have a similar issue.

Now imagine participating in a study where you are asked to track your income and spending over a year. The Financial Diaries documented the financial lives of 235 middle- and low-income families over the course of a year to learn how they managed their daily financial lives. From their research, the authors found that though many families appear to be middle class on paper, they experience significant variations in income and expenses over the course of the year, contributing to financial volatility and hardship.

The nature of work is changing as a result of the automation of manufacturing jobs and an increase in service industry and independent contractor work. This has resulted in a shift in power—employers now have more control over who they hire, what benefits they offer, and what hours people work. This has created a less stable job market with shifting hours and pay, leading to income volatility for workers.

Throughout the book the authors explore common issues around earning, spending, smoothing and spiking, saving, borrowing, and sharing through the stories of various families. These stories contradict much of what is presented to youth today. Current financial literacy education and financial advice is derived from the traditional financial life cycle where it is expected that your financial situation follows a set pathway (a part-time job becomes full-time work with promotions and raises following; renting becomes homeownership; single becomes married, becomes married with children, etc.).

According to his traditional lifecycle model, people can achieve financial security by saving early for major expenses. It rests on the assumption that as income rises people will be able to pay down mortgages and save for retirement with the expectation that those committed to this method will overcome financial challenges.

The Financial Diaries shows that for many Americans, this just isn’t the case. Instability and uncertainty in the present and near term compromise long term financial plans and goals. Given these changes, our methods of managing our income and expenses needs to evolve. As developers and teachers of a financial literacy curriculum, the research presented in this book indicates that the way we address earning, spending, saving, borrowing, and sharing needs to evolve as well.

According to the “American Dream”, anyone can become successful through hard work and talent, regardless of upbringing. However, in his book Dream Hoarders, economist and Brookings Institute scholar Richard V. Reeves illustrates how this dream is becoming less and less attainable for everyone except the upper middle class. Reeves deliberately focuses on the upper middle class over the more commonly examined top one percent, pointing out that the habits and impacts of the upper middle class are often overlooked. Reeves defines the upper middle class as those whose household incomes are $120,000 or greater, placing them in the top 20% of earners in the United States.

Reeves argues that upper middle class parents construct a “glass floor” for their children, one that rests on unfair or anti-competitive advantages. The glass floor allows the parents to maintain their children’s position in the upper middle class into adulthood, which, by default, keeps children from less privileged backgrounds from moving up the socio-economic ladder. In other words, the upper middle class are “hoarding” opportunities for their children.

Reeves details how unfair mechanisms such as zoning ordinances, college admissions practices, and the awarding of internships provide ways for the upper middle class to hoard opportunities. For example, families in the upper 20% of earners tend to live in affluent communities with excellent schools. These communities are frequently zoned to prohibit “high-density” housing - such as apartment buildings - from being constructed, effectively barring lower-income families from living in these communities and restricting access to top-performing public schools. Similarly, legacy admissions, in which an alumni’s child is given preferential treatment in being accepted to the school, are common practice in the United States, especially at the Ivy League colleges. Internships are also often granted based on a parent’s phone call to a well-placed friend or colleague.

All of these practices deny less-privileged, but equally or more deserving young people access to opportunities that can foster greater educational achievement, career opportunities, and incomes. Reeves, a father of three, clarifies the difference between being an involved parent and being an opportunity hoarder with the example of a child who wants to be a pitcher on a little league team. An involved parent plays catch every day after work; the opportunity-hoarding parent tries to bribe the coach.

In his conclusion, Reeves calls for changes in policies - such as zoning laws and tax advantages - that grant unfair access to opportunity to the upper middle class and deny it to the remaining 80% of the population. More strikingly, however, he also calls for introspection on the part of the upper middle class and a willingness to sacrifice some of their advantages in the interest of making the playing field more equal.

When we think of predatory financial products, we typically think of payday loans, currency exchanges, and the like. Rarely do we think of student loans as a predatory product.

A recent (and chilling!) article in the New York Times has helped expose the predatory practices of multi-billion-dollar student loan servicer Navient Solutions, a spinoff of Sallie Mae. It has also got us thinking about the importance and challenges of financial literacy – how do we equip students with the information and skills they need to navigate a financial marketplace that is constantly seeking to entrap them?

In "Loans ‘Designed to Fail’: States Say Navient Preyed on Students," NYT journalists Stacy Cowley and Jessica Silver-Greenberg describe how Navient has made a business practice of extending subprime private student loans in the expectation that students would default. The company intentionally targeted students such as those with poor credit scores, who would likely have had trouble qualifying for other student loans.

For Navient there was a method to the madness. By partnering with for-profit colleges to offer these predatory loan products to students, both the schools and Navient were able to benefit at student expense. By pushing the predatory loans to their students, schools were able to meet Department of Education requirements calling for at least 10% percent of a school’s tuition payments to come from non-federal funding. In exchange for helping schools meet the 10 percent threshold, the schools then allowed Navient to service the federal loans received by their students. As Cowley and Silver-Greenberg explain, the real objective for Navient lay in servicing the federally backed loans which were guaranteed against default. Knowing full well that students were likely to default on the expensive, difficult-to-repay private loans, Navient treated the defaults as a “marketing cost” to gain access to the federally backed student loans.

While Navient could essentially “write-off” the defaults of the private loans as a business expense, tens if not hundreds of thousands of affected students have not been so lucky. They complain of being hounded by lenders and/or debt collectors for repayment, unable under current regulations to file for bankruptcy or have their loans forgiven.

Attorneys general in Illinois and Washington are now suing Sallie Mae for engaging in predatory lending practices. We are following the case closely as we develop the new curriculum. With the marketplace constantly innovating and evolving to offer increasingly predatory new products, the question for us is how we can best empower our students to make smart decisions about their financial futures.

Will you go to college? Will you pick a life partner, and if so, who will it be? Are you going to buy a house? How will you care for your health? Will you have children?

These are some of life’s biggest decisions.

We had a chance recently to sit down with Robert Michael and talk about his book, The Five Life Decisions: How Economic Principles and 18 Million Millennials Can Guide Your Thinking. Michael clearly presents the idea that choices matter and that people have more control over their decisions than they might think. An economist at the University of Chicago and former director of the National Opinion Research Center (NORC; one of the largest independent social research organizations in the United States), Michael bases his argument on data from the National Longitudinal Survey of Youth, a sample of 18 million millennials in the United States, tracking more than a decade of young-adult choices and their consequences.

In a book geared toward the younger generation, Michael shows how the pool of decisions made by people born between 1980 and 1984 and their outcomes can help the rest of us be more aware of the variety of paths that lie before us. In this way, Michael offers readers insight into how their own choices may turn out.

Grouped around the five critical decisions most people face – concerning college, career, health, coupling, and children – Michael reveals how using basic economic principles can help people make more reasonable decisions. While there is no formula for making the right choice, Michael aptly guides his readers through the trade-offs associated with making decisions in each of these important life dimensions.

For many high school students struggling with the decision about whether to go to college, Michael offers some intriguing information. Drawing on a dataset on the level of schooling attained by the young people’s fathers, he shows that of those with fathers who did not earn a high school diploma, only 7% graduated from college. Of those whose fathers obtained a bachelor or advanced degree, 54% graduated from college. While the data show that children whose fathers had more schooling received more education themselves, it didn’t always result in them to going to college. Other factors may play a role.

Nevertheless, from the 7% of kids whose fathers didn’t graduate from high school who ended up going to college we know that it is possible to move the dial and choose another path. On the other hand, from the 46% of kids with fathers who went to college but did not end up going themselves, it’s clear that things can also go in the opposite direction. As Michael says, “People have a choice – it’s not predetermined. What you do and what you choose matters – and matters a lot, whatever your father’s schooling level.”

So what will your choices be? In what ways can you move the dial forward? How will you decide what to do when faced with these five life decisions?

Brainstorm, the new book by Dan Siegel, challenges three widespread myths:

• Hormones make teenagers crazy;
• Adolescence is a time of immaturity;
• Growing up means moving from complete dependence on adults to complete independence from adult care.

Surprisingly, Siegel says, the source of teen behavior is not hormones. Rather, what most affects young adult decisions and actions is the changing teenage brain. And in fact, in any number of today’s workplaces, certain features of adolescence are especially prized. Novelty seeking, social engagement, passionate intensity, creative adventurousness – all of these behavioral traits are key features of being a teenager. Even simple boundary testing involves creative and innovative thinking.

And it is just these qualities that are most highly coveted in STEM careers! Siegel writes, “Adolescence is the golden age for innovation because it is during this time of growth and change that the brain’s development shifts in the reward center and in the cortex to encourage creative thought and drive adolescents to explore the world in new ways.”

A healthy shift toward adulthood involves moving toward interdependence. Friends become more important during this period than ever before, as teenagers’ relationships with their guardians change. Siegel suggests this is due to the shift from being entirely dependent to being dependent on guardians and other adults in some ways, even while beginning to give more care and assistance to friends.

We found in Brainstorm not only an interesting perspective on teenage development, but a hands-on guide to improve communication, while enhancing social and emotional intelligence.