Stock market games and apps that gamify trading leverage the allure of getting rich quick by beating the market. A recent column in the Wall Street Journal by Jason Zweig, “What Teenagers Really Learn From Stock-Market Games,” highlights what happens when students are encouraged to take unnecessary risks and trade excessively. He compares motivating this type of behavior to making driver’s education more exciting by “by teaching kids to run red lights and crash into brick walls.”

Research around retirement investing supports the comparison between the risks of encouraging reckless driving and those of a gamified approach to retirement investing. Over a decade ago, the OECD identified the rapidly increasing need for individuals to save for their own retirement as a growing risk to long-term financial well-being (OECD, 2008). Coinciding research on retirement savings supports the pressing need for students to learn how to make sound investment decisions. Furthermore, research shows, on average, investors who use a passive investment strategy and purchase index funds have better returns than those who use an active investment strategy (Barber and Odean, 2000). It is vital for financial education curricula to be built on this strong research base and thereby encourage a sound approach to investing rather than exploiting the thrill of trading stocks, which is, in many ways, gambling.

Games can be used as a helpful learning tool, but what’s fundamentally wrong with these games is that they aren’t based on research. Instead, what we’re seeing is programs teaching the gamification of investing. Almost all of the current investing games in the financial education space glorify investing as a quick, fast-paced, “easy-wins” game. This notion is simply false and implies that there is a strategy to winning—you just need to know the rules and the cheat codes. The message is that there is a way to game the system. Fortunately, there is a way to reduce risk and make likely gains in investing, but it's not by treating investing like a game. According to Zweig, “In the long run, investors who diversify broadly, avoid unnecessary risk and rarely trade are almost certain to do well. In these stock-market competitions, teenagers who behave like that are almost certain to lose.”

At UCFEI, we recently took on the task of developing a game with learning goals aligned with our research-based philosophy on investing. We created a game that not only helps students understand that using a passive investing strategy almost always yields higher returns in the long term for investors, and that using passive investing to reduce investment risk helps investors meet long-term financial goals, but also allows students to actually experience likely outcomes of passive versus active investing strategies.

Our field test produced interesting results. Some students found the game’s emphasis on passive investing “frustrating” or “boring” because their risk-taking didn’t often pay off. Kids were disappointed that there was no adrenaline rush or digital confetti. To be honest, we weren’t surprised by those comments given the priority placed in other investing games on the excitement of intense active trading. Yet, field-test feedback reflected that an overwhelming majority of students walked away with an understanding crucial to their own long-term financial well-being: passive investing helps investors meet their retirement goals.

Financial education games should provide students with the opportunity to construct their own understanding of complex concepts, such as the likely risks and rewards of using an active versus passive investment strategy, including that passive investing can reduce investment risk, facilitating the realization of long-term financial goals.

The impact of building such a key understanding is clearly far more valuable than the fleeting thrill of simulating beating a virtual market and being showered in digital confetti. As Zweig states, “That’s [putting safety first is] what children learning how to invest should be rewarded for. They shouldn’t be proclaimed ‘winners’ for taking huge risks that could encourage a lifetime of bad behavior.”

We hear arguments all the time that investing games and investing as a whole are the hook that draws students into a financial education class. If you need a hook that glorifies gambling, you're not doing it right.

What personal finance topics do Americans know most about? What do they know least about? How does personal finance knowledge and financial literacy vary across generations? A recent report from the Global Financial Literacy Excellence Center (GFLEC) and the TIAA Institute explores these questions and more. The report looks at data from the 2021 TIAA Institute-GFLEC Personal Finance Index (P-Fin Index), which measures personal finance knowledge and examines the connection between financial literacy and financial wellness. The P-Fin Index has been administered for the last five years and is a nationally representative sample of the adult population of the United States (ages 18 and older).

For the first time, the report authors were able to compare levels of financial literacy across five generations. The generations included Gen Z, born 1997–2002 (ages 18–23 at the time of the study); Gen Y, born 1981–1996 (ages 24–39); Gen X, born 1965–1980 (ages 40–55); the Baby Boom Generation, born 1946–1964 (ages 56–74); and the Silent Generation, born 1945 and earlier (ages 75 and older).

The survey explored knowledge of these personal finance areas:

• Earning—determinants of wages and take-home pay,
• Consuming—budgets and managing spending,
• Saving—factors that maximize accumulations,
• Investing—investment types, risk and return,
• Borrowing/managing debt—relationship between loan features and repayments,
• Insuring—types of coverage and how insurance works,
• Comprehending risk—understanding uncertain financial outcomes, and
• Go-to information sources—recognizing appropriate sources and advice.

The survey found that the financial literacy level of the U.S. adult population is generally low. This is true across all five generations. Survey respondents answered about 50% of questions correctly. This is a cause for concern, because the ability to make sound financial decisions and manage personal finances effectively depends at least in part on one’s level of financial literacy and financial decision-making. Financial decisions are made throughout every life stage over a person’s lifetime.

Across all generations, respondents scored the highest on borrowing knowledge and scored the lowest on knowledge of comprehending risk and uncertainty.

Comprehending risk and uncertainty is what U.S. adults struggle with the most? Sound the alarm bells! Risk is inherent in all financial decisions. Understanding risk and risk management strategies is key to protecting and preparing for one’s financial future. And, as we've seen during the COVID-19 pandemic, this understanding is also an important factor in the interpretation of health information. The 2021 survey included a new question asking respondents to interpret the probability of infection and spread of disease. Among each generation the majority of respondents answered the question incorrectly. If people are misinterpreting basic health information, how might that negatively impact their risk assessment, decisions, and future health outcomes?

When we look more closely at responses from across generations, we see that financial literacy levels are lowest earlier in a person’s life cycle and increase over time as people gain more financial knowledge and experiences. The report points out that financial literacy levels are particularly low for Gen Z. Knowledge about insurance and comprehending risk are the areas of lowest functional knowledge for Gen Z and Gen Y.

Is it worth taking a closer look at insurance and comprehending risk at a younger age? Would people be better off if they optimized their insurance decisions? Yes, in the earlier stages of life, people’s earnings are lower and being over- or underinsured impacts the resources one has to save, spend, and invest. Comprehending risk has financial implications for more than just insurance decisions. Imagine how this might apply to taking out loans, choosing between job offers, or signing a lease or buying a home. These common financial decisions are rooted in risk analysis where one has to juggle factors such as known vs. unknown, likely vs. unlikely, and happening now vs. happening in the future.

The good news is that 40% of Gen Z respondents had participated in a financial education class. We anticipate that school-based financial education classes will become more mainstream, as the number of states mandating financial education continues to increase. Should there be more emphasis on teaching risk and insurance in the financial education classroom?

The findings from this study suggest that including risk and insurance in the financial education classroom is important. The adage “the best offense is a good defense” summarizes why these topics are essential. Teaching students how to comprehend risk and uncertainty and protect themselves financially can help them improve their financial decisions and financial well-being throughout their lives.

Fintech for Kids: Part of the Solution or a Danger to Our Children?

Everybody loves a great app. Apps can help us learn a language, communicate with friends and family, entertain and inform ourselves, and do a million other fun things.

There are lots of money apps: banking apps, credit cards apps, payment apps, investing apps, and more. Most of these are designed for adults, but a growing number target young people and even minor children. Money apps are paired with personal finance instruction and then promoted as tools for teaching financial literacy. These apps market themselves as training wheels for raising financially smart kids while creating an avenue to connect with customers early. We read "Debit Card Apps for Kids Are Collecting a Shocking Amount of Personal Data" (Feathers, 2021) and “Apps Try Putting Financial Literacy at Kids’ Fingertips” (Carrns, 2021) with great interest and some alarm.

Carrns’ New York Times article raises some important issues about money apps that target teens and children. While much of the article highlights how engaging and fun these apps can be, it doesn’t include any evidence that these apps improve children's financial literacy. It leaves us to wonder, are these products teaching their young users to be financially savvy or are they teaching them to be brand loyal? One money app frames their product as providing "training wheels," but we never get a clear picture of what users are being trained to do. Carrns writes that the apps have “caught the attention of researchers and financial advisers who say the tools may help engage and enlighten young users, even as they worry that the apps, without close parental involvement, may encourage bad financial behavior.” While we never learn about the “bad financial behavior” the apps might encourage, one source in the article cautions against apps that emphasize buying individual stocks and skimp on information about long-term investing in index funds and tax-advantaged accounts. The source says, “That sends the wrong message. You have to invest for retirement; you can’t save enough.” This article makes us more skeptical about fintech apps and leaves us with several questions. What messages are these apps promoting? What behaviors are they encouraging? Are parents aware of the potential downsides? It seems that a deeper probe into how fintech companies are filling the “gap in the market” is needed.

Feathers’ Vice article takes a more critical lens to these apps, particularly about the “shocking amount of personal data” about children they collect. As university researchers, we are also shocked—in part because we have been trained to be very, very careful about how we collect, use, and protect data gathered from children. That's not how these app companies are working. Feathers reports, for example, that “Greenlight reserves the right to share that personal information—including names, birth dates, email addresses, GPS location history, purchase history, and behavioral profiles—with ‘ad and marketing vendors,’ ‘insurance companies,’ ‘collection agencies,’ and the catch-all category of ‘other service providers,’ according to its privacy policy.” Feathers goes on to describe other companies’ data policies (not much better than Greenlight’s); incredibly lax standards for what constitutes informed consent; and overly complicated procedures for opting out of behavioral profiling, targeted advertising, and the sale of children’s data. Altogether, a very worrisome landscape.

There’s no doubt many fintech apps for kids can be convenient and engaging. Yet, these articles raise questions about fintech apps that need further investigating. Why are these for-profit companies building these apps? What do they stand to gain? What are they doing with the data? What might be the effects of investing apps on teenagers who may seek thrills or chase "lottery stocks"? And, most of all, Should the financial education of our children be a public good or a profit center? Let’s hope others start to closely examine these tools to find answers.

The “fearless woman” in the title of this paper by Tabea Bucher-Koenen, Rob Alessie, Annamaria Lusardi, and Maarten van Rooij is Wall Street’s famous “fearless girl” all grown up. As the authors note, women tend to have less confidence in their financial knowledge, which can be detrimental “in the context of long-term financial decisions such as investment, private saving, and wealth accumulation” (p. 28). The “fearless woman” is a model for improving women’s financial well-being.

The paper makes several important contributions.

One is to show that one source of the gender gap in financial knowledge is women’s lack of confidence in what they know. As the authors put it, “more than one-third of the financial literacy gender gap … can be attributed to differences in response behavior and to confidence” (p. 21). The authors establish this result using data from a panel study that is representative of the Dutch-speaking population in the Netherlands (p. 9).

Financial literacy is not the only domain in which men are more confident than women, as Rumble in the jungle: What animals would win in a fight? shows. But, more men than women thinking they can beat a king cobra or a chimpanzee in a fight is just silly, whereas women’s underconfidence in their financial knowledge can have serious consequences, particularly in a world with ever fewer defined-benefit retirement plans.

Another significant contribution the paper makes is a specific suggestion about how to improve the measurement of financial literacy. As Daniel Patrick Moynihan wrote, “Progress begins on social problems when it becomes possible to measure them.” So, having a better measure of financial literacy can help us understand the problems better and design more effective interventions. The better measure the authors have found is

Got that? Neither do we.

The idea, as we understand it, is that when we measure financial literacy using Lusardi’s Big Three Questions, we need to correct for women’s tendency to choose “I don’t know” even when they do know. The formula above, which is based on some fancy statistics called Latent Class Modeling, shows how to get a more accurate measurement of financial knowledge. Which, as Moynihan noted, should help us figure out how to make things better.

This paper also makes important contributions to the literature on gender differences in financial decision-making. Many researchers have documented significant gender differences in financial knowledge, but this paper shows that those differences are smaller than they appear because of women’s lesser confidence. As the authors put it, “The central result of our paper is that when it comes to financial literacy, women know less than men, but they know more than they think they know” (p. 27). And both the knowledge gap and the confidence gap contribute to suboptimal decision-making and worse outcomes for women.

So, we need to increase both women’s financial knowledge and their confidence.

Near the end of their paper, the authors mention a study by Saumitra Jha and Moses Shayo that shows that “gathering experience while trading stocks with modest stakes (of about $50) for about four weeks increases women’s financial literacy, confidence, and subsequent stock market participation” (p. 28f). Whether that’s the way to go is an interesting question, but at least Bucher-Koenen and her colleagues have gotten us thinking.

Reference

Bucher-Koenen, T., Alessie, R. J., Lusardi, A., & Van Rooij, M. (2021). Fearless woman: Financial literacy and stock market participation (No. w28723). National Bureau of Economic Research.

Which Post-Secondary Loans Pay Off?

Is it worth it to take out loans to pay for post-secondary education?

The short answer is: it depends.

Like many major financial decisions, the “right” thing to do is as complex and varied as the individuals making them. And decision-making about student loans can be approached from various frameworks.

One such framework is about dollars and cents. Will the amount of money you can earn with your degree make the cost of the loans worth it in the long run?

Adam Looney of the Brookings Institution examines this question in his November 2020 report, Department of Education’s College Scorecard shows where student loans pay off… and where they don’t. The report uses data from the Department of Education’s College Scorecard to compare average loan amounts to average first-year earnings for borrowers in different programs of study (such as law, nursing, or business administration) and with different types of degrees (such as associate, bachelor’s, or master’s degrees).

The report makes clear how important it is to consider both how much a borrower might end up owing and how much they might end up earning as a result of their degree or certificate. For example, while borrowers with a professional degree in pharmacy owed an eye-popping average of $126,000, the average amount they earned in their first year of work was $110,728, an income high enough to cover cost of living and loan payments. On the other hand, borrowers with an undergraduate certificate in cosmetology owed an average of $9,934, but earned an average of only $16,554 in their first year of work, an amount that makes it challenging to meet even basic living expenses, let alone monthly loan payments. The cosmetology student will likely struggle a lot more to repay their debt than the pharmacy student. It also seems much more likely that the debt for the pharmacy degree will pay off well in the long run.

From his examination of the data, Looney draws three main conclusions in his report:

• After graduating, many borrowers owe modest amounts of money compared to their earnings and “thrive because of their educational investments.”
• However, some borrowers owe large amounts of money compared to their earnings and are much less likely to be successful financially.
• A third group of borrowers end up owing much more than they can typically earn in their fields.

It is important to note that the report is based on averages: average loan amounts and average earnings. It does not disaggregate—or, break down—information on loan amounts or earnings by factors such as race, ethnicity, gender, or geographic location, all of which have significant impacts on earnings.

These kinds of averages can be useful, however, in terms of providing a snapshot of the relative earnings for people with different types of degrees. For example, the data shows that people who have bachelor's degrees in nursing earn an average of $64,930 in their first year of work. This is a considerable amount more than people with bachelor's degrees in psychology, who on average earn $28,421 in their first year. So, while these averages do not mean that you should expect to earn $64,930 if you get a bachelor’s degree in nursing, they do mean that you can reasonably expect to earn considerably more with a bachelor’s degree in nursing than with one in psychology.

It is also important to remember that a dollars-and-cents approach is one of many frameworks for decision-making about student loans. Other important frameworks include personal factors such as values, goals, and responsibilities, and external factors such as the influence of family and community, culture, and economic environment. “Worth” is measured in many ways besides money, and it is measured differently by different individuals. For example, a person may have a passion for cosmetology, and enjoyment of their work may hold much greater non-monetary worth for them than a degree in nursing.

Considering borrowing through the framework of the financial payoff is one valuable tool for students in their decision making toolkit. Looney’s examination of data from the College Scorecard is a good starting point for potential borrowers in researching this aspect of their borrowing decision.

So, is it worth it to take out loans to pay for post-secondary education?

It depends.

To put a spotlight on how racism threatens our economy and limits the opportunities for people of color, the Federal Reserve Banks of Atlanta, Boston, and Minneapolis have launched “Racism and the Economy,”, a seven-part series of virtual events aiming to examine and advance actions to dismantle structural racism. In the first event of the series, the Federal Reserve Bank of Minneapolis president “Neel Kashkari interviewed Ursula Burns,”, former CEO of Xerox, who explained that organizations have ducked the responsibility of addressing racism.

The Federal Reserve is a major player in determining economic policy, as its purpose is to influence monetary conditions and regulate banks, with the goal of full employment, stable prices, containing risk, and protecting the rights of consumers. Burns argues that organizations like the Federal Reserve should care about racism, because “the median means absolutely nothing.” It doesn’t work to treat America as all one group—the economic equivalent of teaching to the middle. Within Fed data are individual people—including rich, poor, white, Black, and so on—and it is the job of the Fed to know and be passionate about all of the people, not just an imagined “average” or sum of the parts. Furthermore, Burns believes that the Fed says they are more boxed in than they actually are, when it comes to the power they have to effect change.

To understand some of the power that organizations have, Burns describes the current playing field:

“We’ve built a system... where… the playing field is defined by a whole bunch of white guys. The referees are the white guys. The rules of the game are written by a whole bunch of white guys. The reward system and the judges for every step is a whole bunch of white guys. We then say to the rest of the world—women and African Americans, and Latinos—‘Come into this place. It’s—don’t worry, it’s fair, it’s equal. We’ve designed it for everyone. Come in and play in this field, where I defined the rules, I defined the field of play, I defined everything. I even judge your success.’ And we contort—Blacks and women contort ourselves to fit here. We do. And… we just can’t continually contort enough to be a white guy.”

Racism, supremacy, and sexism are structurally built into the fabric of the United States. Burns points out that those in power say they aren’t racist, but the system they built continues to keep some people out. Furthermore, those in power are reluctant to change without a compelling reason. In order to overcome these barriers and create a fairer system, we have to act affirmatively. Burns is clear that we can’t reprogram minds and, thus, changing behavior is the first step. As a country, we may be waiting a long time to change every person’s beliefs—but companies can institute value systems that require employees actions’ to be anti-racist while at work, and employees will have to abide by those values and rules.

Throughout the interview, Burns emphasizes the need to be creative and flexible, and to build in structure to ensure that progress is made. Burns offers a few suggestions:

• Everyone can do something. Whether you are Congress, the Federal Reserve, or any other company or organization, it’s everyone’s job to do something. Burns stresses that we can’t keep passing the responsibility off on someone else. We all have to look at the tools we have and think flexibly and creatively about how we can help improve business, commerce, and people’s lives. The Federal Reserve, for example, can think about how to use interest rates to drive growth, equity, and inclusion.
• Stakeholders can use their power. Burns notes the shifting of attention from shareholders to stakeholders. Shareholders and CEOs are starting to realize that they need to do more than simply maximize shareholder value. This means attending to employees, social media, and global politics. Many companies are in a moment of reflection right now, due to recent protests against systemic racism. When individuals come together and raise their voices as employees, on social media, or elsewhere—companies are beginning to respond.

We found this conversation to be strongly connected to the work we’re doing in the field of financial literacy. It is essential for students to understand not only the existence of systemic racism and its financial effects but also what affirmative measures can be done and by whom. Understanding that it is financial policies and structures that perpetuate inequality—and not any individual personal failing—can help give students self-efficacy and agency. At the Initiative, we currently provide students with the tools and flexibility to approach systemic racism on a number of fronts:

• Question. Students are encouraged to look critically at the financial systems around them, question the motives of financial players, and dig deeper into the fine print.
• Navigate. When faced with the need to make immediate decisions, students must know how to navigate the present system, which includes reflecting on how one’s economic environment affects one’s financial well-being. Students are taught how to make the best decisions for themselves, given their unique goals and circumstances.
• Challenge. Students must also know how to challenge systemic racism in the financial system, in part by understanding consumer protection and anti-discrimination laws, and in part by increasing awareness of the historical and present-day context of racial financial inequity.
• Shape. With strong foundational financial knowledge and an understanding of how systemic racism permeates the financial system, students have the initial building blocks necessary for advocating for and creating change through actions such as those described by Burns—whether students go on to become policy-makers, shareholders, or stakeholders in their community.

In the end, Burns paints an optimistic picture, but it’s one that depends on everyone doing their part. While our work at the Initiative is a start, we also need to continually look for places to improve. As Burns implores, we all have to go out into the world, see how people are really living, understand that help is needed, and think about how to provide that help. Whether we are running the Fed, running a smaller organization, or simply demanding more from the companies we work with and for—we can all heed Burns’ call to action.

Stop and think about these numbers for a second.

In Chicago in 2018, Black adults...

...had a life expectancy a full 9 years lower than white adults (71 years to 80 years).

These numbers are shocking. But they didn’t happen overnight, and they didn’t happen by accident. As a recent piece in the Chicago Tribune makes clear, these stark inequalities stem from express policies that have deeply racist roots.

The article traces how widespread inequalities in Chicago were fomented by specific policies, sharing many shocking statistics like those above. For example:

— The concentration of Black and Latino citizens in specific communities can be traced back to housing policies that disallowed selling homes to people of certain races and ethnicities.

— Poor urban planning policy has resulted in a lack of reliable transportation for people living in many Black and Latino neighborhoods, which exacerbates issues with access to employment, food, and other necessities.

— Healthcare policies have made it difficult for people in many Black and Latino neighborhoods to access hospitals and pharmacies.

— School funding policies based on enrollment have created a vicious cycle in schools serving Black and Latino students, in which they see less money, which results in diminished services, which results in students leaving the school—thus starting the cycle of less funding all over again.

So what do these policies have to do with financial education? A lot.

All of these policies have explicitly benefitted white people over Black and Latino people, resulting in very different economic environments to this day. Exploring how different people have different contexts in which to make financial decisions is a key part of the finEDge curriculum. Discussing the historical antecedents of these different contexts can enhance understanding of the role of economic environment in financial options and decisions.

Additionally, it is clear that financial institutions have a heavy hand in shaping many of these policies, to the detriment of Black and Latino communities. Pharmacies and clinics don’t set up shop in Black and Latino communities because reimbursements from private insurers (common in white communities) are higher than those from public insurers (common in minority communities). Food deserts, or areas with lack of access to fresh and healthy food, are common in Black and Latino communities because grocery stores don’t open and stay there. Financial players react to historical precedent in order to make more money, and the result is further inequity.

Finally, it is important to illustrate for students that racism isn’t just about an individual’s thoughts and feelings. It’s about systemic problems in institutions that favor white people over people of other races and ethnicities. Relatedly, it is important for students to know that experiencing financial struggles may not be due to personal failings, but instead due to these systemic problems. Knowing that struggles may not be personal, but instead the result of implicitly racist institutions, has been shown to improve students’ self-efficacy and ability to navigate unjust financial systems.

In the wake of recent protests over racial injustice, your students may be contemplating how they are affected by or perpetuate racism. In the financial education classroom, you can have students examine how structural and institutional policies benefit some at the expense of others, and the financial motivations and outcomes related to these policies. By understanding these policies and their implications, your students may be better equipped to change them going forward.

Does financial education work?

This question lies at the heart of the ongoing debate over whether investing in financial education is “worth it.” Those on both sides of the debate point to research to bolster their positions. The problem is, some of this research—and the conclusions drawn from it—are outdated.

A new study should bring everyone up to speed.

“Financial Education Affects Financial Knowledge and Downstream Behaviors” (Kaiser, Lusardi, Menkhoff, & Urban, 2020), a meta-analysis conducted by leading experts in the field, concludes that financial education has a sizable effect on both financial knowledge and financial behavior. In fact:

• The effect sizes of financial education interventions on financial knowledge were similar to those of educational interventions in reading and math.
• The effect sizes for financial behavior were similar to those in health or energy conservation behavior interventions.

These striking findings are powerful evidence in the debate over whether financial education works.

After so many years of purportedly mixed research findings, how do the authors draw such a clear-cut conclusion? It’s based on their meta-analysis of 76 studies of the effectiveness of financial education interventions—studies that represent a collective sample size of 160,000 people at all life stages in 33 countries across six continents.

Meta-analyses are, fundamentally, studies of many related research studies. Meta-analyses examine the results found in each study in the aggregate, estimating the overall effect of an innovation across all the studies. The body of research on financial education has been expanding rapidly over recent years. Moving beyond the limited number of studies in prior meta-analyses, this new meta-analysis synthesizes findings from more robust and newer studies and draws general conclusions on the collective evidence.

This new meta-analysis was conducted with careful attention to quality and thoroughness. It only includes randomized control trials, considered the most rigorous types of studies. All included studies were published in top economic or general interest journals. And the analysis carefully takes into account differences in financial education programs, such as intensity, duration, and content.

So, does financial education work?

Yes.

It’s time to move past this debate, and move on to the important work of high-quality education.

How do insurers determine how much to charge you for your auto insurance?

According to state regulators, premiums should be based on risk, or how likely it is that a customer will be in an accident and file a claim, plus a little extra (private insurers are for-profit businesses, after all). So, the higher the perceived risk, the higher the premium and vice versa, right?

Maybe not.

The article Why You May Be Paying Too Much for Your Car Insurance (Consumer Reports, February 25, 2020) takes a deep dive into the highly secretive world of auto insurance pricing and the challenges of regulators charged with protecting consumers from discriminatory practices.

Insurance providers closely guard as “trade secrets” the details of how they set prices for individual customers. Even state regulators are typically in the dark about—or, at least, prohibited from revealing to the public—the data and algorithms, or methods, that insurers use to set premiums. The algorithms should, however, use data related to risk to determine the likelihood of a customer being involved in an accident.

In practice, however, insurance providers may also be looking at something entirely unrelated to risk.

A rate adjustment proposed by Allstate in Maryland in 2013 offered a rare, detailed look at pricing algorithms and customer data. Analysis of the information revealed the application of personalized pricing—setting individual customers’ prices based on how much companies believe each customer is willing to pay.

Allstate claimed this “customer retention model” was needed to prevent “sticker shock” that might lead customers to drop their policies in the face of the price increases some would encounter as a result of a new risk analysis algorithm. In reality, it identified customers who were already paying high premiums and were unlikely to drop their policies because of rate increases. These customers’ premiums would be raised by up to 20%, while customers who were currently already paying low premiums would see increases of no more than 5%. On the flip side, customers whose rates should have gone down based on the new risk algorithm would never have seen the discounts they were due. Rate reductions were capped at a meager 0.5%.

Maryland ultimately rejected Allstate’s proposal, but what about other states? Public records indicate Allstate mentioning using customer retention models in at least 10 states, including Illinois. And it is unlikely that Allstate is alone among auto insurance providers in its use of personalized pricing. Hampered by secrecy, complexity, and pressure exerted by the insurance industry, insurance regulators are frequently unaware of how prices are set for the residents of their states.

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.

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.