Exploring the Intersection of Personal Finance and Technology (Full Podcast)

Welcome to the PwC-KWHS Podcast Series for High School Educators on Business & Financial Responsibility.

I’m Diana Drake, managing editor of Knowledge@Wharton High School, and today we are discussing the intersection of technology and finance. Technology is dramatically changing the way consumers handle personal financial transactions, everything from online and mobile banking and virtual wallets to bar code-based mobile payments and cryptocurrencies. We are here to explore what that changing landscape looks like, and what the technological shift means for the future of money management and financial capability. Also, how can educators prepare students to use these high-tech tools to manage their finances responsibly and successfully?

Two experts from academia and business will be helping us to explore this critical intersection of technology and personal finance. Mauro Guillen is director of the Wharton School’s Joseph H. Lauder Institute, a research and teaching program on management and international relations at the University of Pennsylvania, and he is also a professor of international management.

 Elizabeth Diep is a partner with PwC’s Asset Management Practice in New York City. Liz is a strong supporter of the firm’s “Earn Your Future” program, a $190-million commitment to improve the financial competency of youth and educators.

 Thank you both for agreeing to share your knowledge and insights about technology and personal finance. During our discussion, we will also be addressing questions sent in from high school educators.

Below is an edited transcript of the conversation.

Knowledge@Wharton High School: Let’s get started with the basics. Technology now plays an important role in the financial lives of consumers. But what exactly are we talking about when we refer to the influence that technology is having on personal finance? And would you call it an evolution or a revolution?

Elizabeth Diep: It’s a very good question. I think that we will all agree that technology has truly transformed our lives in countless ways over the last 20 to 30 years and I would say particularly when you think about smartphones and how that has progressed over the past decade or so. I think this is particularly true in the personal finance arena where technology has truly revolutionized our day-to-day activities — what we do and how we do it. The adoption of digital technology by everyone has raised expectations of what’s possible. I think that it has created this new normal and level of customer service and expectations that consumers now have.

Last year, PwC conducted a survey [where] we went out and surveyed global CEOs. [We] learned that 81% of CEOs believe that technology will truly transform their business over the next couple of years — not so much in the far future as was believed.

This digital revolution has created a new generation of consumers who want more. They want more access. They want more portability, more flexibility and this ability to really customize your products and services. … They are pretty comfortable moving between the physical and the virtual worlds, and I think that they’re prepared to disclose quite a lot of information about themselves in order to get what they want.

We have a growing number of companies that are investing in social media, mobile devices, cloud computing and big data. We’re doing that to engage with customers in new ways and gather insights for developing and marketing new offerings more effectively. This is the way of … the future.

[As to] whether this is a revolution or an evolution, I think that in reality it’s a little bit of both. The signposts for change are here. Many players are now innovating and are experimenting with new products, new delivery channels, new analytics and new data to really understand how to serve consumers better. The pace of change is moving actually pretty quickly. And [companies] that fail to shift gear truly are at risk of losing their customer base.

KWHS: What has this intersection meant for the financial services sector — everything from commercial banking to investment services?

Diep: The reality is that technology has changed everything and has become a strong enabler of increased services and, honestly, at a lower cost. … We’re now at a tipping point that suggests that this new digital age will drive huge shifts in industry value — anywhere from compressing revenues to redefining when and how these services will reach consumers.

An interesting technology trend that I’m sure you’re all seeing is that there are numerous mobile apps being developed every single day for smartphones. … This is enabling individuals to manage their finances on their own without the need, in many instances, of a banker. … What this means for banks and for financial advisors is that in today’s technological world if technology’s not up to par, you run the risk of losing clients. And many of our clients, both when you look at investment services as well as commercial banks, know that and so they look to keep up the pace of change. Technology is a big driver this.

As this new millennial generation is beginning to dominate the market in terms of dollars, the financial services sector is targeting their efforts towards that generation. Commercial banking and investment services are making big bets on millennials. This is why we see so many personal finance tools geared towards this generation’s mindset — tools that help you with budgeting, planning and managing money right from the convenience of your smartphone.

A good example of this is the web-based platform that many of you probably know called Mint.com. Mint provides an easy-to-use platform where you can see …your budget, how much you’ve spent and how much of that is outside of your budget. It’s a cool, user-friendly design and it’s geared towards this millennial generation. … I think it will keep evolving to attract this new generation that is now the biggest user of this technology.

Compared with adults over the age of 35, the research truly suggests that millennials are 67% more likely to find new technology exciting and use it as much as they can.

KWHS: What do you see as some of the most important innovations in financial consumer-related technology in recent years — things from online banking to mobile wallets?

Mauro Guillen: All of these are started, of course, with a telephone — maybe 25 years ago or so — telephone-based banking. Then the Internet became the medium through which banks and other financial institutions would check customers and try to sell products and service them. But more recently … this has moved into the social media sphere and mobility has become the most important development — that we follow those apps.

At some point in the near future, we’re going to see the emergence of true digital currencies. That’s most likely the next wave of innovation.

What I would like to add is that different financial companies — financial advisors, banks, insurance companies — have approached this new world in different ways. For the most part, up until pretty much today, most of them have just added another channel of communication with the customer. What remains to be [seen] is not so much [as the incorporation of] new technologies, but rather to find a way of rethinking the entire approach to the customer, using these new technologies. So that banks and other types of financial companies don’t have like, 20 different channels, 20 different ways in which they can reach the customer and the customer can reach the company or the bank.

So, I think that’s where the action is today. It is a little bit on the technology front but it’s also on the app front, as Liz mentioned. It’s also, in terms of inventing a true digital currency and then the entire business model; not just the technology part of it but the entire business model of banks and financial institutions perhaps needs to change.

KWHS: We have some questions from high school teachers from around the country. LaTrisha Flax, an educator from Trego Community High School in Kansas, says that she still teaches high school students how to balance a checkbook. She wants to know how important and relevant this and other fundamental money management tools are in light of emerging technologies.

Diep: LaTrisha, thank you for doing that and please keep doing it. It’s an excellent question and one that I think we always think about — are we outdated? Should we be doing something different? To that I’ll say that technology has given us many tools that make our lives easier, and these are just that. They’re tools to enable us to transact with banks, to do things a little bit easier.

That cannot replace the base case that we need to know. We need to be educated consumers and what that means is that we need to know what’s happening behind the technology. The reality is that consumers, and especially I’m sure students, are more likely to have their smartphones on them than a checkbook. And so, in this very automated world of online bill payment and tons of mobile apps, I think that students still need to have a fundamental understanding of what it means to have a budget, how to balance a budget. That’s essentially what we were doing when we were balancing our checkbooks, right? It’s looking at what was the budget, how much are we over or under that budget? I think that that’s a … fundamental understanding of financial concepts that never gets outdated and that technology won’t replace.

Unfortunately, what the data shows is that American teens lag behind many of … their international peers when it comes to financial literacy … It has to be a priority. … These fundamental know-hows need to be implemented and taught a bit more to all. … Technology needs to be used as a tool, but the understanding needs to be there first.

KWHS: Christopher Brida, a teacher at Benjamin Franklin High School in Baltimore, Md., wonders about the potential of technology to inspire real change in financial transactions. He says that in education, technology is sometimes used just to digitize hard copies of things like textbooks, but doesn’t result in real change. So, do emerging ideas address how one’s finances can truly change with technology?

Diep: Absolutely. I think that, yes, there are many examples where we’re just shifting. And to Christopher’s question — were you shifting from doing things one way to another but not … really being innovative, I think that’s not the case when we think about the real change that financial transactions and technology [are] having on personal finance.

When we look at the past several years, advances in mobile and web-based technologies have fueled a lot of simple, innovative solutions that influence our behaviors. So, that means that technology is really, truly changing how we do things.

I’ll give you an example. A client of a bank or a wealth manager nowadays has technology at their fingertips for managing their finances where just a few years ago, only a financial analyst or specialist would have this information. What that has meant is that the role of financial advisors has turned more to be a supporting role rather than managing the functions, because customers are able to manage and monitor their own finances through these professional tools right out of their PCs or smart phones or their own tablets.

Clients are much more up-to-date now concerning their accounts, savings habits [and] assets and know a lot more about the opportunities and the threats in the marketplace. That makes them much more independent and self-determined.

Another development is that financial advisors will increasingly face competition with what is called in the industry as “robo advisors.” These are computer-based programs that create individual solutions based on algorithms. What this has meant for the industry is that advisors now change into being more [like] coaches or … psychological role models as opposed to being the ones leading the transactions because customers are much more educated in terms of … what they need from a financial plan.

These are real behaviors that we have seen and … these changes have come across because of the technological advances … in the personal finance arena.

KWHS: New ways of doing things, particularly involving [something] as intimate as one’s finances are often met with a degree of skepticism and paranoia. Take for instance, the mobile wallet. Apps like Google Wallet allow consumers to transfer money, redeem coupons or pay for purchases with just a tap of their smart phones. Even so, this and other similar technologies are far from popular. Studies suggest that the way we pay for goods and services probably won’t change any time soon. Ease of use does not always lead the charge. Creating the necessary supporting infrastructure is also an issue. So, Mauro, can you address in general this reluctance to adopt new technologies after doing something a certain way for so long? And what are the implications of this for consumers?

Guillen: There are many issues involved in the adoption of any new technology. Here, we’re not talking about adopting just one thing. We’re talking about adopting a number of different kinds of technologies. We’re asking, essentially, the consumer to change his or her habits in a major way. This is not about something that people don’t care about. This is about money. And so, there are many different kinds of considerations here that need to be kept in mind.

Starting with the user, with the consumer, habit is, of course, a very powerful force. And it goes without saying that older people have more trouble. Not because they’re old but rather because they’ve been doing things in a particular way for a longer period of time. There’s a lot of research that indicates that it is easier … to introduce these new ways of marketing products and interacting with companies for younger people, for the millennials. Not only are they more familiar with the technology but they don’t have any acquired habits that they need to overcome.

I would say security and privacy are really important, and they’re two different issues. Security is what happens if I lose my smart phone? If I have all of my information there, all of my credit cards, all of my bank cards, all of my membership cards, what’s going to happen? And perhaps technology actually in this respect can reassure users that there are ways of essentially canceling automatically all of your information on a smartphone, or deleting it even if it has been stolen.

Privacy’s a different concern. That is to say that once we go digital, then your information can be easily communicated from one part of the world to a totally different part of the world. It can be bought and sold. And [there are] a lot of people who don’t like it. But I would say that with the arrival of flat credit cards 50 years ago, we already entered that world in which some companies, banks, would know everything about you, everything that you buy, where you spend your vacations and so on and so forth.

But you also alluded to another level of complexity here that is important to keep in mind — the infrastructure. So, it takes two to tango and this is a two-sided kind of dynamic. [It is more than] the consumer [needing] to be persuaded that the new technologies are important steps in the right direction in terms of making things easier and more efficient. But you also need all types of vendors and merchants — everything from shops to restaurants to airlines to hotels — you need all of them to accept these new … forms of payment, these new ways of maybe using discount coupons and so on.

The obstacles lie at those two levels — the level of the individual and the level of the infrastructure because this is essentially a two-sided network dynamic. I don’t think we have figured out exactly all of the pieces that need to be in place so that some of these innovations essentially would reach 70%, 80%, 90%, 100% of the population.

KWHS: One of the biggest challenges with online and mobile banking, digital credit card transactions and so on is posed by security concerns. David Janeski, a teacher at Fossil Ridge High School in Texas is asking that with the continuing news reports of companies like Home Depot and Target being hacked, how can we rest assured that data is truly encrypted. How can I tell if the transaction I’m doing online is secure? And what precautions should consumers take?

Diep: You have all these financial institutions spending billions of dollars on cybersecurity and yet we keep hearing about these security breaches. So … what isn’t working? What can I do as an individual consumer to protect against theft? What I’ve come to realize is that there really isn’t anything that isn’t working, per se, except that as technology evolves, cyberattacks are becoming more sophisticated each and every day.

What that means [for] a consumer is that we have to be smart about what personal information we actually share and where we share it. At PwC, we’ve developed a module on financial responsibility and decision-making as part of our financial literacy curriculum and it relates to consumer fraud because we see that as being such a big issue. As we go out into the middle schools and the high schools, we see students sharing a lot of information without thinking of where that may go and how that could be used.

The module is publicly available and teaches students about fraud, and precautions that they can take to avoid identity theft as well as resources [to tap] if consumers encounter any of these problems. I’ll share with you an acronym that the module uses – SCAM or S-C-A-M. [It will] give you some tips on how to reduce the risk of becoming a victim of consumer fraud.

SCAM stands for the following four things: S [stands for being] Stingy about giving out your personal information to others [unless] you have a real reason to trust them and you know where that’s going. The C is for Check — check your financial information regularly and look for what should be there but also what shouldn’t be — looking at those credit reports and what kind of information is being reported in them. The A is for Ask — asking periodically for a copy of those credit reports. I think [everyone is] guilty [about going] too long without checking our credit reports. Nowadays, that is information that you can obtain on the web for free. Last but not least, M [stands for] Maintaining careful records of your banking and financial accounts. … We sometimes, and I’m very bad this, will dispose of bank accounts and other information without shredding them or making sure that we know where that’s going. There’s a lot of very personal information in there that can be used to harm us.

These simple checks can significantly reduce your risk.

KWHS: We hear so much about financial institutions spending billions on cybersecurity but we repeatedly hear about these breaches. What isn’t working? And are companies considering new models for consumer protection?

Guillen: I liken it to an arms race. The hackers are becoming more sophisticated and therefore companies need to become more sophisticated. But as companies become more sophisticated, the hackers and all of the bad people so to speak, they find a way to intrude into the information system. So, I think this is just the nature of the beast. Once we have information in the form of digitized code that’s [stored] on an electronic device as opposed to paper and archives and all of that, then we become vulnerable. Somebody miles away — thousands of miles away — can actually hack into, can get into the system and get the data.

I don’t think there’s an easy answer to this other than it looks like an arms race. There’s no substitute for innovation, for staying ahead of the curve, for making sure that your systems are safe. … Are there other ways of protecting the consumer? Well, as you know, credit card companies in particular have been very good at trying to use big data to detect unusual patterns in terms of the usage of cards. So, they know your history, they know what kinds of things you do with your credit card. … If they detect any unusual activity [it raises a red flag,] or they can use big data to see if your demographic is unlikely to spend on certain things as well. It’s not just your own individual history but its people like yourself and they have access to all of that data. So, they’re developing tools to prevent fraud from happening as opposed to having to deal with the consequences of fraud after it has taken place.

As you know, many issuers of credit cards now offer you a guarantee that you will not pay for unauthorized use of your account. Unfortunately, I don’t think this is going to be enough. If we are moving into the world of electronic wallets, if we’re moving into the world of digital currencies and all that, we’re going to have to come up with foolproof, very sophisticated security systems that essentially provide the overall system with [security].

Without that, people are not going to buy into these technological innovations. They’re going to feel that they’re perhaps at the mercy of these periodic breaches that get reported in the press. This is a serious issue and one that could slow down the pace of innovation and of adoption of new technology.

KWHS: You started to talk a little bit about cryptocurrencies. The question of risk is often associated with Bitcoin. Bitcoin is money in digital form that you can use to buy things anywhere in the world and that you can invest in. We heard recently about the opening of the first regulated Bitcoin exchange. Can you talk a moment about digital currency? How much traction does Bitcoin have and is the model sustainable?

Guillen: If I had a crystal ball I would be able to give you a definitive answer as to whether the model is sustainable. I guess it’s not in its current form. But let me explain why.

This is broader than Bitcoin. Bitcoin is just one example of a digital currency, and it’s not a particularly successful one because as we know the value of a Bitcoin has been fluctuating quite a bit. That’s a sign that something is wrong with the underlying system that supports it.

The whole point about digital money is the following — for certain periods in history we had currency that was either gold or silver or was pegged in its value … to gold and silver. This has been the case during certain historical periods. At the present time, no country in the world uses gold or silver as currency and there’s no country in the world that has its currency pegged to the value of gold or silver.

So the money that we have in the world right now is as good as the government who issues that currency. You may have a lot of trust in the Swiss government or in the U.S. government or in the German government when it comes to their currency. But you don’t have as much trust in the Brazilian government or the Indonesian government and so on. So, the value or the trust that we have in the money is only as big as the trust that we have in the government that issues that money because there’s no other thing like gold or silver behind it.

That’s exactly the issue with digital money. That is to say, there has to be enough confidence in whoever is behind that digital money. We know it’s not going to be a government. It’s going to be maybe a computer or it’s going to be a community or it’s going to be something that is definitely not going to be a government, but we need to have confidence in it. Whatever algorithm underlies digital currency has to generate enough trust in that the supply of that money is going to be kept under certain limits, that the value of the currency’s not going to be eroded.

I think we’re making progress in that respect because we see more and more experiments. But I think it’s probably going to take five to 10 years for the world to see the first truly successful, trustworthy digital currency that can be used for payments. That’s the first step. And, of course, we could also discuss under what conditions one might want to use a digital currency as a store value — that is to say, to keep your wealth in it. That’s a different issue because obviously the first step should be; can we create a digital currency that can be used for payments?

So, we are taking the initial steps. … And again, I say this because it would be similar to what governments are doing right now in the sense that all it takes is to generate enough confidence. [However,] it’s easy for me to say. It’s very hard in practice to generate that kind of confidence. And to date, only governments have managed to do that, especially governments that are perceived as being serious and committed to stability.

KWHS: Five years is not a long time. It sounds like it would be a smart idea for teachers to start introducing this concept in the classroom. Would you agree — in high school?

Guillen: Absolutely. What I think is very important is for high school students to understand that money — that there’s nothing behind the piece of paper when it says one dollar other than the confidence that you may have on the entity that has issued that currency, which is the U.S. government. So, in other words, there’s no gold, there’s no silver, there’s nothing backing up that piece of paper other than the trust that we have in its issuer, in this case the U.S. government.

So, you can easily then make the argument, well we could issue a digital currency as long as we can generate enough of a foundation of confidence and trust in it somehow. Now once again, there have been several attempts, perhaps three or four dozen of these digital currencies around. But so far, none of them has managed to generate the kind of generalized trust, especially on a global basis that could make that currency a true global digital currency.

KWHS: We are taping this podcast in April, which also happens to be Financial Capability Month. I think it’s a good idea to explore some broader questions about the impact of technology on people’s ability to process economic information and make informed decisions about their money. So, let’s dive deeper into this question of technology versus human touch. Think the bank teller handshake versus the computer keyboard. How much of a role does human interaction play in influencing financial behavior? And what role does the physical bank branch still play in educating young consumers?

Diep: I think this is one of those questions that, unfortunately, the answer comes down to, ‘it depends.’ And it very much depends on what generation we’re referring to and what transactions we’re looking at. The reality is that banks struggle and are balancing automation with that human touch. We’ve seen some data where 60% of great experiences with a bank are still attributable to great staff interactions at the bank branches themselves.

We often hear a viewpoint that traditional bank branches are going to disappear given all of that innovation that we’re seeing in banking technology. Yet, despite the emergence of all that new technology and competition and models, … the research that we’ve conducted still shows that traditional banks have a bright future and that the fundamental concept of this trusted institution as the store value and a source of finance and of facilitative transactions is not about to change. But it certainly will evolve.

Much of the landscape will change significantly. [Banks need] a model that responds to these consumer expectations. It’s coming through technology and demographics — the shifting economics and how young people are really impacting and using technology today.

So, banks need to choose what posture to adopt against this change — whether to be a shaper of the future, to change with technology or manage defensively, putting off this change. But the reality is that staying the same is not really an option. I’ll tell you that the most affluent and educated segment of society that is nearing or in retirement right now with many assets and complex financial needs values that banking experience. This segment wants the specialized treatment; the human interaction and some digital support. They value much more that human one-on-one branch interaction that we’ve seen traditionally.

When we look at the younger segment, with many in college or even in high schools, [who tend to be] lower earning [and focused on] building a future, they’re looking for efficiency — whatever will get them the answer faster with the shortest waiting time, which is often mobile access. With limited assets, this group of individuals is looking for how quickly can I get the answers that I need? And [they] are looking for the cheapest and the best rates that you can get from banking technology.

To better understand these consumer preferences, [whether] online banking or more of a face-to-face interaction, and how they affect customers’ engagements with their banks, we looked at some research that was done by Gallup. They conducted a nationwide retail banking study that explored what channels customers prefer to use and what were those transactions that customers look to either go online for or go into a branch.

What the analysts suggest is that banks should not try to push customers [away] from doing what they feel most comfortable with. If an individual feels comfortable opening or closing a bank account in a physical branch, don’t push some of those transactions online. In reality, what we’ve found is that three out of four customers prefer interacting in person when it comes to opening or closing an account or opening a bank loan of some sort.

But when it comes to paying bills, receiving statements, mail [and other activities that are similar,] online interaction is the preferred method. So … whether [a bank should focus on providing] a personal, physical experience or an online experience very much depends on what generation we’re thinking about and what transactions we’re talking about and how comfortable each one of those groups is with this digital technology.

KWHS: How far do you feel technology can take us in terms of expanding the financial capability of consumers?

Diep: The reality is that there’s still a significant gap between the number of people who have physical access to financial services and the numbers that actually use them. Existing technologies could make financial services available any time, any place and at a lower price than ever before. This available technology is opening doors for millions of people who were previously excluded, either because of location or quite honestly, pricing.

So, because of this, there’s never been a better time to be a financial consumer in my opinion. I think that the advances in technology have allowed individual consumers to access many of the same tools that previously were only available to professionals. Consumers today with a brokerage account and a computer can create an incredible portfolio with research ideas and can discuss and share ideas openly with the masses — and we’re doing all this for free.

The proliferation of financial information and advice is [there] to such a degree that anyone with an interest can obtain an understanding of financial tools, of options that you have right from your own computer. There are so many periodicals now online — like Money Magazine … we see the millennials that we work with access articles online and for free.

So, anyone right now with a computer can put their ideas into the Internet and put their money to work. In terms of making decisions, investors now have access to much more information and a network of available professionals than ever before. If consumers are willing to embrace these enhancements in technology, they will find that they’re now able to expand their financial capabilities a great deal and get access to financial data and advice that were previously only available to a pretty exclusive group.3

KWHS: Socioeconomic challenges accompany the increased use of financial technologies. For instance, children from wealthy families are more likely to have access to computers and other high-tech tools. Laverne Dixon, a teacher in Pennsylvania asks, how can we ensure broader access to technology for self-banking and other services?

Guillen: This is a very important issue and I’d like to answer the question that Laverne has posed in two steps. The first step is, yes, when you compare different kinds of people within a given country, let’s say here in the United States, it is undeniably true that some people have access to all of the latest technologies, all of the latest gadgets. They have a better Internet connection and so on and so forth. Smartphone use in the United States is not universal. Although a lot of people have a phone, we still have a significant proportion of the population using the old-fashioned phones as opposed to smartphones. So, their functionality is a little bit limited.

The only thing that can be done, obviously, is to approach the problem from two perspectives. One is for regulators to continue putting a lot of pressure on the providers of services, meaning telecommunications firms and Internet service providers so that they compete in price. It’s important to make sure that with mergers, for example, to make sure that whatever decisions these companies make actually in the end benefit the consumer through lower prices.

And the other is, I think, to help people understand the use of this technology. So, education is also very important. I think high school teachers can play a very important role in this. But there’s another aspect [to this] … — when you compare poor countries and rich countries such as the United States, you find something quite astonishing, which is that the use of mobile phones, for instance, for making payments is so much more widespread in poor countries than in the United States.

The example that everybody mentions is Kenya, where about half of the population uses the phone to make payments. That’s a much higher proportion than here in the United States. But the reason for that is not that the Kenyans are just better at technology. The reason for that is that in Kenya there wasn’t a traditional banking sector to begin with — only 5% or 7% of the population had a bank account. When mobile technology came along about seven or eight years ago, then people didn’t have to abandon their old habits. They were just acquiring a completely new way of handling their money, whereas before they would just physically move the cash as opposed to use the banking system.

The reason why sometimes we see this leapfrogging of less developed markets actually surging ahead in terms of use of these technologies is because there are no legacy costs. There are no habits that need to be changed. … The picture of inequality is very important to consider but sometimes you get surprised, and sometimes the poor are actually early adopters of the new technology. The reason for that is that they didn’t have any access to any kind of technology to begin with … and so it’s easier for them to adopt this new mobile technology that has become available over the last eight years or so.

KWHS: What would you recommend to teachers who need to address this socioeconomic difference within their own classroom? Maybe they have a certain population of students that have more access to technology whereas others don’t – and what might be some advice you would give them?

Guillen: They need to emphasize that there’s something that governments can do about it. And to be more specific, [there is something] regulators can do about it – to make sure that there’s enough competition in the provision of both financial services and telecommunication services so that prices come down and ultimately the consumer benefits…. That’s going to make everything more affordable.

The other thing is that education is a cure for everything. What high school students need to hear, is that in spite of what sometimes you read in the newspapers, you get better jobs if you’re educated. And you get higher incomes if you’re educated, and therefore the way to enjoy all of the good things in life is to get an education, and to make sure that you have the skills that are in demand in the 21st century.

What we also know from research is that more educated people also take advantage of these new technologies to a greater extent than people with a lower educational level. So, education is really the key variable. And given that the questions are coming from high school teachers, I think we should encourage them to continue working as hard as they normally do at educating young people.

KWHS: Educators, of course, are very serious and also interested in finding out how they can prepare students to use technology to manage their money. I’m hoping that we can explore for a moment ways that the classroom learning experience needs to adapt to this changing landscape of technology and personal finance.

Technology is all about making life easier and faster but that may not necessarily be a good thing when it comes to teaching comprehensive money management. For instance, technology can’t compensate for a poorly developed budget or cash management plan. Patricia Page from East Greenwich High School in Rhode Island asks, how as educators, do we ensure that the conceptual time-intensive framework needed to effectively use high-tech tools doesn’t get overlooked in the scan, select and done mentality?

Diep: I like the scan, select and done mentality. That’s very much how we function these days. But I’ll say that today’s high school students have grown up in a world surrounded by technology. They’re probably more comfortable [with it] than they are walking into a library asking for a hard copy of a book. I don’t think they would know how to do that because they’ve accessed everything either on their smart phones or through their computers, etc.

When it comes to financial literacy and helping young adults understand the basics behind the technology, the challenge is, how do we make a connection between the lessons that the students learn in front of the screen and the real-world spending that they’re facing every day? The good news is that there are many programs being built today that integrate both worlds.

I’ll give you an example. There is a new app that’s called JA Build Your Future. It’s an app that helps teens, their parents and teachers break down the costs of achieving career goals into really easy-to-understand numbers. So, if you want to go to college, it will look at how many years you’re away from going to school, what a saving plan could be, what loans you would take. It develops a budget for you in a really easy way, [with a] great interface. And that’s just one of many other apps out there [that] teach classic lessons about spending, saving, earning and how [to] share that money with a community.

I’ll put in a shameless plug for a great program that we have developed at PwC — it’s called “Earn Your Future.” This is a financial literacy program focused on teaching students how to become more financially literate. We’ve developed an entire financial literacy curriculum. And as part of PwC’s “Earn Your Future” commitment, which is a multi-year, $190-million investment in U.S. education and financial literacy, PwC has created our own financial literacy modules. It’s really to provide it for students and for educators free of charge and focus just on this — the simple concepts around saving and investing, saving for college, how do you save for your first house and taking out a loan. This is the core knowledge base that would make many of our students more responsible financial users.

KWHS: Technology can be a great tool for teachers to help students understand complicated financial topics. How can digital tools and simulations that replicate things like online mobile banking and investing platforms be used most effectively in the classroom?

Guillen: For high school students, I would focus the attention on the five key financial decisions that they need to make in their lives. These are, which college to attend — there’s the cost of college and there are several ways of funding your education. How about saving for retirement? Okay? Buying a home — so, getting a mortgage — and buying a car – an auto loan. And then perhaps the most important one these days is how to use your credit cards in a wise way so that you don’t accumulate too much credit card debt.

I would recommend high school teachers tell the students, okay, go online, and go to an auto dealership online. Choose a car that you would like to buy. Every dealer in the United States these days has a calculator [on their website]. So, they tell you this is the interest rate at which you can borrow money [and you] choose how much of a down payment you want to make on this car. Do you want to pay the car over three years or five years? Also, other characteristics of the vehicle can be factored in.

Ask students to go through that exercise of seeing how much they can afford — what kind of car they can afford. Ask them then to change some of the variables in those calculators, like the interest rate. Or go from paying the car in three years to five years and see what impact that has on how much money you need to spend every month and how much money you end up spending on that car. Do the same thing for college. Do the same thing for saving for retirement.

If you go to the websites of companies that offer these products, these days all of them have a financial calculator that is specific to that particular purchase or that particular issue. And I would encourage the students to experiment with that and to see how it works, and how, if you change the interest rate or you change the number of years, or you change the value of what you’re purchasing, how the monthly payment changes, right? Or when it comes to retirement, how much do you really need to save if you want to continue having the same standard of living when you retire as when you were working.

What high school students need to understand is the value of money and more specifically the time-value of money. That is to say that money today is worth much more than money in a year from now or in five years from now. They need to think through all of those variables and how they interact. I think it’s easiest if you do it with specific things that they are very likely going to purchase at some point in their lives. They’re going to [pick] a pension plan. They’re going to purchase a car. They’re going to purchase a home.

KWHS: That’s great advice. One of our educators, Elim Carpenter of Royal Learning Center in Los Angeles asks, what are some good online consumer money management websites and resources? I have to put in my own shameless plug for Knowledge@Wharton High School, which we will obviously have that resource available along with these podcasts. But we have lesson plans and articles and all kinds of things that explore various different areas of consumer money management. And it’s a great resource for both educators and for students. Would anyone else like to suggest any others?

Guillen: As I mentioned, you can also put your students in the real life situations like going online to buy a car. Go online and [pick] a pension plan, and see what kinds of decisions you need to make in order to be able to afford those things.

Any of these simulators, any of these financial calculators — especially those specific to a particular decision that you have to make in your life, can be very useful and they can serve a very important pedagogical function in the classroom. I would encourage all the teachers to help students understand what are the consequences over the long run of the financial decisions that they make today.

For example, [the kind of] car you buy depends on a number of variables like, what are the current interest rates, for how long do you want to be paying down the balance on the loan and so on. It’s important to educate young people financially because they’re in high school. They’re 14-, 15-, 16-, 17-year-olds but within a couple of years they’re going to be making big decisions in their lives….  They’re going to have to start making decisions for which they need to be prepared because they are complicated decisions. And there are so many ramifications. Making the wrong decisions early on in your life — for example, accumulating credit card debt — is something that can be highly problematic and can haunt you for 10 years or for 15 years.

Diep: It’s a great example and a great idea going out and looking at what a car would cost. That’s something that a lot of students would be very interested in. And what are those must-haves versus those nice-to-haves? That’s something that we spend a little bit of time talking to the elementary school kids about. I think at the high school level it’s even more important, because we start talking about this concept of what’s luxury versus what’s necessity and really identifying the differences between those two. Because … that’s what gets you into the trouble of having acquired this credit card debt — how much of that was for necessities and how much are those things that I probably didn’t really need?

Having those conversations is critical, and having those at a very early stage is very important. One other site that I would just add for the teachers to look into is something as simple as Yahoo Finance. Yahoo has a lot of great tools … taking it to the next level and start thinking about, well, what am I going to do about savings, even if it’s a small portfolio that you can automate it and manage with a safe investment amount? That has been a great tool that we’ve used sometimes at the high school level to just simulate what an investment portfolio will look like and what a $1,000 dollar investment can do for you if you continue to manage that.

That’s a great way to see how your money would grow by either saving it and making some saving decisions or investment decisions for yourself.

KWHS: What I’m hearing is teaching the financial concepts is really important. But that experiential learning and getting students to engage in different ways in these concepts is what helps them stick.

An increasing number of young adults are becoming victims of identity theft because they over-share through social networks, file sharing and cell phones, this has huge implications for their consumer profiles, particularly their credit scores. Other than stating the issue, how can educators prepare students for this type of risk?

Guillen: What needs to be conveyed to these young people is that everything in life revolves around your reputation. I think they understand this because they know that, well, you have a reputation as a nice guy and there are certain things that you can enjoy in terms of having friends and so on. So, they see that the kind of reputation that you make for yourself and your social relationships, whether they are digital or face-to-face, has an impact.

But they need to understand that this translates also into the financial part of your life. That building a solid, clean credit record is really important. That accumulating credit card debt or even worse, defaulting on — or not keeping up with your payments — it’s a huge mistake, right? It’s better to actually recognize that there’s a problem and try to sit down with whoever you owe the money to, to see how you can get out of that situation than to just say, ‘oh, I’m going to skip a payment’, because that stays in your credit report for a very long time.

It’s important for them to understand this basic principle — that everything is about reputation. Not just in social relationships but also when it comes to financial matters. And, yes, social networks — smartphones — it has become so easy to share information. And we all know that you can get into a lot of trouble, for example, if you share intimate pictures, with a very good friend of yours because that person maybe is no longer a friend of yours a little while later, and then uses that picture of you to essentially undermine your reputation in whatever community or social network you happen to be operating in.

It’s important to educate young people about the importance of privacy. The issue with new technology, especially smartphones and mobile technology, is that it’s so easy to share every intimate detail about our lives. And privacy is important. It’s an asset that you have. You are the master of your destiny to the extent that you share things that you want to share with Maybe you only share [certain things] with your family or with your closest friends.

This is important to keep in mind. And along these lines, I think it’s important for them to understand that increasingly, banks and other types of financial companies are using evidence from social media sites to calculate credit scores. There are a lot of startups that are trying to develop the tools for credit scoring based not so much on your own behavior but rather on your social network … and what kinds of things you and your friends do.

It’s very important to convey to high school students that whatever they do online, whatever they do as part of a social network, whatever they do as part of a digital community will most likely have an impact, not just next week or the week after but probably over the next five years or 10 years. If something goes wrong, it’s very difficult to get rid of that bad reputation on your credit score.

KWHS: So, the digital footprint also impacts your financial profile?

Guillen: High school students will understand that you have to be very careful about the kind of digital footprint that you leave behind.

 KWHS: What does technological innovation in personal finance mean for the future of money management? And how can we best prepare young people for this brave new world?

Diep: It comes down to a lot of other things that we’ve talked about already. But the fact is that technology has truly accelerated the pace and the frequency of change, not only in business but also in our lives. Today, life and work activities tend to overlap and … there’s this digital fingerprint that we’re sort of leaving out there that we have to think about.

Because all of our students will use the technology as a tool for managing information, it becomes imperative for us to hone these lifelong learning skills but also foster flexibility in career paths and confidence in how are we using this technology, how are we using the information that we’re posting out there. In classrooms around the nation, educators play such an important role in preparing the students to become responsible citizens, in helping them think about what it means to post the information out in the data world. What does it mean to use these tools and what is it that is happening behind the tools? What are the concepts that they are essentially applying?

That’s why I think it all goes back to — do the students understand the core principles of what the tools are doing? What does this merger of technology and personal finance really mean? I think for young people it’s just understanding and having a foundation in financial literary. Understand what budgets are. Understanding the question around balancing a checkbook and the fact that, at the end of the day, that’s you balancing your budget and everyday lives … and how does that translate to what we do day in and day out.

In order to get there, we have a responsibility to spend time with this generation and prepare them to be financially literate at a very young age. And I think that [we need to do that at a] younger [age] than ever because technology has given them access to manage their finances at an earlier age than it ever has before. To steal a line … it does take two to tango. Educators and high school teachers have a responsibility to become so much more technologically savvy to be able to share [their] experiences and to be able to share those concepts with the students — and to put it in words that they understand, which is really through the technological tools that they’re using in their mobile phones and in their apps. That’s how they understand it.

The better that we’re able to integrate those two worlds, the better we’ll get some of these messages through to them that will help them use the information responsibly.

Guillen: So to echo what Liz has been saying, maybe [do this] by emphasizing that number one, you need to be financially literate. You need to understand the basic concepts. You need to understand how it works. And number two, technology’s a very powerful tool. But it’s a tool that can harm you or it’s a tool that can enhance your standard of living that can liberate you.

There’s nothing predetermined about technology. We see that social networks are wonderful, but sometimes they get some people into a lot of trouble. We need to educate young people that technology is not just good or only brings about good consequences. It depends on how you use it and for what purposes. You have to start, as Liz was emphasizing, with financial literacy, with a basic understanding of how it works — again, mostly through experiential methods or simulations. People of that age group will be more receptive to those ways of learning than just seeing a formula on the board as to how compound interest works, for instance.

Knowledge@Wharton: Thank you both so much for this interesting exploration into the intersection of technology and personal finance.