The Power of Ideas

I was invited to attend the second meeting of CGI (Clinton Global Initiative) America, held in Chicago in June. I was part of the new Financial Inclusion working group that was added to the meeting this year. For those who are not familiar with CGI, it was established by former president Bill Clinton in 2011 to address economic recovery in the United States. As their web page states, “CGI America brings together leaders in business, government, and civil society to generate and implement Commitments to Action that create jobs, stimulate economic growth, foster innovation, and support workforce development in the United States.” I witnessed the importance of three principles at the meeting: (1) the power of ideas; (2) the power of translating ideas into action; and (3) the power of leadership.

The power of ideas. While the meeting had some short presentations and discussion leadership, a large amount of time was dedicated to brainstorming and generating ideas. The group at my table was a very heterogeneous bunch in terms of age, sectors of activity, and reasons for attendance. I ended up sitting near a very young man who I assumed was a college student (though he looked more like a high school student). Through my clumsy attempts to make conversation, I learned that he was 21, had finished college already, and was the founder and CEO of an education firm. It was then that I realized I might well be the dumbest person in the room. Once the discussion started flowing, it zigzagged around for hours, but several strong ideas came together and the moderator articulated them so well at the end of the discussion that it was as if many pieces of a puzzle had come together. It is, of course, part of my daily job to generate ideas, but it was particularly powerful to sit down with a group of people who have just met and are mostly non-academics and ponder and discuss ideas.

The power of translating ideas into action. As every entrepreneur knows, ideas are not worth much if they are not translated into action. A good part of the meeting was devoted to the creation of “commitments to action.” Some of these commitments originated at the meeting itself. Others had originated earlier but were announced and pledged at the meeting. Still others are in the making, as meeting attendees are now connected, and the organizers have found ways to keep participants involved in the discussions post-meeting. We heard success stories at the meeting—how some CGI groups, small and large, have been able to address specific problems. I was again struck by the many differences among the individuals—and the institutions and businesses they represented—who came on stage to speak about what they did. We had city mayors, government officials, journalists, CEOs, entrepreneurs, and young people (like the one who sat next to me) who described how they would commit to specific projects. And, as one can read from the report linked at the end of this page, from these commitments, new jobs were created and people gained access to training, to capital, and to financial services.

The power of leadership. What was most remarkable at the meeting was to see the former president reflect on the state of the economy; listen attentively to the guests he had on stage; and shake hands, hug, and thank the people who made commitments. I was impressed by his focus on education: the hard questions he asked about it and the people he brought on stage to discuss it. Neil Tyson, the charismatic director of the Hayden Planetarium at the Museum of National History, shouted: “When was the last time we longed? I have to go back to the 1960s.… The moon was in reach and we were headed there. That compelled everybody to dream about tomorrow.” So many dreams seem out of reach today, but for those of us sitting in the audience, there was comfort in watching a former president reflect on the state of the economy, and showing such concern for it. We could see, in one room, the power of leadership in action and the capacity to motivate, inspire, and bring people together to generate ideas and commit them to action.

Another star athlete, another bankruptcy

As the article linked at the end of this blog describes, another retired star athlete has filed for bankruptcy. In a previous post, I mentioned the statistics describing the number of football players who are bankrupt, unemployed, or divorced two years after retiring from their professional athletic career. Any time I read a new story, it’s a reminder of how ugly this statistics is. This athlete happens to have been a player on one of my favorite teams—not really important for my point—but it is a team close to home.

There are some commonalities among athletes declaring bankruptcy: significant investments in real estate—from expensive homes to ventures such as theme parks and resort projects, some of which are in court from the beginning—as well as investments in businesses and entrepreneurial projects that go bust. One may argue that this can be an outcome of anyone who engages in entrepreneurial activities—athlete or not. Moreover, as we are well aware, real estate is not an asset that has delivered high returns in the past few years. So, like many other investors, those who were betting on real estate went bust; so join the club.

But, as I tell my STAR EMBA students, a savvy investor needs to diversify risk. And what is wrong with some plain vanilla index mutual funds? One can live comfortably off the investment returns of a basket of boring stocks (and once the earnings total more than 35 million, one can weather declines in the stock market), which have the added benefit of not causing the investor to be dragged in front of a bankruptcy judge. How about entrepreneurial skills? We all aspire to be the next Steve Jobs, but the reality is that businesses have a high failure rate. When we run our own firm—in which we have invested our own money—we face a double risk as our human capital and our monetary capital is tied up in one asset. So, yours better be a good entrepreneurial idea—an iPhone, for example. As the saying goes, “to end with a small fortune, you have to start with a big one.”

It is also true that, if you give a very large sum of money to a young and inexperienced person, athlete or not, chances are the money is not going to be invested in the savviest way. And relying on investment advise from a financial advisor is not necessarily the solution. There is story after story of athletes being taken for a ride by unscrupulous advisors. As I have often argued, and as some new research shows, financial advice is not a substitute for financial literacy. In fact, it is a complement; those who have financial skills are better able to choose the right advisors and to ask the questions that ensure the advisor meets their needs.

I am firmly convinced that athletes have all it takes to be successful in finance. Financial success requires discipline, and who could argue that football players, for example, do not have discipline? Financial success requires perseverance and we know athletes train for long, grueling hours each day. Financial success requires the ability to stay calm in the middle of the storm, and anybody who has watched a quarterback knows what this looks like. Financial success requires knowing the rules of the game, and athletes understand that better than anyone else. What bothers me about this statistics about athletes going bankrupt is that it is preventable. If someone can show up every day for practice, this is all I need to turn him into a successful saver and investor.

BIG IDEAS: A museum for financial education

As I mentioned in one of my previous posts, I had many wishes for financial literacy this year. One came true last Thursday, May 24. A new Museum of Saving opened in Turin, Italy, with the objective to be a vehicle for financial education. As one of the academic advisors to the museum, I went to the inauguration and watched the ribbon cut by the mayor of Turin, toured the museum with the Welfare Minister, Elsa Fornero—a very strong supporter of financial education who has added financial education to Italy’s pension reform law—and gave a brief talk about the importance of financial education to the museum’s inauguration day attendees.

This is a big idea for financial education and a fantastic one. It is the brainchild of Andrea Beltratti, a professor of finance at Bocconi University in Milan and President of Intesa Sanpaolo, the bank that supported the initiative, and of Giovanna Paladino, who put the idea into action. Many Italians and tourists visit Italian museums every day to appreciate and learn about art throughout centuries of history. Now they can do the same to learn about economics and the workings of money and finance throughout the centuries, starting from the advent of money (estimated at VII century BC) and continuing to the collapse of Lehman Brothers (you could say we take a long run view in Italy). And they can do so in a very engaging way. The mascots of the museum are two little ants: For and Mika (combine the two words and you get “formika,” a slight modification of the Italian word for ant, “formica;” and since they are little, they are called the “formichine”) who guide visitors through the five rooms of the museum. As in the Aesop’s fable, they describe the importance of saving.

Each of the rooms has a designation, the first one is to “know,” the second to “learn,” the third to “tell,” the fourth to “dream” and the fifth to “experiment” the economic world. In the first room, the “formichine” describe the birth of money and trade from the beginning of time until today, and many topics can be pursued further by watching videos in elegant cubicles in the center of the room or by watching a movie in the multi-media room. At the end of the first room, there is a space for children to play financial literacy video games. In the second room, one can listen to a description of financial instruments and how they work; what is a stock, a bond, a derivative, and so on. They are described in a simple way by picking cards listing the topics and listening to their descriptions. In the “tell” room, one meets (virtually) Dante, Moliere, Shakespeare, and Hemingway. They describe the relationship with money during their lifetime and, in so doing, describe the economy in different time periods. And it is time to dream in the fourth room, where sixty-three monitors project snippets of famous movies covering saving and, in six of them, the role of money in society. The last room features an enormous dream ring on the ceiling with comments about financial instruments and the economy that are taken from economic studies (One of my papers is featured, and I admit, I am very, very proud of it). In that room, there is a possibility to experiment by playing games and simulation. One game is called Risky City, a Monopoly-type game in which one has to buy real estate (a risky game, in case people haven’t noticed yet). But my favorite is the This Is My Life game. It basically describes the actions that one has to take to realize a dream. The player chooses a dream and the game shows how, by saving, you can reach this dream. (My dream is to go back to Turin to see this museum again!) It is an important and powerful lesson: saving allows you to achieve your dreams.

When you enter the museum, in addition to many books dedicated to saving and economic topics, you can take a test to measure financial literacy. And yes, the questions are those used in the US Health and Retirement Study and now in the National Financial Capability Study, and one can take the test again when exiting the building (and researchers can figure out whether there are changes in the responses in the population, on average). The test also asks its takers to assess their own level of financial knowledge, and the hope is that witnessing the evolution of money, finance, and the economy over twenty-seven centuries of history can instill some humility as well as the desire to learn more.

Throughout the museum, you can hear interviews with experts and economists. At the moment, most of them are Italian (but more are to come) and feature Mario Draghi, the President of the European Central Bank; Ignazio Visco, the Governor of the Italian Central Bank; and also academics who have studied money, finance, and financial literacy. (I am not going to tell you whether I am interviewed; you have to go and visit the museum…). On the walls, you can read the phrases of famous writers and investors (including Warren Buffett) about saving, investing, and the economy.

As academic advisors, we had to think of how to assess the effects of the museum and we have designed several ways in which to do so. I did my first qualitative test on my little niece Giorgia. I took her on my lap and showed her the museum on my computer. Looking at the picture of the mascot, she smiled with joy and said, “I like this little kid, we have the same shoes. I am going to do some drawings now.” She saw a kid in the formichina right away, while I saw the shoes only after five iterations (you cannot beat the creativity of a five-year-old). Judging from the pile of drawings accumulating quickly on my desk, I am pretty confident this museum and the formichine are going to be a huge success! You can see them online at

Health and financial literacy

I spent a good part of the last month at a hospital bedside in Italy. It was a hard time, but it taught me several valuable lessons, including the similarities and differences between health and financial literacy.

On the surface, there are striking similarities between decisions about health and decisions about finance. Both affect important aspects of our life and both have consequences. Both require collecting information, evaluating alternatives, and taking some risk. But while financial decisions and health decisions are both difficult, it seems health has received a lot more of our attention. For example, there is normally a greater sense of urgency around health-related issues. This may be because the effects of being ill are visible, often painful, and easy to identify with. But the financial crisis has had some very visible and painful effects too, so there is no reason that we shouldn't give the same level of urgency to our financial well-being.

In health as in finance, one party knows more than the other (the doctor versus the patient, the financial advisor versus the investor) and navigating this relationship requires some care. In both cases (health and finance), it is critically important to ask questions, to discuss objectives in detail, and to exercise a good deal of caution. Again, health seems to be doing much better: doctors have been relatively successful in being recognized as experts that the public can rely on, while the “doctors” of finance are hardly seen as such; reliable financial experts are considered a rare species. Yet, it is not obvious to me that the statistics support this perception; there are financial advisors who have led clients into disastrous trades but also doctors who have operated on the wrong leg or failed to notice (as in the case of my father) deep skin lacerations on a bedridden patient (something that is undoubtedly included in any Health 101 course).

There are dangers of focusing on a single aspect of one’s health or one’s finances. Tending to retirement savings without dealing first with high credit card debt is perhaps analogous to treating high blood pressure while ignoring a lung tumor. Clearly, we want to be fully healthy, financially and physically—we cannot get by with just a healthy left arm or a well-managed checking account. But while most of us are willing to undergo regular health check-ups (and, if you ask me, some of them are pretty intrusive), many people never went for a financial check-up. We seem willing to swallow bitter medicine and undergo invasive procedures such as surgery, which some research tells us might be unnecessary or overused, but we are reluctant to follow the recommendations of financial advisors.

Health issues have also been able to engage celebrities to further their cause. At the entrance of the hospital in Italy, there was a large poster of Pippo Inzaghi, a professional soccer player from A.C. Milan (Pippo is the nickname for Filippo, but in Piacenza, where he was born, we call him Super Pippo). The poster says “Help us to win against cancer.” I really wish we had a Super Pippo for financial illiteracy.

An extraordinary week

How extraordinary last week was! On Tuesday and Thursday, I sat in a classroom on the sixth floor of Duques Hall, here at the George Washington University School of Business, to listen to Fed Chairman Ben Bernanke explain the recent financial crisis, the Fed’s response to it, and the lessons we can take from it.

While there were only 30 (very attentive and somewhat anxious) undergraduate students in the classroom and a handful of professors whose lectures in this course will follow Chairman Bernanke’s four initial classes (no pressure …), the classes were live streamed and are now archived online at

This was the first time that the Chairman of the Fed has given a set of lectures on the Fed, why it was founded, what its functions are, what it has done historically, and what it did during the financial crisis. This is truly extraordinary and part of the new era of Chairman Bernanke’s leadership, which is bringing transparency and accountability to an institution that has inspired books with titles like “Secrets of the Temple: How the Federal Reserve Runs the Country.” But what was more extraordinary was to listen to the leader of this institution, who more than anyone has done so much to turn the economy away from the brink of collapse, speak with such rigor, depth, and also humility. As he stated in his classes, because of what we do not know, we have to be humble.

I recognized in Chairman Bernanke the brilliant professor from Princeton, who finished his slide presentations right at the minute he was supposed to end, whose historical perspective was so deep and impressive that the students gave him, at the end of his set of lectures, a framed page of the 1933 issue of the New York Times as a gift. The front page of that issue announced that the United States was abandoning the gold exchange standard, a topic Chairman Bernanke covered in class in fascinating detail. But he also brought to the classroom the mastery (and agony) of leading a very powerful institution at a time when problems are not only domestic but also global.

And what a difference it made to be able to see him reflect on the lecture notes that were projected on the screen, walk around the classroom, call the students by name, and stay a few minutes overtime to answer questions. At the end of his last lecture he took a group photo with both the students and the faculty. It was extraordinary!

As if this wasn’t enough for one week, on Friday I got to go to the Clinton Global Initiative University here at the Smith Center to listen to former President Clinton speak. He launched the Clinton Global Initiative University (CGI U) in 2007 to engage the next generation of leaders on college campuses around the world. As described on their website, each year, CGI U hosts a meeting at which students, national youth organizations, topic experts, and celebrities discuss solutions to pressing global issues.

As many as 1,200 attendees came to GW, and at Friday’s opening session President Clinton spoke with an infective passion about this initiative. On stage with him was Madeleine Albright, who spoke of her experience as Secretary of State and her fight to protect human rights; Ray Barcott, a former marine with an MBA from Harvard Business School who described how he founded Carolina for Kibera, an organization aimed at breaking cycles of violence in and developing leaders from the Kibera slum of Nairobi, Kenya; Sadiga Basili Saleem, who founded and directs schools for girls in Afghanistan; the President of George Washington University, who spoke of the GW Center for Civic Engagement and Public Service and his involvement and promotion of the Center. And also on stage was Usher, yes, Usher, who spoke of his foundation and the work they do. Written questions were submitted to the panelists, and a student asked Usher about his inspiration, noting that “singing the answer is encouraged.” Usher reply by singing Whitney Houston’s “Greatest Love of All.” It was extraordinary!

And so I spent my week listening to the wisdom all of these amazing people, taking from each of them some lessons I hope to apply to my work on financial literacy.