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Sal Khan on learning about money and careers

June 7, 2017

When Sal Khan filmed his first instructional video for a cousin who was struggling with math and science in school, he never imagined his career path would veer radically from his job as a hedge fund analyst. Yet thousands of videos later for the nonprofit Khan Academy, Khan is at the helm of one of the largest digital educational efforts in the world, with free tutorials on subjects as diverse as algebra and plate tectonics to parts of speech.

His latest project attempts to shed light for new grads on the often confusing time after college by showing an inside look at actual life paths that reveal everything from salary to job experiences and where those choices could lead. The idea behind the videos, produced together with Bank of America, is to show what life really looks like for six professionals whose experiences range from a firefighter juggling an immediate goal of paying down debt with a long-term wish to buy a home, to a 28-year-old instructional designer who makes $90,000 at a startup. Despite research from behavioral economics showing that financial education alone rarely suffices to change money habits, Khan advocates for bringing more specifics into financial literacy efforts in the hopes of improving people’s choices.

I spoke with Khan about his own career path, the persistent confusion about money and investing and the advice he would have given himself right out of school. What follows is a transcript of our conversation, edited for clarity and length.

Elizabeth Harris: When did Khan Academy get interested in teaching people about money and career choices?

Sal Khan: A lot of people know the story of Khan Academy starting for my cousins around math and physics and science [concepts]. Around the same time, I was an analyst at a hedge fund and I saw a lot of my friends and family members and analysts at the hedge fund I was working at had basic questions about finance: about debt vs. equity, renting vs. buying and really didn’t have a good framework.

There was obviously a lot going on in the world about what’s a mortgage-backed security and so I started making videos to explain all of those things. This was on my own and in 2012/2013 Bank of America reached out and said, ‘Look financial literacy is this thing that has been lacking or is not as strong of a muscle as it should be in society. And we want to partner with you all because you all have already done some of this and have been doing it in a real way.’ So that was kind of the genesis of the early relationship. We started focusing a lot on personal finance.

And the key principle has been a lot of personal finance or [financial] literacy is rules of thumb and advice like ‘Do this, do that.’ And I’ve always gotten frustrated by that because it’s like, ‘Why aren’t you explaining it to me?’ So we wanted to explain it and say, ‘Hey this is what present value is.’ None of it is rocket science, so to speak. This is a framework for how you can think about renting vs. buying. Here’s a scenario where it makes sense to put it in your 401k here’s a scenario where it might not make sense, so people have that nuance.

Harris: That’s a really good point. I focus on behavioral economics and in some ways those rules of thumb or heuristics can be a very good short cut, but you’re right it doesn’t necessarily have to be a short cut.

Khan: People can get burned on shortcuts. In general, buying is better than renting, but when is it not? You know, 2008 is when it’s not.

Harris: So in your experience, what do people need the most help with understanding about financial topics?

Khan: The big thing is that you don’t have to rely on the priests of the financial world. Most of it you can understand with some core logic and some basic analytic skills . This is why it makes sense to pay off your high interest rate debt.

Beware of compounding. Compounding can be awesome when it’s in your favor — it’s better than you think — and it’s worse than you think when it’s debt. And it’s not just a rule of thumb: showing the numbers, showing scenarios so people can [look at] the numbers for themselves on their own without having to go to an expert so to speak. Say in this scenario it actually is more rational for me to rent for a year because I plan on moving and there are all these moving costs and actually rentals are quite cheap compared to the cost of a house. So it’s giving people a framework that’s more robust than just rules of thumb.

Harris: Do you see a big crossover between gaps in math fluency and comfort with investing?

Khan: I think they’re related. The math you need for most of finance is ninth-grade algebra and most people feel reasonably comfortable with that. But I think the financial world there has been — I don’t know if it’s by design or this is how it’s evolved — there are bad actors who have wanted to obfuscate because you can benefit from the lack of transparency.

If people need to go to you as an expert — so we have nothing against anybody — there are experts in the field who can help people. And the good experts — and we talk to them all the time — the good experts, the good advisors want their clients to be as knowledgeable as possible.

Harris: So you don’t think it’s a math problem, you think there’s something that gets lost in translation?

Khan: I think it’s related to fear of math. Something happens in school sometimes where you’re like ‘Oh I’m not an expert and I have to defer to people who are.’ And it happens, not just in school, it happens in religion too. Defer to the experts. A printing press is a big deal – they got the Bible and all of a sudden they could read it for themselves.

Harris: What are you hoping these new videos will help address?

Khan: People are making super important decisions with very incomplete information and most people don’t even have people in their family where they can ask personal questions about how much they make. But even if you do, if we can make it really transparent, if we can make it so people making these life decisions can see people like themselves, 10, 15 years in the future down various paths, they’re more likely to make good decisions.

Harris: What is the benefit of telling a financial story visually?

Khan: There’s a classic Khan Academy video that can help explain conceptional ideas like debt vs. equity. But then there’s the series where actually having video of people — it’s a form of personal connection so you can identify with these people and they feel like mentors, or older siblings or cousins or uncles and aunts. They can identify with them or not identify with them.

Harris: Are there Khan academy topics and videos that you watch, and if so what was the last one?

Khan: Ironically, I watch even some that I made to review. If I haven’t made chemistry videos in a while, it’s helpful because that guy explains it just how I think about it.

I’m making world history videos. I’ve been watching some of these career videos somewhat in an editorial role — even though I’m happy with my career — and have no plans to change them, I found I’m very interested in them.

Harris: I gather your own career path followed an unexpected trajectory — you didn’t expect family tutoring to lead to starting a company — but if you were filming your own video for this series, how would your personal story fit into the narrative?

Khan: My personal narrative — I was lucky early on in my career to have some really strong mentors. I didn’t realize it at the time, but that’s what really built me up. The later part of my early career, I was lucky enough to have space in my life where I was able to cover things financially, but I had enough time in my life so I could pursue some passions.

So I didn’t have to make those tradeoffs in a really big way and those passions were incubated until the point where they seemed like they were real. And my finances were in reasonably good shape and even then it was scary but that’s what allowed me to [start] Khan Academy

Harris: What do you wish you had known when you were a new college grad?

Khan: There’s a lot. Although I would say since I’m happy about where I am now, I’m kind of glad — I wouldn’t change anything about my path because I like the end point. If I were telling someone like myself I’d say: ‘Take action, find mentors, people want to mentor you.’ I was like ‘Oh, who would want to talk to me?’ People want to share their advice. Don’t be as stressed as you sometimes are. Life seems to work itself out.

No one goes on a direct path even though it sometimes feels like your peers might be racing ahead. Everyone’s trying to figure it out. But if you just put yourself out there, step out of your comfort zone, establish yourself in terms of skills, mentorship, but leave space for your passions, then you’re going to turn out pretty well.

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