[MUSIC] During the 2008 US Presidential Campaign, Barack Obama said, quote, money is not the only answer, but it makes a difference, unquote. Two centuries earlier, Benjamin Franklin whose face now adorns the US $100 bill said, quote, an investment in knowledge pays the best interest, unquote. So together these quotations capture two of the big ideas behind finance for everyone. And indeed, we've learned that money flows through our economies and societies in visible and invisible ways to shape the day to day behaviors and experiences of individuals. Money can bring families together, but it can also tear them apart. It can create great expectations within communities and become a source of power and influence for entire countries. So as President Obama said, money is not an answer or a solution, but rather the stuff to make a difference, in a wide variety of ways. By making it this far into the specialization, you have also followed Ben Franklin's advice by investing in your own knowledge. Particularly, in knowledge that improves you financial literacy. And if there's one thing I think that we've learned in our time together, it's that improved financial literacy that helps you to understand many specific details about the movement of money is also essential to helping you to connect the dots and better understand the bigger picture in today's world. The interests that we are paid on this knowledge are the crucial insights that connect finance with economics and politics. Along with the psychological, social, and cultural factors that influence entire markets in which all of us are participants. In this spirit, the final Capstone course enables you to collect your ROI or return on investment in your financial literacy by applying what you've learned so you can make a difference on a finance related issue that's important to you. To your family or to the community that you serve. You will find all of the details and instruction for the Capstone project in the subsequent videos and course content. But for now, I want to get your wheels turning again and consider key elements of the past four courses that hopefully resonated powerfully with your own interests and concerns. To do that, let's take a quick look back at some of the central questions and takeaways from Finance For Everyone. We began our journey by acknowledging that, although financial concepts can be expressed beautifully in mathematical notation, complex modeling and scientific paradigms, when it really comes down to it, finance is a story about people. In particular, it's a story about the process that we have created to drive the evolution of human societies over decades and centuries in ways best described through Schumpeter's notion of Creative Destruction. We create value as money flows in the directions that give it the greatest chance to multiply by funding good ideas. On the other hand, we destroy value through excesses resulting from a concentration of power and distortion of price within one market that spills over into another. Because, as we know, these markets not only intersect transactionally, but they also spread sentiments like confidence or uncertainty that can echo throughout the global economy. I'm speaking, of course, about the bond, stock, foreign exchange, commodity, and derivative markets, which not only determine and underpin economic value but serve as vehicles for finance's immense power to shape our societies. Since we started this specialization, we have seen these dynamics in action in a big way on the global stage with, to pick just one example, the disaster following the so-called Brexit vote in June 2016. Behind the invisible hand of these markets are financial decisions guided by profit and value maximization that should also, but often do not, consider sustainability, equity and the social good. In Finance For Everyone Decisions, we looked at how individuals, families, corporations and governments make choices about borrowing and spending money. We noted that an entire generation of young people may, for the first time, be unable to afford or borrow the staggering amounts required to own a home in large cities where many are unemployed. Similarly, the question of how much debt is too much debt has become one of the essential concerns for managers in organizations that are being tempted by interest rates that are so low that money is cheaper than ever before. As for governments, it is not an accepted reality for money countries, both rich and poor, that the only way out of a stagnant economy is to spend on massive debt financed public projects. These decisions are driving where and how money is distributed, which in turn drives the creation and destruction of value and wealth across the global economy. And together, all of these decisions make up the free market economic system under which almost the entire world now lives. In which, despite its many flaws and inequities, has still been the most successful system ever devised for lifting large numbers of people out of severe poverty. In this first course on Decisions, we also focused on the key concepts and tools that used to make informed financial choices. And on understanding how money flows through the economy as a result of these decisions. Therefore, you should now have a working knowledge of fundamental ideas like the time value of money. And particularly, the processes of Compounding & discounting through which it is calculated, as well as how investments are being made on the basis of these calculations. Through structures like annuities & perpetuities. But while these decision making processes are somewhat technical in nature, we also made sure to stress that financial decisions and the resulting money flows do not take place in a vacuum. In fact, they have significant consequences for the everyday actions and experiences for all of us. The first major assignment you did in Decisions course showcased your excellent understanding of these points. For that assignment, many of you focused your op-eds on the growing levels of income inequality generated, at least in part, by the structure and operation of the global financial system. This focus also provided a useful segue into the second course of this specialization, in which we looked more closely at the foundation of this system by examining global financial markets. So, in the Markets course, we once again balanced the operational and structural elements of the financial marketplace with the broader social context in which these powerful generators of wealth are embedded. For example, we emphasized that despite some well-founded criticisms of Wall Street excesses, financial markets are not simply playgrounds for the 1% to make even more millions for themselves at the expense of everyone else. In fact, these markets are the lifeblood of a global economy, in which we are all participants, and therefore, crucial to the functioning Of the complex modern societies we inhabit. With this in mind, we considered how financial markets act as time machines in that, they provide a way to convert future income into present day cash. Which can then be used to improve a family's standard of living. By enabling ownership of property, improve a firm's productivity, for hiring new talent for example or enhance a country's ability, to provide for its citizens by funding new social programs. So, while it's important to keep a critical eye on the finance industry to prevent another catastrophe, like we saw in 2008. We should also recognize, that the functional and well regulated financial markets can provide real benefits to all sectors of society. At the individual level however, these benefits can be more effectively realized if we have a working knowledge of the most important financial markets. And so, we look in depth at bonds, stocks and derivatives who's shear size and global scope mean, that they influence your life whether you like it or not. In these discussions we learned that bonds tend to be the safest and most stable type of investment, since they pay out fixed amount at a regular interval, and are issued by large corporate or government entities. We learned that the stock markets, where companies sell shares to outside investors, who then become part owners, are by contrast far more turbulent. Which is why they get more attention, and often have a significant impact on the wider economy when it crash a curse. We then considered the largest and most complex of all financial markets, the markets of derivatives which you'll remember our investment vehicles, derive from the value on an underlying asset or community like oil, or gold, or wheat. Originally developed as a creative way to manage risk, we saw how the explosive growth in this market has also attracted speculators, who bet on price changes in ways that can be very destabilizing which is what helped trigger the 2007, 2008 sub prime mortgage crisis in the US, that eventually spread throughout the global economy resulting in the great recession. Underlying all of this, was the crucial point that financial markets are shaped by interest rates, which as we know represent the price of money. Interest rates determine how much people are willing to borrow and invest. While low rates, like the ones we see today, usually increase productive market activity, our discussion raised concerns with the emergence of negative interest rates, a subject that was of great interest to many of you in your presentation assignment for this course. Connecting the dots, one final takeaway from the markets course is that financial markets function by assigning value to products, companies, or ideas, making them crucial to ensuring, that capital is allocated in the most efficient and productive ways possible. And so in the third course, we looked more closely at the techniques and the mechanisms through which the process of assigning value takes place. To recap, in finance for everyone, value, we surveyed some of the most common techniques used by financial professionals, to determine the value of a potential investment. Some of these techniques, like computing a rate of return, return on investment, or payback period are inexact but easy to use. While others are more rigorous, but more difficult to master. And while we made sure to contrast between them, we also stressed that all valuation strategies share certain foundational assumptions about the inputs that should count, in determining relevant cash flows for example, when assessing the net present value created, or destroyed by the project. This exemplifies what I mentioned earlier about universal principles that, when properly understood, can make finance accessible and therefore potentially beneficial for everyone. We also considered another perspective informed by the so-called, Efficient Market Hypothesis. This is a sophisticated framework that prices risk, so that under certain conditions, market values converge to reflect their true values. This means that individuals cannot come up with strategies to outperform the markets, since nothing is actually over or under valued. And while this framework has driven much of the decision making among financial professionals, we also considered the many pockets of inefficiency that create market bubbles, suggesting that valuation is as much an art as it is a science. Indeed, markets are greatly influenced by additional factors, like psychology, the emotions and the social context of investors. We saw, that these sociological factors are particularly relevant when it comes to our assessment. And calculation of risk, a concept that includes and assessment of chance and probability, which is distinct from what we define to be uncertainty, which is a known unknown, and can't therefore be calculated. That known unknown, of course, regularly creates havoc in financial markets. And speaking more broadly, this discussion revealed that each one of us has to come to terms with not only how much risk we can tolerate, but what the day after, or catastrophe might look like given the card positions we have taken, and the decisions that we have made. This used to be considered a long view, with the day of catastrophe seeming so far away in the future as to be irrelevant. But, as we've learned, the conditions for turbulence are very present today and should be triggering caution. But these conditions may also present opportunities to creatively manage, maybe even profit from the unknown. So, again we can see how finance is as much about the attitudes and behaviors of people, as it is about abstract numbers and figures. And I was really glad to see that this team has been picked up with vigor in your discussions in this course. Now, to like these points back to the content of the first two courses, we can see that assessing or assigning value is a crucial element of the financial decision making framework, that drive the functioning of financial markets. And this means that if you've completed these three courses, you should be in a better position to prepare yourself for the next major market correction, which many analysts, including me. Think is likely to come sooner rather than later. We therefore concluded that value costs by considering some possible precautionary measures, that employee our newly acquired financial knowledge. Perhaps the most important of which, is to pay off as much of your debt as you can. And therefore, it is no coincidence that the fourth and final course in this specialization zeroed in on the topic of debt, in always controversial complexity. So, in finance for everyone debt, we challenged you to think a bit differently about this issue. In particular, we considered that while debt had always proven a great temptation, that can get you into a lot of trouble, it is not always harmful. Quite the opposite, in fact since a great deal of economic activity is fueled by debt. Whether it's a car loan taken out by a growing family A corporate bond to help a firm invest in a new production technology, or the government borrowing money to fund infrastructure spending on roads and bridges. And financial markets are the primary channels through which debt is issued and traded, which again shows us how important these markets are to smooth the functioning of a society that gives people opportunities to improve their standard of living. We flesh these points out by looking in more detail as how debt is used, and of course misused, at all levels of society, by individuals and households through personal debt. By firms and companies through corporate debt, and by the largest debtors of all, national governments, which accumulate what we call sovereign debt. And while we noted the ways debt functions differently in each context, the key overall point is that debt is synonymous with danger when used recklessly, but can be beneficial and productive when used responsibly. Unfortunately we concluded on a somber note, since it seems as if society in general is starting to lose sight of the distinction between the good and bad uses of debt. Everyone, from some of the poorest individuals to the wealthiest countries in the world, is accumulating more and more debt every single day. And your newly acquired knowledge about finance should tell you that this is simply not sustainable over the long term, which means that some significant changes will be needed if we're going to avoid another global economic calamity. Or as we learn from the get go, we will once again experience creative destruction. So that brings us to where we are now, to the Finance for Everyone Capstone project. And this is where, once again, you become a very important agent in the learning process. I want you to think about how you can use what you've learned so far in this specialization to help foster change and make a positive contribution to the communities you are part of. In fact, as you'll see in the next video, this is exactly what the Capstone project is all about. All of us, myself included, must look in the mirror and evaluate our own financial literacy. To make that evaluation, ask what do you really wish to do in this regard but have not yet done? For individuals, this might mean making a monthly budget or a retirement plan. Or asking difficult questions about your current investments from your financial advisors or from your family members. For a manager, it might mean presenting your idea with a forecast or relevant cash flows that assigns a net present value, or a discussion with an expert that can provide you with the inputs. For a public servant, financial literacy might mean taking advantage of a green investment, and recharging electric cars in your parking lot, for instance. But before we get there, let's conclude by noting once again that finance is about more than numbers and complex formulas. It's about life, and financial markets are not just for making rich people richer. They provide opportunities for individuals, for families, for communities, and nations to improve their lot in the world. The truly global scope and impact of today's financial system also means that understanding how it works is the key to the sort of responsible, global citizenship to which we all aspire in our increasingly interconnected world. As I said, way back in the introduction to the specialization, one of our main goals in Finance for Everyone is to disrupt the simplistic, binary distinction between the financially savvy and the socially conscious. It is therefore, my hope that after completing this specialization, you will have the tools to do both of these things, while also understanding that, in fact, you can't be one without being the other. The next step towards reaching that point is to begin working on your Capstone project, so click through to the next video and let's get started.
