These are the slides from the 1st session of the Stanford University class, CS 007 "Personal Finance for Engineers" given on September 21, 2021. This seminar covers a survey of the students enrolled in the course, with an overview of the topics to be covered over the course of the series.
2. STANFORD UNIVERSITY โข COURSE MATERIAL โข CS 007 โข FALL 2021-22
DISCLOSURES
โข These slides are provided as-is and do not necessarily match the exact version of
the content provided in classroom for students formally enrolled in the class at
Stanford University.
โข This presentation is intended to provide information and frameworks to assist the
additional research and education of individuals. This presentation is not financial
advice, nor is it intended to provide advice for specific financial decisions.
โข These slides are provided publicly to be used for non-commercial purposes only. All
material derived from this content must include appropriate citations to Adam Nash
& Stanford University.
3. WHY PERSONAL FINANCE?
โข Poorly covered in secondary school
& university curricula, even at top
schools.
โข Not technically difficult, but the
signal-to-noise ratio is terrible.
โข Massive impact on your life.
โข Affects everyone.
* Please note: many of the hand-made drawings in this presentation are sourced from Carl Richards, behaviorgap.com
4. WHY FOR ENGINEERS?
โข Engineers are typically well
educated in math, and enjoy it.
โข Engineers face significant financial
decisions early in life.
โข Engineers tend to believe that they
are rational decision makers.
โข Engineers create products that can
affect the finances of billions.
5. REAL QUESTIONS, REAL DATA
โข Most adults do not feel comfortable
talking about money & financial
decisions with friends & colleagues.
โข Bad data can lead to bad decisions
โข This class will be based, whenever
possible, on real data
โข Please push yourself to share openly,
and ask the questions you really
want answers to.
6. SOCIAL CONTRACT: BUILD TRUST
โข Students in this class come from a
wide variety of financial situations
โข We are lucky, because this diversity
can help educate us on a broader set
of potential financial decisions
โข Assume your classmates deserve
privacy about the financial
information they choose to share
โข Do everything you can to earn &
deserve their trust
8. 1: WHAT YEAR ARE YOU?
โข This class is optimized for students
who will be graduating soon.
โข It is never too early to start learning
about personal finance.
โข My personal journey really started
after my sophomore year, when I
interned with Hewlett-Packardโฆ
* https://www.businessinsider.com/personal-finance/best-money-adam-nash-ever-spent-2015-4
9. 2: HOW DO YOU DEFINE WEALTH / SUCCESS?
โข Is there a โmagic number?โ
โข Expectations vary widely.
โข Some people find success focusing
on goals, others on running up a
score.
โข Your peers do not adequately
describe the range of successful
financial outcomes possible, nor the
range of lifestyles that could make
you happy.
Low: $50,000
โจ
High: $1T (!)
10. 3: HOW MUCH DO YOU KNOW ABOUT YOUR PARENTS ๐ฐ
โข Many parents are conflicted about
how to talk about money.
โข This is not surprising, because
money can be an uncomfortable
reflection of values & behavior.
โข Many parents are better prepared to
discuss sex & drugs with their
children than money.
โข This class could be an opportunity
for you to learn with your family.
11. 4: PURCHASED STOCK, ETF OR MUTUAL FUND?
โข 64% of American households have
Amazon Prime, but only 52% own
stocks. (Source: Gallup)
โข The top 1% of households by wealth
own 56% of all company shares.
(Source: Goldman Sachs, FT)
โข Owning stock can be a path to
learning about companies & investing.
โข Investing in equities, ideally through
an index fund, can be one of the best
ways to build long term wealth.
12. 5: FILED YOUR OWN TAXES?
โข If you earn money from a job, you
should be filing taxes.
โข Many financial decisions are
seriously impacted by taxes.
โข Ignoring the after-tax value of a
financial decision can lead to serious
financial mistakes.
โข An irrational fear of taxes can also
lead to poor financial decision
making.
13. 6: STUDENT LOANS THAT YOU ARE RESPONSIBLE FOR?
โข National student loan debt at $1.7T
โข 45 million student loan borrowers.
โข Average debt for Class of 2020
borrower was $36,140.
โข Student default rate is 11.1%
* https://fred.stlouisfed.org/series/SLOAS
* https://www.forbes.com/sites/zackfriedman/2021/02/20/student-loan-debt-statistics-in-2021-a-record-17-trillion/
* https://educationdata.org/average-student-loan-debt-by-year
14. 7: WHAT % OF YOUR SALARY SHOULD YOU SAVE?
โข Spend less than you make.
โข 10% is not the right answer.
โข There is no magic rate of savings,
but when you save you win two
ways.
โข Saving means learning to live
on less, which lowers your goal.
โข Saving means more capital to
invest to reach your goals.
15. 8: WHAT % OF AMERICANS HAVE $400 FOR EMERGENCIES?
โข Commonly misquoted statistic.
โข US Federal Reserve reported in 2021 that
36% of Americans do not have sufficient
cash savings to cover a $400 emergency
expense.
โข Actual survey question reveals the number
is 12% that self-reported that they couldnโt
cover the emergency through other means.
โข Liquidity means having access to money
when you need it.
โข Donโt underestimate the value of liquidity.
Liquidity matters.
* https://www.federalreserve.gov/publications/2021-economic-well-being-of-us-households-in-2020-dealing-with-unexpected-expenses.htm
16. 9: WHAT DO YOU BELIEVE IS MEDIAN INCOME IN US?
โข Financial statistics can be confusing,
because the time period, data set and
questions vary dramatically.
โข Sentier Research reported median
household income at $63,688 as of Jan
2019.
โข US Census reported median household
income at $67,521 for 2020. It was $69,560
in 2019.
โข US Census reported median household
income in California at $80,440 in 2019.
โข In 2018, median household income in Silicon
Valley (Santa Clara) was $126,606
* https://www.census.gov/library/publications/2021/demo/p60-273.html
* https://datausa.io/profile/geo/santa-clara-county-ca/
โจ
https://siliconvalleyindicators.org/data/economy/income/household-income/median-household-income/
17. 10: WHAT FINANCIAL DECISIONS DO YOU WANT TO COVER?
โข Good news: we will cover most of
them in the prepared sessions
โข Lots of questions about stocks,
investing, and options
โข Additional Topics from Last Year
โข Venture Capital / Private Equity
โข Derivatives
โข Crypto
20. WEEK 3: GETTING PAID
โข Compensation
โข Different models & methods
โข Public vs. Private Companies
โข Stock Options vs. Restricted Stock
โข Understanding Equity Compensation
โข Taxes
21. WEEK 4: SPEND LESS THAN YOU MAKE
โข Income vs. Spending
โข Time frames
โข Budgets
โข Savings Rates
โข Personal Income Statement
22. WEEK 5: YOUR FINANCIAL PROFILE
โข Assets & Liabilities
โข Liquidity
โข Emergency Funds
โข Personal Balance Sheet
23. WEEK 6: CREDIT & DEBT. DIGGING OUT.
โข Different types of Debt:
โจ
Student Loans, Auto, Credit Cards,
Mortgage
โข Secured vs. Unsecured Loans
โข Loans & Rates
โข Credit Scores
โข Compounding in Reverse
24. WEEK 7: GOOD INVESTING IS BORING
โข The Magic of Compounding
โข How to Calculate Returns
โข Different Types of Investments:
โจ
Stocks, Bonds, Commodities, Real
Estate
โข Diversification
โข Modern Portfolio Construction
โข Taxes Matter
25. WEEK 8: FINANCIAL GOALS
โข How to Plan for Financial Goals
โข Different Types of Goals:
โจ
Travel, Marriage, House, Children,
College, Starting a Business,
Retirement
โข Life Insurance
โข Couples & Financial Decisions
26. WEEK 9: LOCATION, LOCATION, LOCATION
โข Real Estate
โข Rent vs. Buy
โข The Home as an Investment
โข Rental Properties / Passive Income
โข REITs & Partnerships
โข Tax Benefits