Prof. Kent Smetters, faculty director of Penn Wharton Budget Model and a popular professor, shares financial advice for EMBA students.

A popular professor in Wharton’s MBA Program for Executives, Kent Smetters is well known for his savvy financial advice on his Wharton Business Radio (SiriusXM 111) show, Your Money, and his contributions to the Wall Street Journal. Prof. Smetters currently serves as faculty director of the Penn Wharton Budget Model, a nonpartisan, research-based initiative that provides accurate, accessible and transparent economic analysis of public policy’s fiscal impact. His research focuses on fiscal policy, risk measurement, personal finance, insurance and healthcare, and he’s held policy positions, including deputy assistant secretary (economic policy) for the U.S. Treasury.

We asked Prof. Smetters, who is also a successful entrepreneur, to share financial advice for EMBA students and tell us more about his class and radio show.

Why does it make financial sense to self sponsor in the EMBA program?

Fewer employers are paying for EMBA programs these days, so many students are paying their own tuition, which usually means taking on debt. It may feel like you bought yourself a small house, but you’re buying much more than a paper diploma with the Wharton name. You are investing in knowledge and skills that you can use for the rest of your career.

If you take this program seriously, it can have a big impact on your career in terms of future earnings. That may not always show up right away, especially if you change industries or launch a startup, but over time you see the benefit. I hear this from alumni. Wharton EMBA students have a very high rate of satisfaction from their degree.

What financial advice do you give self sponsoring students? How should they balance paying for school with saving for retirement?

First, I always recommend having an emergency fund that can cover six months of expenses. Second, make sure that you are utilizing any employer matches for your retirement plan. Even if you don’t maximize your 401K contribution, make sure you are getting a match. After that, look at the interest rates on your student loans, which often accrues immediately for graduate school expenses. If the interest rate is 6% or 7% then prioritize paying that debt down over contributing more money to your 401K. You’re basically getting a risk-free return of 6-7% by paying down the debt, which is more valuable than making additional retirement contributions, even if that is tax-deferred.

You teach the core Microeconomics for Managers class on both coasts. What do students learn in that class?

This is a first-term course and is considered one of the harder classes because of the math and economic reasoning involved. This class helps students correctly describe their economic environment and determine optimal choices based on that environment. For example, we talk about understanding your market. How competitive is it? Are you a first mover? Given that information, how do you figure out the best way to set your price or expand operations to maximize profit? Or, how do you set up an auction if pricing a novel item or something that is constantly changing? There are many applications to what students learn in this class.

As for the quantitative aspect of this class, we use math, but the hardest problems are not because of the math. The hardest problems are narratives that students need to translate into a model to make the best decision. Think about Amazon and how it decides where to build distribution facilities. It doesn’t throw a dart at a map or just look at population density. It translates the question into a mathematical problem to effectively optimize decisions.

How applicable is the knowledge in your class for most EMBA students?

It’s very applicable. After we cover something in class, students will often come back the next session and tell me how they applied a concept at work or realized they had previously been using the wrong approach on something. For example, I had one student, who ran pricing for a large pharmaceutical firm, realize that her firm was pricing a drug incorrectly – and that was after only the third session of the class. She went back to her firm, did calculations, and they made a mid-cycle price change, which is very rare.

What do you like about teaching EMBA students?

These students are extraordinarily exciting to teach because they know what they don’t know. They are far enough in their careers to know their gaps and as a result are hungry for knowledge. They are constantly thinking about how to translate what we teach to their jobs. Professors really enjoy this dynamic and want to teach in this program and the students really want to be here – that is a great environment.
What is your radio show about?

I host a show for two hours every week on personal finance topics like prioritizing goals and thinking through tradeoffs. I really want people to think holistically about finances and have the knowledge to make better decisions. So much of this financial advice industry is commission-driven and doesn’t serve people well, so every advisor on my show is fee-only rather than fee-based, and I’m not compensated for the show either. This is an educational effort and not about monetizing anything.

What research projects are you working on these days?

I’m working on several projects related to finance in terms of how to measure risk and how to properly conduct an analysis. At a high level, I’m interested in investment managers. How do you separate skill from luck? Are they measuring risk properly? Are they doing statistical analysis properly? These are age old questions that haven’t yet been answered correctly so I’m bringing new tools to try to answer them.

Read a related story about Prof. Smetters and his advice for grad school financing.

Posted: June 18, 2018

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