There has been plenty of blame cast for the financial crisis of 2007-2008, most of it aimed at bankers, but finance education and training has hardly been blameless, argues Simon Taylor, University Lecturer in Finance and Director of the Master of Finance Programme at Cambridge Judge Business School.
A “standard set of finance concepts and tools” have been used to train people in the finance industry for decades, but many of those are based on very shaky foundations, Taylor told an audience in Mumbai on 28 January. Another problem is that students are often, to borrow the words of former US Defence Secretary Donald Rumsfeld, not properly informed about the “known unknowns.”
“We have to make students aware of what is known, but also how limited, fragmented and tentative that knowledge is,” Taylor says, urging that several elements should become standard fixtures in the education of financiers and others entering the investment industry.
They include a broad knowledge of history, not only the dates of financial crises but “turning points” in the development of modern financial products and macroeconomic theory; an emphasis on the limitations of traditional models of economic decision making, by looking beyond behavioural finance to other factors such as system dynamics; and lessons on just how provisional all financial knowledge really is, so finance professionals “don’t blindly apply something on the assumption that it always yields precise results.”
Taylor acknowledged that “every syllabus is finite,” so adding these elements may mean that other concepts are left out of a finance education – so programmes must strike a fine balance in order to become “more sceptical and pragmatic without undermining their students’ confidence in finance completely.”
On his recent trip to India, Taylor said he detected an upbeat feeling about the future under relatively new Prime Minister Narendra Modi, reflected in a booming stock market, but this followed five years “widely seen as having achieved very little in economic policy” amid frustration that the country had stepped backwards following impressive growth.
Taylor says:
"It’s a little early to know whether Modi’s cautious but determined attempts to improve India as a place to do business and to attract more foreign investment will be enough to push economic growth back up again, but there is a lot of optimism in India."