Q&A: Sal Khan on Teaching Financial Markets

This week CME Group announced that former Federal Reserve Chairman Ben Bernanke will be this year’s recipient of the Melamed-Arditti Innovation Award. For ten years, the award has honored individuals whose ideas, products or services have created significant change to markets, commerce or trade. The list of past winners includes three Nobel laureates, a New York City mayor and the inventor of IBM’s Watson.

In 2013, the award went to Sal Khan, the founder of Khan Academy, an educational website with the ambitious goal of providing “a free, world-class education for anyone, anywhere.” The site is particularly rich in financial, economic and market-related content. That is by design. Khan is a former hedge fund analyst who began Khan Academy by providing simple video tutorials on math and finance to relatives.

A few years later about 100,000 people were using the videos he created, and he left his hedge fund job to work on the site full-time. A heavy focus on financial subjects has remained — recent TV commercials feature Khan promoting the site’s partnership with Bank of America — but the site today has expanded into every subject of core education and many niche areas as well. All of it is with the aim of, as Khan puts it, “deprogramming the mindset” of how kids learn new subjects.

We talked with Khan about the goals of his site, the challenges he’s faced and the best way to help anyone learn about finance. This is an edited version of our conversation.


You set out to change the way education works; what’s the biggest obstacle that you face in terms of spreading your approach?

There’s two things. First is awareness. We have 10 million students per month using the site, but that’s still a small fraction of the total number of students in the U.S., and also in the globe.

So, I think awareness is number one. Number two is about transforming the classroom. I think that’s deprogramming the mindset that we all grew up in, and including current teachers, but in all of us, we’re used to imagining a classroom being someone at a board, explaining something, 30 kids, 25 kids taking notes and patiently listening. It’s deprogramming a little of that.


The Khan Academy is about bringing in an innovative approach to learning and teaching. How do you and your team approach innovation? 

We try to make sure we don’t lose the ethos of, don’t debate something to death; if it seems at all reasonable, give it a shot. Put it out there. Test it.

Everyday, we’re running about 20 experiments where 5 percent of our user base sees a slightly different Khan Academy, and they’re able to measure, how does that affect retention, how does that affect learning, how does that affect time on the site.

So it’s do responsible things, do reasonable things, but try them out fast; if they fail, fail fast, and keep iterating.


Tell us a little bit about the program, how it’s grown in terms of usage.

Khan Academy is most known for this collection of videos that I started making for my cousins, but what I always point out is that’s actually a small part of what Khan Academy is now. Khan Academy, now, is most of our team is working on the software, the backend, the analytics. 

When you go there, a child, or actually a learner of any age will take a pretest, based on that pretest, the site will recommend what’s the next best thing for the student as the student interacts, both with the exercise and videos, it’ll keep updating the recommendations. So, that is kind of the meat of Khan Academy now.

I started with one cousin in 2004 and then 2006, and a handful of cousins, but then you fast-forward to 2009, when I quit my job, there were about 100,000 people using Khan Academy, and now there’s 10 million.

So, we’ve grown 100 fold since then, and the organization is 50 times larger. We have 50 people now.


Can this approach be applied elsewhere? For instance, financial literacy or teaching about financial markets?

I used to be an analyst at a hedge fund, and in 2007, 2008, I was already making these videos for my cousins on math, and I saw some of the junior analysts that we had out of college, they needed some primers on finance and accounting.

I saw a lot of family members who were making questionable financial decisions because they didn’t really have a good structure in place around risk and reward, and how to think about investing.

So I said, “Let me just make some videos for  all of these folks, too.” I started making videos on renting versus buying, all the way to mortgage backed securities and credit default swaps, and futures and forward contracts, why they exist and things like that.

And those actually became some of the most popular on Kahn Academy. And so, you fast-forward to today, that’s still a big piece of Kahn Academy, I’m continuing to do that.

We have a partnership with Bank of America where they’re helping to support a lot of the efforts around the financial literacy content, and we think that’s going to be something that’s going to continue to be a big part of what we do.


Having worked at a hedge fund, and now making educational finance videos, can you summarize the importance of financial markets in our everyday lives? 

When you’re an analyst at a hedge fund, you get good at saying what you do for work. Because my wife’s a physician, it’s very obvious, she’s saving lives. She’s like, “What are you doing?” I’m like, “Well, we’re making sure prices get set efficiently.”

I joke about that, but that’s true. In a centrally planned economy, you have these technocrats in the middle saying, “That’s how much corn should be,” and because these human beings are setting it and they’re not dealing with really good information, you have all sorts of inefficiencies that start percolating through a system.

In a market system, it’s really the markets, and all of the actors in markets, that are making sure that the pricing mechanism is as efficient as possible.

You can debate how much benefit it was to go from a five minutes latency to five nanoseconds, but it is about as efficient as it can be. There’s definitely volatility, there’s definitely risk, but it’s the best system we know for making sure capital gets allocated in an efficient way.


What’s an example of that?

Take agriculture. If you’re a farmer, if your crop sells for $1.00 a bushel this year, you’re going to go bankrupt. If it sells for $5.00 a bushel this year, you can go on a vacation. And you’d just be happy if it was a consistent $2.00 a bushel. And so, with the futures market, you can take on that risk.

If you didn’t have people transacting in the futures market, it’s going to be feast and famine, feast and famine, and you as the farmer are going to experience all of that volatility.

If you have the futures market, you can lock in your price, be able to plan better, not have that volatility, and focus on what you need to focus on.


OpenMarkets is an online magazine and blog focused on global markets and economic trends. It combines feature articles, news briefs and videos with contributions from leaders in business, finance, economics and politics in an interactive forum designed to foster conversation around the issues and ideas shaping our industry.

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