Saturday, February 16, 2008

Should We Teach Broadly or Deeply (part Deaux)

I received a number of interesting comments on my last post on teaching broadly vs. deeply, and I thought a few follow up comments might be in order.

First off, it's important to keep the context of the video in mind - Dr. Frank is talking about his experiences in the introductory course in Economics (not the higher level ones). In the intro course, students (Supposedly) get exposed to the most important, fundamental principles of the topic. If they don't learn them there (or don't find them interesting), they likely never get to the more advanced courses.

There are a lot of parrallels to the intro finance course. It's often viewed by non-finance majors as the topughest course in the business school. In fact, I've heard (but not verified) that the nationwide "drop or fail" rate for the course is well in excess of 25%. At one of my previous schools, we called the class FINANCE301, and had a phenomenon called the "FINANCE301 Major". This label gave homage to the fact that some students took the class multiple times (the record was five attempts). Granted, some undergrads simply don't have what it takes to pass the class, but that number seems incredibly high to me.

More importantly, (and this is what I took as Franks' main point), the current "broad but shallow" approach to teaching the intro class results in the vast majority of students lacking a deep understanding of the critical concepts necessary to succeed in their latter courses. The instructors feel better abbout this approach, since they can say that they're "keeping standards up" and teaching a very broad and impressive list of topics. But the students suffer.

So what's the solution? One school I'm aware of takes exactly the right approach (and in fact, it's related to what was suggested by one of the commenters on my previous piece):
  • For the intro class, they cover only a very limited number of topics: financial statement analysis, time value (including its variations like bonds and stock valuation, cost of capital, and capital budgeting), and risk and return;
  • Since they're covering fewer topics, they can spend much more time on each one. For example, they spend 3+ weeks on time value alone (as opposed to the typical one or two). Spending so much time on Time Value get paid back pretty quickly, since topics like bond valuation go much more quickly (students quickly pick up that it's just time value).
  • Finally, they give a lot of assignments that make the students "put pen to paper". In other words, they assign a lot of take home problem sets, end-of-chapter assignments, etc...
This covers the introductory class. It works because non-finance majors won't be setting dividend policy, or making capital structure decisions. So, they really don't need to cover those topics. But they do need to understand that financial statements reflect real business decisions (the accounting classes usually don't do a very good job of getting this across IMO), that money now and money later can be compared, that all assets muct be financed, and that there's an opportunity cost to investing. So, the above approach beats these concepts into them.

But UP, you say, this only covers the non-finance majors. Aren't you shortchanginh the finance majors? The same school mentioned above has a solution.

Before finance students can take any additional finance classes, they are required to take a six credit class class (called Fundamentals of Valuation) that covers all the theoretical and conceptual parts of finance that come up again and again (like TVM-based security valuation, contingent claim valuation, portfolio risk and return, etc...). It's a bone-breaker of a class, requires a huge time committment from the students, and has a very high failure rate. But once the studens have gone through it, they have an outstanding grounding in the basics that all other finance classes use again and again. So. later classes can move at an accelerated pace (basically, it's a decision to invest in fixed assets to gain operating leverage). As an example, a class on fixed income doesn't have to teach students how to bootstrap a yield curve, and can instead focus on applying it.

The approach works, because students begin to see that many (and perhaps most) advanced topics in finance are just combinations of the same basic building blocks (i.e. option valuation is really just a present value calculation with a few adjustments, CAPM is just an application of covariance, duration is time value applied to bonds, atc...).

Once I get tenure and can start making noise, I hope we can implement some of this approach here at Unknown University. As it is, I try to use many of the principles in my classes, but I catch flack from folks that teach classes following mine in the curriculum. Ah well, I guess I'll have to wait until I rule the world (BWAHAHA!). On that note, here's a classic I'm trying to get DVDs of for my kids.

Enough bloggery - back to work.

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