What I did on my summer vacation: Played with interest rates

CORALVILLE, Iowa -- Say "summer camp" to most people, and you'll conjure up images of canoeing, crafts, swimming, hiking, campfires and mosquitoes. But for a select group of teenagers in the Midwest this summer, camp means learning what it's like to be on the Federal Reserve.

In four sessions in Michigan, Illinois, Indiana and here in Iowa, high school students are spending two days indoors, taking notes on copies of PowerPoint slides as they study the economy, how Federal Reserve Chairman Ben Bernanke and his colleagues determine and execute interest rate policy, and the history of central banking in the USA.

And they're doing it by choice.

It's all part of a program from the Chicago Fed to prepare students to compete in the "Fed Challenge," a competition similar to a mock trial in which students give presentations on the economy, then make interest rate recommendations. The finals are held in Washington in the spring, where thousands of dollars in scholarship money is at stake.

Last week in a windowless, chilly Marriott hotel ballroom, 15 students and two high school economics teachers from two Iowa high schools attended the second Fed camp of the summer, taking time away from summer jobs, internships, traveling, home improvement projects and, well, sleep. It may be the only summer camp around where the dress code is "business casual" — which in this group included flip-flops and toe rings.

Many of the students, such as Jenna Sedlacek, 17, a senior from Cedar Rapids, Iowa, said going into it that they weren't sure what the Federal Reserve was.

"I figured I'll give it a try; it can't hurt," says Holly Gilbert, 17, who will be a senior at Kennedy High School in Cedar Rapids in the fall.

Gilbert, captain of the swim team who is a life guard at the YMCA and took a marine biology trip to the Bahamas this summer, said her friends were a little confused as to why she signed up for the class.

"They were wondering, 'Why would you spend two days in a hotel in the summer when it's sunny?' " she says. The answer she gave them? "I'm not sure."

The students gave many reasons, including getting a leg up on their Advanced Placement Economics course, which many are taking when school starts next month, learning more about the Fed Challenge and learning what it takes to win much-needed scholarship money for college. Only one student said he had been "forced" into it by a parent.

Stephen Luth, 17, who will be a senior at Muscatine High School in Muscatine, Iowa, in the fall, chose to come on his own but readily admits one of the enticements of the program was that he heard the food was good. Still, "When I woke up this morning, I was thinking, 'What am I doing?' "

But after a few hours, Luth, captain of the cross-country running team who is working at Quiznos this summer, says he was happy he came.

"It's an awesome introduction," he says during a break, that, yes, did include food.

Like a spelling bee

The Fed Challenge may not be broadcast live on ESPN as the Scripps National Spelling Bee is, but it has become a popular competition that involved more than 1,000 high school students last year.

The competition was hatched in 1995 when Lloyd Bromberg, the director of social studies for the New York City public school system, went to work at the New York Fed in its education department. His goal was to come up with a way for high school students to learn more about what the Fed does. The challenge? To make it interesting.

"You learn best by doing something," Bromberg says. "The trick was to come up with a simulation that would be do-able for students at a high school level."

Following the example of mock trials, when kids argue court cases and play various roles, Bromberg developed the Fed Challenge. Teams of up to five students discuss the current state of the economy and make interest rate policy recommendations, some pretending to be members of the Fed. There is then a 10-minute question-and-answer period, in which the judges grill students about their presentations and their knowledge of the Fed and the economy.

The competition quickly expanded to many of the other 12 regional Fed banks. Last year, teams from 250 schools competed at seven banks across the country. A separate competition for college students has been added.

Like the spelling bee, there are various rounds of competition, with teams being eliminated along the way. Judging is based on how well students prepare, their delivery and their knowledge of the economy and the Fed. Presentations are original, and they get no guidance from the Fed about what to discuss or how to discuss it. Finally, a team representing each participating regional Fed is flown to Washington.

The competition is in the ornate boardroom at the Fed, where interest rate policy is made. The three judges in the finals are often Fed governors and presidents. Bernanke has judged the competition in the past.

Last year, the winning team won $30,000 in scholarships, contributed by Citibank, to split among the five teammates. The school and teachers who coach the winning teams also won money.

Nikki Candelore, 24, competed in the Fed Challenge as a junior and senior in high school in Westfield, N.J., after an economics teacher heard she was a good debater and approached her to join the team. Candelore says at the time, she assumed she'd go into some kind of political field.

But the Fed Challenge turned her onto economics. "This is how a person can work in government and really make an impact," she says.

Candelore graduated with an economics degree from Barnard College in 2005 and is now an assistant economist at the New York Fed.

Bromberg says he's "very pleased and very surprised" with the success of the Fed Challenge. "When we launched this, we thought it would be good education, but we didn't expect it to have so much impact," he says.

Another surprise has been how competitive the program has gotten. Some schools have Fed Challenge "clubs" and hold tryouts. Others field a second, "non-competitive" team. One year, he saw a team holding hands in a circle and praying before going in for their presentation.

"This is not supposed to be at the level of an NCAA Final Four," Bromberg says.

Learning economics

On a beautiful, sunny day in Iowa, students are huddled around circular tables, listening to Tim Schilling, a former teacher now at the Chicago Fed, explain topics such as "A History of Central Banking in the United States" (Parts I and II), "What is the Fed Trying to Do?" (Parts I and II) and "Understanding the Economy" (Parts I and II).

They're taught topics such as what economic data the Federal Reserve looks at, the Fed's relationship to government, why the Fed studies "core" inflation (it's less volatile and gives an idea of underlying trends) and the difference between the fed funds rate and the discount rate (one is the rate of lending between banks, the other is the rate the Fed charges when it lends to banks).

Only once was one of the students observed to be closing his eyes. Students often asked questions and made careful observations when watching video of prior competitions.

Schilling awards prizes, including Chicago Fed baseball caps and bundles of shredded money, to students who ask good questions.

"They just got three weeks of econ in about eight hours," Mike Fladlien, who teaches economics at Muscatine High School, said after the first day.

"I really don't know anything about economics," says Kaley Ahmann, 17, who will be a senior at Muscatine in the fall and just returned from a month-long trip to Germany with the school's German club. "It's kind of a head start."

Early work

Schilling, who started the camp five years ago, says he doesn't expect the students to remember or comprehend everything he's teaching them over the two days. But "it gives them a head start in terms of a fundamental understanding of the Fed and hopefully sparks some interest," he says. For teachers, it helps them better understand what it takes to guide their students to win the Fed Challenge.

Pat Grady, an AP economics teacher from Cedar Rapids at camp, says his team won the state Fed Challenge last year, the first year the school competed. Once they got to the regional competition in Chicago, "We just got hammered," he says, coming in last place.

"It takes a huge commitment on their part," he says of the students. It involves studying economic data daily, reading analyses and listening to testimony and speeches from Federal Reserve officials. Students' presentations are supposed to be up to date, even including data released on the day of competition.

Spare time is at a premium with these kids. Sara Dobbin, a 17-year-old senior from Kennedy High School, is the drum major for the marching band and has already been admitted to Iowa State University. Graham Sawyer, an 18-year-old senior from Kennedy High School, participates in competitions in which students build full-size electric cars. He has a summer internship studying electromagnetic interference at a local company.

"They work 10 times harder than we ever did," says Fladlien.

Grady and Fladlien say the value of the Fed Challenge and the camp isn't the competition, however. It's about the students learning and immersing themselves into the topic. That said, "I'd kinda like to win it," Fladlien says with a grin.

Zach Hayes, 17, of Cedar Rapids, who was taking two days off from his summer life-guarding job, says he's excited to compete and to learn more about the Fed.

"The stuff they do matters," he says.