You rarely encourage your children to take “extreme risks.” That, unfortunately, is what’s happening with stock picking games played by high schoolers around the country. To “win,” you have to earn the most and to do so, you must take on massive leverage and perform risky trades. Does anyone really think that’s the lesson kids should be learning about their finances?
Jason Zweig of The Wall Street Journal reports on the counterintuitive lessons being taught by the stock-picking games at school, writing:
Every year, more than a million high-school students across the U.S. learn about investing through stock-picking games. If you have teenagers, they may be playing this spring.
Proponents say these games are exciting and inspire an interest in investing.
We could make drivers’ education exciting, too, by teaching kids to run red lights and crash into brick walls. I suppose you could even argue that might make the survivors better drivers.
Of course, that isn’t how we teach teenagers to drive. Yet when it comes to investing and “financial literacy,” millions of teenagers learn what it’s like to take wild risks, using play money—often amplified with more fantasy money that they borrow—to fire off a barrage of fast trades in turbulent assets.
In the long run, investors who diversify broadly, avoid unnecessary risk and rarely trade are almost certain to do well. In these stock-market competitions, teenagers who behave like that are almost certain to lose.
He continues later:
“Anybody who can turn $100,000 into $200,000 in 10 weeks with what they learned in their high-school class is just lucky,” says Mr. Brookshire. “The next 10 weeks they probably won’t be so lucky. That will be the lesson, that the more you do it, the more likely you’re going to lose. I want them to lose my virtual money before they lose their own real money.”
Ryan Monoski, a former business teacher at Montgomery High School in Montgomery, Pa., has come to doubt that lesson.
In 2016 and 2017, his teams won the national championship in the Capitol Hill Challenge, a stock-picking competition run by the Sifma Foundation, a nonprofit supported by the brokerage industry. His teams also won Pennsylvania’s state championship at least a dozen times.
All these contests “motivate students to take extreme risks that will bring extreme rewards and extreme losses, and that’s not the right way to invest,” says Mr. Monoski, who now runs a stock-picking channel on YouTube.
Action Line: The real lesson you must teach your children about their finances is that they must save early and often if they want to accumulate enough wealth to retire comfortably. Explain to them the power of compound interest and what saving just a little as a child can turn into by the time they reach retirement age. If your children or grandchildren are a bit older, they need to learn how to invest after graduating college. You can help them on their way by clicking here to give them a free copy of my Special Report: How To Invest After Graduating College. It’s filled with timeless advice that will work well for any young adult.
Originally posted on Your Survival Guy.