In my mind, no child is too young to learn about the basic concepts of personal finance. From using money to saving money and budgeting, youngest children learn as they watch their parents behave. These are the most important lessons because parents are the ultimate role models. Financial literacy programs that wait until high school or even middle school are often, but not always, too late to to effectively change a developing child or young adult’s approach to money. The evidence is within the numerous studies showing how financial literacy programs for students at these ages fail.
Parents have the ultimate responsibility to impart good financial behavior, and lessons in schools can support good parental modeling. When lessons are taught in the classes but are not echoed by parents, the curriculum loses its value for that particular student quickly.
My initial school lessons about money probably involved learning to identify coins and simulating situations where I would be purchasing items. Consumerism is taught in school from the very beginning. And the first time the curriculum delved into more complicated themes for me was in fourth grade, perhaps nine or ten years old. All fourth grade classes played — or competed — in the “stock market game.”
Like many children, my first exposure to investing was learning to trade stocks. Readers are familiar with the stock market game. Participants are given a starting balance of a certain amount of money — not actual cash, just on paper — and use that money to buy and sell shares in companies. In the lessons, as far as I remember, we were encouraged to follow business news and find companies worth our investments. Perhaps I purchased stocks of AT&T on October 6, 1986 at at $1081⁄8 a share. I vaguely remember IBM being a popular stock among my classmates as well.
While the lessons required checking the newspapers everyday for the latest stock prices, charting the growth or decline of our money, and making more buying and selling decisions, some of us bought-and-hold — that is, we participated but didn’t see the need to trade often. Others delved further into the game, traded often, and took the game very seriously. If I remember correctly, my classmate who won the stock market game, a frequent trader who took the game very seriously, perhaps to an obsessive-compulsive level, was voted “most likely to succeed” in our yearbook a few years later. Perhaps someday I’ll follow up with him and ask how his portfolio is doing today, almost thirty years later.
Is the stock market game the best lesson for a first exposure to investing? The bottom line is that I would guess most of my fourth grade classmates grew up to be moderately responsible with their finances, what one might expect for a suburban but not particularly wealthy community. Overall, the lesson probably did no harm. But perhaps we would all be better investors today if we had been taught somewhat differently.
Perhaps the lessons for today’s fourth graders are different. Index mutual funds did not become a popular method of investing until the 1990s. In the stock market game, the goal isn’t to beat the market, it’s to finish with more money or portfolio equity than everyone else. Participants aren’t taught that you lose money in transaction fees and you are unlikely to survive in the long run through frequent trading in real life. Buying and holding index funds is, many people would argue, the best way to approach investing, but it isn’t as entertaining or full of intrigue for fourth graders as getting the opportunity to use virtual currency.
When is the right age to learn about investing for the long-term? The stock market game might be engaging for children, but at some point, lessons in better life planning should take its place.
Ron Lieber from the New York Times recently asked for book recommendations for a friend’s eleven-year-old child, in order to introduce him to the stock market. That’s the same age I had my first lessons with the stock market game. The Editor-in-Chief of Think Progress, Judd Legum, responded, seemingly to question whether an eleven-year-old is mature enough to be introduced to the stock market at all. It would be years before that child would be able to have his own account for trading or investing.
At first I thought that investing properly might be a useless lesson for a child of that age, but then I remembered my experience with the stock market game.
I looked over the curriculum for the official Stock Market Game, a program designed by the SIFMA (Securities Industry and Financial Markets Association) Foundation. I immediately noticed some major improvements to the program based on what I remember from almost thirty years ago. Most notably, traders are now faced with a 1 percent commission fee for each trade, and the concept of mutual funds plays a larger role in the game.
And as expected, technology has changed the game significantly. because the program is designed for students from fourth grade throughout the last year of high school, younger students can play a more basic game while older students have the opportunity to delve into more complicated concepts like limit orders and trading on margin.
But still lost in the mix is the biggest lesson I’ve taken away as an adult: trading in the stock market is a surefire way to lose money. You can get lucky occasionally with good picks once in a while, but over the long term, that type of record can’t be maintained. You can’t expect the Securities Industry and Financial Markets Association to be incredibly interested in teaching the concept that you’ll most likely be better off in the long run if you invest in mutual funds that passively track the broader stock market, buying more in times where the media seem to amplify times of financial crisis, and holding for as long as possible to take advantage of time. That’s now how the securities industry makes money.
Age eleven or earlier is a good time to introduce the concept of investing, but I’d balance any stock market game with lessons about long-term investing and planning, broader concepts that can be applied to more than checking Yahoo Finance every day for stock prices.