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Is The Stock Market Game Causing Bad Behavior In Our Children?

J. Patrick Collins Jr., CFP®, EA

For many of us, our first introduction to the stock market came from playing some version of the stock market game in high school. The game typically works by giving students a hypothetical capital amount to start with. The winner is the student whose capital base is the largest at the end of the game. To be sure, there are some great things about this game. First and foremost, it engages students in investing, which is something that is badly needed to help battle our woeful savings epidemic in this country. Second, it teaches some semblance of financial literacy, which is often never addressed with our young students leaving them unprepared for life outside of school.

But I think the benefits stop there. These games can start students on a path of bad behavior when it comes to investing. In fact, almost all of the objectives of the game are counter to what we preach at Greenspring as “successful investing”:

  1. An all-or-nothing mentality– with the objective being to accrue the most money over a very short period of time, students learn that buying just a few stocks (and the most volatile ones at that) gives them the best chance of success.
  2. Risk isn’t real– when you lose $100,000 of play money it is a lot different than losing it in real life.  God forbid the student is successful at the game.  They may start thinking that they are skillful at picking stocks versus the more likely reality…they got lucky.
  3. They don’t understand who they are competing against– if they are playing a stock market game using the real market for artificial buys and sells, these high school students are competing against hedge fund managers, professional traders and teams of analysts.  As we’ve said before, trading is a zero sum game.  Is it likely they will come out on the winning end of these trades consistently?
  4. It sends a message that you can get rich quick in the stock market– in my 17 years in this business, I’ve yet to meet someone who got rich quick by trading stocks.  I’m sure they are out there, but I just haven’t found them yet.  What are we saying to our kids about investing when their first introduction is a game to try to make as much money as possible by taking extraordinary risks that no sane person would ever do with their own money?

I am not totally living under a rock.  I get that children are going to be much more engaged trying to make ten times their money in a month versus learning about finance, but teaching someone that trading stocks is a good idea also flies in the face of reason.  My suggestion would be to teach the kids the basics without the stock market game.  Focus on things like how active management is a losers bet, that small and value stocks have a long track record of outperformance and how much costs matter to long-term performance.  If they do want make a real different focus on things these children have control over- namely their budget.  If they can focus on strategies to minimize their expenses and maximize their income, they’ll be way ahead of the game.