Is The Stock Market Game Causing Bad Behavior In Our Children

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

Our first introduction to the stock market came from playing some version of the stock market game in high school for many of us. 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 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 concise 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 quickly in the stock market– in my 17 years in this business, I’ve yet to meet someone who got rich quickly 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 will be much more engaged trying to make ten times their money in a month versus learning about finance, but teaching someone that trading stocks are 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 loser 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 to 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.

Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor. This material has been prepared for information purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results.

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