The Stock Market Game and the State of Financial Education

by Michael on Oct 29, 2012 · 2 comments

Photo of Stock Market Graphs with Dice

A few weeks ago, my 10 year old son told me that they’d started playing the stock market game at school.

Since there’s so little in the way of financial education in this country, that sounds like a great idea. Right?

Wrong. At least in my opinion. As far as I’m concerned, the stock market game sends the wrong message about investing and, without a healthy dose of parental intervention, can do more harm than good.

Don’t get me wrong. I think it’s great that he’s learning about how the stock market works. And yes, I do realize that “active learning” is all the rage these days (for good reason). But the way this game is set up, it teaches all the wrong things (imho) about how people should interact with the stock market.

Playing the stock market game

The key rules are that you have $100k to start with, you can’t buy anything that’s trading for less than $5/share, you have to buy at least 100 shares of each company, and you have to hold your investment for a minimum of three weeks.

The game runs for a few months (at most; not sure on the exact timeframe) and whoever has the most money at the end wins. Given this structure, the winner will in all likelihood be someone who took a flyer on one company and got lucky.

In fact, if I was intent on winning the game, that’s exactly what I’d do… I’d essentially buy a lottery ticket in the form of one company that I had a hunch about and hope for the best.

Financial lessons learned

When our oldest played the same game during 5th grade — which happened to be early in the fall of 2008 — I advised him to short the market. Of course, this wasn’t possible within the framework of the game. But if you look back at how stocks performed during that period, he would’ve made a killing.

The utility of the game, at least from my perspective, has nothing to do with the classroom activities. Rather, it’s the simple fact that it got my son and me talking about how the stock market works, and about my investing philosophy in general.

We thus talked about whether or not the price itself can tell you if a stock is cheap or expensive (it can’t), whether or not a few months is a sufficiently long timeframe for investing in the stock market (it isn’t), whether or not you should buy and sell stocks based your gut reaction to recent performance (you shouldn’t), etc.

But all of this was incidental; none of it was communicated within the framework of the game. Moreover, I would bet that the vast majority of kids aren’t going home and having similar conversations with their parents. And even if they tried to, how well-equipped are their parents (on average) to have such a conversation?

Of course, you could argue that our school teachers aren’t particularly well prepared to teach kids the finer points of personal finance — and you’d be (mostly) right. In fact, I think that things like the stock market game are a symptom of that reality.

Looking ahead

So what should we do? For starters, I think we should expect more when it comes to financial education in the United States. Not only should we require more in the way of relevant coursework, we should also provide our teachers with training opportunities to improve their competency to teach these topics.

As things currently stand, only four states require at least a semester of personal finance education. Twenty others require personal finance concepts to be embedded into other subject matter. In the remaining 26 states, there is no requirement whatsoever, though this material can still be taught electively.

In other words, in over 90% of all states there is no requirement for dedicated coursework in personal finance and in over half there is no requirement for personal finance topics to be taught in any way, shape, or form.

Is that good enough? I would say no.

For the record, we live in one of the 20 states where financial topics are supposed to be integrated into other subject matter. So yes, our kids get dollars and cents math problems, and they wind up doing things like the stock market game. But there’s not much else available to them when it comes to financial education.

1 MoneySmartGuides October 29, 2012 at 4:16 pm

I agree that it sends the wrong message. When I played these games while in school, myself and my friends did as you suggest to win: pick one stock you think is going to perform great and that is it.

I think we need to teach kids about personal finance, the only problem is the one’s teaching them were never taught about it. I’m not sure I would want a teacher making $40K with $70K in student loans and $5K in credit card debt who just bought a brand new BMW teaching my kid about how to be responsible with their money.

2 realone November 1, 2012 at 9:39 pm

Yes, the curricula for finance need to be updated to reflect investing in index funds rather than individual stocks.

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