It’s a widely held sentiment that we should be doing more to teach our children about money and investing while they are in school. I couldn’t agree more. However one common approach, getting students involved in a “Sharemarket Game”, may be worse than not teaching them anything at all.

In this style of game, contestants are given a fixed amount of money to invest in stocks over a set period, say 10 weeks. They can buy and sell as they please. This all happens on a virtual exchange which mirrors actual stock prices – no real money changes hands. Whoever’s virtual portfolio has the highest value at the end of the period wins.

But think about what this game encourages:

  • thinking with a short-term horizon (the X weeks the contest is run over)
  • taking as much risk as you possibly can (buying small risky companies because they’re the only ones that will have big enough price moves in such a short amount of time) – that’s the only way you’ll win with a large group of players
  • loser’s get zero, and the winner takes all – which is nothing like the actual stock market

This teaches gambling, not investing.

The ASX runs this contest every year – the next one starts 18 August. Touted as something to teach youngsters “the importance of long-term saving and investing”, these games do anything but.

For my children, once they have mastered some basic arithmetic, lesson #1 will be that the stock market represents a zero-sum game – before costs.

Once you understand that fundamental truth, humility and self-control are to my mind the next most important traits. Teaching those to children though, is a rather more difficult problem!

 

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