Drivers’ education has to be, hands down, the most boring class in high school. In home economics (if they still have it) you get to experiment with fun desserts. Wood shop lets you use dangerous tools. Even keyboarding class (formerly known as Typing) uses games to teach speed and accuracy.
But not drivers’ ed. It’s always two hands on the wheel. Glance at your mirrors. Use your turn signal. Now check your blind spot. In other words, it’s safety above everything else.
If a local drivers’ ed teacher let his kids have a little fun in the school parking lot—weave at high speed through some cones, crash into some garbage cans, or send the car into a skid—he wouldn’t just lose his job. There’d be criminal charges.
But according to Wall Street Journal financial columnist Jason Zweig, this is exactly how millions of high school students are learning about investing.1
To get kids familiar with the stock market, schools are using computer-based platforms that give students play money to use in a simulated trading environment. In these simulations a student could buy a diverse group of equities and then hold them in a longterm growth strategy. But even though, Zweig notes, this is the behavior most likely to lead to long-term success in the real world, it’s not the behavior that’s rewarded.
When Emma Freeman was a freshman at Lewisburg Area High School, she won the Pennsylvania state championship by turning $100,000 in play money into $500,000 in just 10 weeks. She achieved this hypothetical feat by leveraging her way into an aggressive shorting strategy while making up to 40 trades per day.
Even worse, some schools allow their investing students to speculate on margin, borrowing hundreds of thousands of play dollars for short-term trades.
Mark Brookshire, CEO of the Montreal software company that makes one of the most popular high school platforms, admits that the one-term trading window isn’t long enough for “winning” students to see what usually happens when their luck runs out. They need more time to play at trading to find out it’s not at all an easy game.
“The next 10 weeks they probably won’t be so lucky,” Brookshire says. “That will be the lesson, that the more you do it, the more likely you’re going to lose. I want them to lose my virtual money before they lose their own real money.”
But Zweig points out that even if students understand this indirect lesson, they are not being taught about the real dangers of stock speculating. In drivers’ ed students are not allowed to experiment with danger, such as exploring the consequences of running yellow lights or passing on blind curves.
“My drivers’ ed teacher taught me to put safety first,” says Zweig, “and yours probably did, too.”
Unfortunately, the industry-sponsored classes and investing contests are set up to reward the students who take huge risks. Risks that can have devastating consequences in the real world.
Ask your children or other young people in your life what they know about investing, especially for retirement. Listen first, then share with them the strategy that’s most likely to give them long-term success. The one designed to be prudent even though it’s about as exciting as drivers’ ed.
Download a copy here.
Sources: 1. http://go.pardot.com/e/91522/stock-market-games-11648220833/82tx75/1658616055?h=UnfPfVp1QbF82vFqqn2wVjdJAXxvb1E14LIPMdnRhPw Disclosure: The views expressed herein are exclusively those of Efficient Advisors, LLC (‘EA’), and are not meant as investment advice and are subject to change. All charts and graphs are presented for informational and analytical purposes only. No chart or graph is intended to be used as a guide to investing. EA portfolios may contain specific securities that have been mentioned herein. EA makes no claim as to the suitability of these securities. Past performance is not a guarantee of future performance. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any unsystematic risks associated with particular investment styles or strategies.