What Teenagers Really Learn From Stock-Market Games
Successful investors diversify broadly, avoid unnecessary risk and rarely trade. So why are kids getting rewarded for doing the opposite?
3 min
Every year, more than a million high-school students across the U.S. learn about investing through stock-picking games. If you have teenagers, they may be playing this spring.
Proponents say these games are exciting and inspire an interest in investing.
We could make drivers’ education exciting, too, by teaching kids to run red lights and crash into brick walls. I suppose you could even argue that might make the survivors better drivers.
Of course, that isn’t how we teach teenagers to drive. Yet when it comes to investing and “financial literacy,” millions of teenagers learn what it’s like to take wild risks, using play money—often amplified with more fantasy money that they borrow—to fire off a barrage of fast trades in turbulent assets.
In the long run, investors who diversify broadly, avoid unnecessary risk and rarely trade are almost certain to do well. In these stock-market competitions, teenagers who behave like that are almost certain to lose.
Emma Freeman, a senior at Lewisburg Area High School in Lewisburg, Pa., won that state’s championship when she was in a ninth-grade economics class taught by Michael Creeger. She turned $100,000 in play money into more than $550,000 in 10 weeks. “I played it as if I was day trading,” she says.
Emma would look up which stocks had just risen the most, then sell them short so she could profit from a decline. “Anything that had jumped up like crazy, when it looked like just hype, we short-sold the crap out of it,” she says.
Emma traded up to 40 times a day. “My friends told me I looked like a madwoman,” she recalls. “I would be staring at the screen and making crazy faces and stuff because it was so intense.”
Last spring, another of Mr. Creeger’s ninth-grade economics students, Zachery Engle, won the state championship. He traded 117 times in 10 weeks.
Zach used about $200,000 in margin borrowing to drive his pretend portfolio up to $583,070. “It’s nice that they let you do that,” he says. “It makes it easier to make money.”
Or lose money—which is why Warren Buffett repeatedly warns investors not to use leverage.
Mark Brookshire, founder and chief executive of Stock-Trak Inc. of Montreal, which provides the stock simulation that Emma and Zach played, says more than 500,000 students participate in grades K-12. Most play only as part of a class, not in a wider competition.
Teachers can limit the number of trades, restrict margin or prohibit short selling. Outside of state-run contests, says Mr. Brookshire, only 14% of teachers permit margin—so most portfolios aren’t leveraged. Over the typical 10-week course, the average student makes 22 trades.
“Anybody who can turn $100,000 into $200,000 in 10 weeks with what they learned in their high-school class is just lucky,” says Mr. Brookshire. “The next 10 weeks they probably won’t be so lucky. 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.”
Ryan Monoski, a former business teacher at Montgomery High School in Montgomery, Pa., has come to doubt that lesson.
In 2016 and 2017, his teams won the national championship in the Capitol Hill Challenge, a stock-picking competition run by the Sifma Foundation, a nonprofit supported by the brokerage industry. His teams also won Pennsylvania’s state championship at least a dozen times.
All these contests “motivate students to take extreme risks that will bring extreme rewards and extreme losses, and that’s not the right way to invest,” says Mr. Monoski, who now runs a stock-picking channel on YouTube.
Like teams from other schools, Mr. Monoski’s students often borrowed money to sell short. They used 50% margin to buy explosively volatile triple-leveraged exchange-traded funds, magnifying daily market moves 4.5-fold.
The Capitol Hill Challenge no longer allows any of that.
However, sessions of the Sifma Foundation’s Stock Market Game, run in all 50 states and played by 600,000 children annually, may permit selling short and borrowing on margin. Teams often own as few as five stocks at a time, not nearly enough diversification by prudent investing standards.
“It’s important to recognize that the simulation plays a small part,” says Melanie Mortimer, president of the Sifma Foundation. “The real focus is the curriculum, which is all about the fundamentals of investing and the capital markets.”
Richard Daly, the foundation’s chairman, says the organization shares concerns that the game might teach children to take too much risk. But, he says, “we don’t want to lose the greater good of all the kids we’re touching that otherwise wouldn’t be exposed” to the stock market at all.
My drivers’ ed teacher taught me to put safety first, and yours probably did, too. That’s what children learning how to invest should be rewarded for. They shouldn’t be proclaimed “winners” for taking huge risks that could encourage a lifetime of bad behaviour.
Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: March 25, 2022.
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Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
Investors are taming impulsive money moves by adding a little friction to financial transactions
4 min
To break the day-trading habit that cost him friendships and sleep, crypto fund manager Thomas Meenink first tried meditation and cycling. They proved no substitute for the high he got scrolling through investing forums, he said.
Instead, he took a digital breath. He installed software that imposed a 20-second delay whenever he tried to open CoinStats or Coinbase.
Twenty seconds might not seem like much, but feels excruciating in smartphone time, he said. As a result, he checks his accounts 60% less.
“I have to consciously make an effort to go look at stuff that I actually want to know instead of scrolling through feeds and endless conversations about stuff that is actually not very useful,” he said.
More people are adding friction to curb all types of impulsive behaviour. App-limiting services such as One Sec and Opal were originally designed to help users cut back on social-media scrolling.
Now, they are being put to personal-finance use by individuals and some banking and investing platforms. On One Sec, the number of customers using the app to add a delay to trading or banking apps more than quintupled between 2021 and 2022. Opal says roughly 5% of its 100,000 active users rely on the app to help spend less time on finance apps, and 22% use it to block shopping apps such as Amazon.com Inc.
Economic researchers and psychologists say introducing friction into more apps can help people act in their own best interests. Whether we are trading or scrolling social media, the impulsive, automatic decision-making parts of our brains tend to win out over our more measured critical thinking when we use our smartphones, said Ankit Kalda, a finance professor at Indiana University who has studied the impact of mobile trading apps on investor behaviour.
His 2021 study tracked the behaviour of investors on different platforms over seven years and found that experienced day traders made more frequent, riskier bets and generated worse returns when using a smartphone than when using a desktop trading tool.
Most financial-technology innovation over the past decade focused on reducing the friction of moving money around to enable faster and more seamless transactions. Apps such as Venmo made it easier to pay the babysitter or split a bill with friends, and digital brokerages such as Robinhood streamlined mobile trading of stocks and crypto.
These innovations often lead customers to trade or buy more to the benefit of investing and finance platforms. But now, some customers are finding ways to slow the process. Meanwhile, some companies are experimenting with ways to create speed bumps to protect users from their own worst instincts.
When investing app Stash launched retirement accounts for customers in 2017, its customer-service representatives were flooded with calls from panicked customers who moved quickly to open up IRAs without understanding there would be penalties for early withdrawals. Stash funded the accounts in milliseconds once a customer opted in, said co-founder Ed Robinson.
So to reduce the number of IRAs funded on impulse, the company added a fake loading page with additional education screens to extend the product’s onboarding process to about 20 seconds. The change led to lower call-centre volume and a higher rate of customers deciding to keep the accounts funded.
“It’s still relatively quick,” Mr. Robinson said, but those extra steps “allow your brain to catch up.”
Some big financial decisions such as applying for a mortgage or saving for retirement can benefit from these speed bumps, according to ReD Associates, a consulting firm that specialises in using anthropological research to inform design of financial products and other services. More companies are starting to realise they can actually improve customer experiences by slowing things down, said Mikkel Krenchel, a partner at the firm.
“This idea of looking for sustainable behaviour, as opposed to just maximal behaviour is probably the mind-set that firms will try to adopt,” he said.
Slowing down processing times can help build trust, said Chianoo Adrian, a managing director at Teachers Insurance and Annuity Association of America. When the money manager launched its online retirement checkup tool last year, customers were initially unsettled by how fast the website estimated their projected lifetime incomes.
“We got some feedback during our testing that individuals would say ‘Well, how did you know that already? Are you sure you took in all my responses?’ ” she said. The company found that the delay increased credibility with customers, she added.
For others, a delay might not be enough to break undesirable habits.
More people have been seeking treatment for day-trading addictions in recent years, said Lin Sternlicht, co-founder of Family Addiction Specialist, who has seen an increase in cases since the start of the pandemic.
“By the time individuals seek out professional help they are usually experiencing a crisis, and there is often pressure to seek help from a loved one,” she said.
She recommends people who believe they might have a day-trading problem unsubscribe from notifications and emails from related companies and change the color scheme on the trading apps to grayscale, which has been found to make devices less addictive. In extreme cases, people might want to consider deleting apps entirely.
For Perjan Duro, an app developer in Berlin, a 20-second delay wasn’t enough. A few months after he installed One Sec, he went a step further and deleted the app for his retirement account.
“If you don’t have it on your phone, [that] helps you avoid that bad decision,” he said.
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