What You're Trying to Teach and What You're Actually Teaching
I see a lot of articles about why opening a stock trading account for your child is a good way to teach financial literacy, investing, and the value of long-term planning.
As a father of a 13-year-old, I mostly disagree.
First, investing should be very boring, and kids hate boring. If you put money in an account and let them have access to it, they will eventually find a way to make it exciting.
Second, most stock trading education is terrible. Just about every school district has a stock trading competition, and the team with the highest returns at the end of the semester wins.
What they don’t mention is that short-term gains and short-term losses are potential impostors, as neither is necessarily indicative of real investment ability (or the lack thereof). The kids who win by using leverage and betting on memes probably will come away having learned a lot of bad habits.
Third, judgments that prove correct don’t necessarily do so promptly, so even the best investors look wrong a lot of the time.
If you want the kids to learn the right things (and they feel the need to make it a competition), have them enter an event like the Wharton Global High School Investment Competition, where they do the trading, but winners are selected on the strength and articulation of their team strategies, not on the growth of their portfolios.
Finally, it is worth noting that I am probably biased. When I was in middle school, a relative gave me an envelope filled with old stock and bond certificates. Nobody could tell me whether they were worth anything, so I started researching them, only to discover that all the issuers had gone bankrupt during the Great Depression.
But as part of my research, I found out that people called scripophilists collected these things, and even though the shares and coupons may not be worth anything, the certificates themselves might be.
So, rather than giving up on my hopes and dreams of instant riches, I changed my AOL screen name from SwimKid622 to Scripo22, pretended I was a wizened expert in old stocks and bonds, and started selling them to people in chat rooms.
Fortunately, this was around 1997, and there were limits to how much trouble I could get into and how many schemes I could concoct. Today, I imagine I would have sold the certificates on eBay, used the cash to start trading crypto, and probably developed a habit that looked a lot like a gambling addiction.
But you never know.
What I do know is that one of the hardest skills for professional investors to master is showing up to work each day and doing nothing.
If you think you can teach your kids this restraint by opening a trading account for them on a gamified platform like Robinhood and letting them track it in an app on their phone, go for it. But be careful. What you are trying to teach and what you end up teaching could be very different things.
Personal note:
In addition to being the President of TSA Wealth Management, I moonlight as the President of my kids’ lacrosse program. I recently did an interview with USA Lacrosse about our focus on creating opportunities outside expensive, overly intense travel programs, and Paul Ohanian wrote a very nice article.
