How to Teach Children About Stocks

Manage
1

This is a bit different but I am hoping you have a few suggestions. My 6 grade son’s teacher has asked me to come in to her class to answer the children’s questions about the stock market and how to pick stocks.

Do you have suggestions of a few key points to make to 6th graders that would be most valuable to help get them interested in stock picking and learn. I would really like to get the kids at an early age to think about having control of their destiny that this can help enable for them.

I was wondering if there are a few kid-oriented web sites to teaching about stocks I can also point them to that you may have found valuable and worthwhile or perhaps books that are oriented towards pre-teens.

Thank you very much. I am looking forward to this. My son is very excited about this.

Kurt

2

One site is www.richkidsmartkid.com.

It’s not strictly about stocks, but it have have something you’re looking for.

3

I remember there was something in Peter Lynch’s book about this, he talked about a stock picking class where kids had to select stocks and explain why they thought they were good. I can’t remember if it was “one up on wall street” or “beating the street”, but both books are worth having.

If I were talking to kids I would emphasise the long term aspects of investing.

I remember as a teenager I took a class on stock market investing, and the teacher said “if you make 15% per year how often does it double? about 5 years… start of with £10k, then it goes to £20k, £40k, etc. and in 30 years you will have £256k, and 40 years will have over a cool million”

The other kids were like “yeah yeah but you have to start with £10k and it takes years and years”, but I remember it had a profound affect on me.

I think if you can just expose them to the miracle of compound interest, when you are young you have a lot of compounding up ahead. I find it amazing that you can put a few thousand into a pension at age 18 and retire on a nice nest egg, even if you do no saving in the interim!

Of course, if you can make more than 15%… but ok, lets not get ahead of ourselves :slight_smile:

4

Companies and their Importance to Society

Companies as engines of growth that create wealth through their goods and services. It is not a zero sum game. Logic of long term investing.

contrast with

Stock Market as a Casino

Short term trading. Very dangerous if you don’t know what you are doing, or if you do not have adequate grasp of probability theory. Still better than casino but like a casino requires an edge or else danger of blowout of similar proportions.

Number 1 Rule: Don’t lose money.

Illustrate with large gains on some years and losses on others vs. consistent steady returns with little losses. Fundamentals. Diversification. Risk management.

Power of Compound Interest

Schools have a away of glossing over all the important stuff or presenting it in such abstract ways the importance is lost on the student. The difference between simple interest and compound interest is huge yet kids are likely to be more familiar with simple interest. May want to go into the hazards of credit card debt to illustrate. Or say this is how banks make money through lending. This topic alone maybe more important than anything else you might say about stocks.

Not written for kids but a good simple primer on the basic ideas of investing would be Edelman’s The Truth About Money.

5

Hi,
I try to talk to my children about stocks in ways they can relate to. They very much enjoyed owning ToysRUs, even though it was through a mutual fund. Concepts like valuation, earnings, compound interest, diversification and risk management are all good topics if you can find ways to make it interesting. You could talk about how Apple ipod sales growth drove revenue growth and in turn the stock price. Perhaps you can find other examples of companies the kids will know. For kids I think Peter Lynch’s advice to invest in what you know is excellent. For compound interest I explained to my kids how a penny doubled each day grows to more than $1M by the end of a month. Might be fun to let the kids try to guess how much it would be … and then use an example with realistic returns so they don’t think they will double their money so easily.

Good luck,

Don

6

Yes, I agree one of the things that is more relevant for kids is the time they have available for compounding. This has to be explained to them and made appealing. They have to be thought how much of an advantage they have for the fact that they can start early.

(The next text is much about a specific focused sector but I still think relates well to the younger ones.)
Another thing I have noticed (and might be just personal experience) but kids seem to be much easier to get to like ideas about newer technologies, new ways of ding things. That includes smart, renewable, clean energy. To me, one of the main reasons these technologies have not developed better till now is people (adults) have been too pessimistic about it and to stuck to do what they are paid for. Young inspiration for better world is needed in this area. I remember a day when I was helping my daughter and her friends build a solar powered Ferris wheel toy from modular elements. They were so surprised how easy everything looked and operated and that the energy that was used was free and in abundance and clean. They were asking why isn’t everything powered that way. We adults seem to always find a good reason why we do so many things wrongly.

Back to investing, I think both the time frame they have in front of them and their belief in technologies better for the world can help them make some good choices in investing in clean energy. Wind turbines, solar power, bio-files, waste processing – many themes with many stock investing opportunities just coming out. (I am all over these, even though I am not that young).

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Here is a list of alternative energy stocks I have been compiling.

Steve

Alternative Energy Stocks.doc (21 KB)

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Good list, Steve.

Here are some I do not see on your list that I have on mine:

CVA - they are into landfills-to-mathane-to-electricity cycle, have the technology, sell the technology, build plants for themselves, sell plants (build for other companies), buy and own landfills, sell electricity to the grid, active oversaes including developing Asia.

VWSYF.PK - Vestas Wind Systems - probably the biggest market share wind turbines clean play (non-conglomerate unlike GE or Mitsubishi). Just coming to profit. Cought them at 20 (USD) but made major purchases at 40 - 45. Now about 67. about 35% market share, great presense in China.

GCTAF.PK and NRDXF.PK the other independant wind turbine manufactures. I do not consider them to be as good compenies as Vestas but their stocks perform similarly.

BBWPF.PK - acquires wind farms and currently (by my unprofessional estimate) for $1 of stock you buy about 1W of electric production power so with any small amount of money you are almost at par with someone investing $1.6m in a 1.6MW turbine pole.

ACXIF.PK - more of an asset management type, industrial conglomerate type of co. but with very good performance till now and good wind energy track record - has a turbine factory in the US. (US is currently considered the biggest market for new alternative energy installations - can’t quote exact source but is from artical about alt. energy conference)

As you see many of the ones I like are foreign companies that do not have a proper ADR but still available through Pink Sheets. While this is somewhat inconvenient I consider it a contributor to an ineficient market to these securites. The bigger and more known they become and if they eventually go to ADR the better the investment will perform for someone who already “loaded the truck”.

If one is not experienced with pink sheets - one will need extra caution there.

I also buy some of the big oil companies to catch the alternative energy wave (specifically BP and RDS-B) since I have the (unpopular) belief these companies will throw (and I think already are) money at technologies they see as competing specifically solar and bio-fuels.

Vlad

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READING and therefore LEARNING

A few of the most important skills to have and to utilise throughout life are reading and learning; investing is no different than any other subject, in that it requires a lot of reading, learning, and thinking. Yes, experience, is an excellent teacher, too, but reading is absolutely essential.

Buffett is either reading or talking to someone or to a group.

The best investors have read a lot through their life. There is gold in books.

Have your young Buffett call and/ or email the investor relations department of a basket of companies and ask to be put on their mailing list. Or, get them to use a web site where the SEC (et al) info is available.

There are many areas of knowledge and books that contribute to good investing. All of those areas of knowledge are acquired through reading. Some areas include, but this is just a short list:

accounting
math
programming (languages in which humans read and write to communicate, in this case with machines and also with others who read the code)
history
economics
economic history
biographies
psychology
fundamental investing
‘technical’ investing
risk management
annual reports

Basically, everything you need is buried in some book, article, etc., somewhere. Then, gradually let it all soak in and if you help your young Buffett to actively read (thinking of new ideas, connections, questions, etc) then they will be on a life-long journey.

The ignorance with respect to investing, and with many subject matters, is astonishing in the world. However, most of what is required is all freely available in the library or somewhere in print or on the web (books are probably the best bet though, as there is so much garbage on the web, obscuring the good information).

It’s a great gift to give to a young person.

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Hi everyone. Thank you for your thoughtful and good ideas and suggestions. :slight_smile:

I believe I will be coming back to read your ideas here again and again periodically to refresh myself on your suggestions- there is much good advice here for adults as well as children. Much more than will be grasped in one session.

Well, I would say my day at school was a success. I spent an hour with my son’s class. First I let them ask all the questions they wanted to ask about anything about stocks, business, etc and boy oh boy did they have lots of questions. 6th graders are great. It was really very fun to be with them. A lot of questions were about how to pick a good stock. They asked about taxes, mortgages, how to tell if a company is good, how to tell if stock will go up or down, if you can believe it, about short vs. long term, all kinds of good stuff. I passed out copies of financial magazines and newspapers for them to look at. They liked that.

Many of your suggestions related to the Law of Compound Return. After the questions, I turned the discussion to the Law of Compound Return. They really were amazed by the idea. I drew a big graph on the board (they have been studying graphs in math) and showed them how the curve did not go in a straight line like they might of thought, but rather curved upward in an ever increasing rate…like a rocket ship. There were lots of ooohs and ahhhs from many of them in the class. It was really quite neat.

I also asked them to take as a homework assignment to tell their parents about the Law of Compound Return. I don’t know how the assignment turned out, but I did tell them that many of them now knew more than their parents and that they could now help their parents by telling them in turn about the Law of Compound Return. I hope at least a few did. I was hoping that by telling their parents it would more likely help them remember it. I told them it would help their parents save for their retirement. They seemed to take that very seriously. I gathered from their questions that quite a few had overheard their parents talking about retirement saving.

I must say, I wish I had learned what you write here in this thread. Including Law of Compound Return. I came to this much later in life. I continue to be amazed by it myself also. It is a remarkable concept.

A number of questions I got was related to if one could use stocks to get rich or if it was possible for them to get rich, so I turned those around and told them if they remember the law of Compound return that would be a way in which they could get rich over time. They seemed satisfied by that.

I also put the ratio of Price/Sales on the board. I don’t expect them to remember it. But they had learned ratios already in math also, so I thought this would be good way for them to see how math they learn can be used in real life. It seemed to work for many of them. My hope was they get idea that there are ways they can learn to pick stocks beyond “throwing a dart”. And I used that Price/Sales ratio over and over again to answer the questions they asked about how to choose to buy a stock and how to know when to sell it. I showed them how if they use special ratios like Price/Sales, they would be more likely to pick stocks that would go up in price and know to sell stocks that were too overvalued. Judging from the dialog back and forth I think that quite a few grasped part of what I was saying…at least to the point of learning that there were Rules to help guide them and they didn’t have to pick just randomly

I was particularly pleased also with my son’s teacher. On her own, outside of normal curriculum, she is making special effort to teach the kids about stocks … she made a rather profound observation, that even though we live in capitalist society our school systems are not teaching our children about what that means or how to use for themselves. It is big oversight by many of our schools. Their teacher also made good point by saying if they learned about stocks and Law of Compound Return, then they would be able to have enough money so they could pick a job or career that they loved and be able to still save enough for their retirement.

There is much more here in your ideas in this thread that I could not all fit in one session. But, I will be having more discussions, with both of my sons and will keep your advice in mind. I must say there is no way I would have felt able to teach this session with my son’s 6th grade without the past few months of significant learning about stocks through P123 and this community. My son was thrilled by the class. Thank you!!! :slight_smile:

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KAR,

Einstein said that compounded returns were the 8th wonder of the world (or something very close to that effect).

Focusing on compounding is a great ‘hook’ to get kids interested in investing.

Also, I completely agree that the education system literally doesn’t even mention investing at almost every level . The skills and tools that are provided even at a higher level (business schools) are useless too. Therefore, using the simple lesson of compounding one can nudge a young mind in the right direction so that they learn on their own, because if the vast majority of adults did not get it in school, or even business school for that matter, how can a young mind hope to get it?

I reiterate that if a young person starts reading a lot (in any subject really) then they will be well ahead in the game of life, which to a large degree requires financial responsibility. Compounding can work marvels with the right underlying foundation of learning.