It was about time! Late last month, Next Gen Personal Finance (NGPF) launched a free online game to actually teach high school students how to invest.
NGPF is a nonprofit organization whose stated mission is to revolutionize the teaching of personal finance in all schools and to improve the financial lives of the next generation of Americans.
Its new game, STAX, isn’t the first stock market game, but it’s the first I know of to teach long-term investing.
Learning To Think Long Term
What’s different about STAX? A critical difference is that it recognizes investing is long term, and reflects that fact by lengthening the time horizon to yield realistic outcomes. STAX manages to compress 20 years of investing into about 20 minutes.
To better understand the brilliance of this game—and the significance of its importance in the effort to educate a new generation of investors—contrast it with the current standard taught in schools across the country.
Industry’s Stock Market Game
The Stock Market game (SMG) is a program of SIFMA’s Foundation for Investor Education. The foundation’s website says it’s “an educational non-profit organization dedicated to fostering knowledge and understanding of the financial markets for individuals of all backgrounds.”
I’m not a big fan of this game, as it teaches students to be losers in the long haul. Typically lasting 10 weeks, the only way to win this game is to take as much risk as possible, buying, for instance, a leveraged ETF like the Direxion Daily Gold Miner’s Bear 3x Shares (DUST), which was up 72.6% earlier this year.
Unfortunately, these top performing ETFs typically come back to bite you. Further, they make horrible long-term investments. Consider that this same fund has lost 54.5% annually for the past five years.
But the real problem here is that, unlike real life, there is no penalty in the game for losing more than 98% of your investment over five years.
How STAX Works
Investing is long term. As mentioned, STAX compresses 20 years of investing into about 20 minutes. You can select from seven different investment options: savings accounts, CDs, individual stocks, index funds, bonds, commodities and gold. Each of the investments is unlocked over time to scaffold the learning for students and can allocate to any or all of these investments.
Players will see high-flying stocks and learn that some may continue to fly while others will crash and burn. They will encounter bull and bear markets, and learn the emotions and responses that accompany each.
They will learn the temptations of chasing the hot stock or gold bubble and how to avoid making my $373,000 investment mistake. Simulating bad behavior in a game is far less costly than finding out the hard way. Players will learn how to lower volatility and only take risks as compensation for higher expected returns.
Most importantly, players will see their investing play out over two decades of discipline, and allow them to imagine all the possibilities that come with it.
Perhaps they’ll achieve the financial freedom that will give them the ability to cut loose and pursue their passions. Or, conversely, perhaps they’ll learn the consequences of their own behavioral mistakes, which may require them to keep working long after their friends have achieved financial independence.
They’ll learn the value of low-cost broad index ETFs, such as the 10 largest below, and avoid the foolishness of the types of investments that can lead them to win the SIFMA game, but make them long-term losers in real life.
|SPY||SPDR S&P 500 ETF Trust||State Street Global Advisors||0.09%||$267.68B|
|IVV||iShares Core S&P 500 ETF||BlackRock||0.04%||$163.42B|
|VOO||Vanguard S&P 500 ETF||Vanguard||0.04%||$103.75B|
|VTI||Vanguard Total Stock Market ETF||Vanguard||0.04%||$103.64B|
|QQQ||Invesco QQQ Trust||Invesco||0.20%||$69.47B|
|VEA||Vanguard FTSE Developed Markets ETF||Vanguard||0.07%||$68.45B|
|EFA||iShares MSCI EAFE ETF||BlackRock||0.32%||$65.78B|
|VWO||Vanguard FTSE Emerging Markets ETF||Vanguard||0.14%||$56.50B|
|IEFA||iShares Core MSCI EAFE ETF||BlackRock||0.08%||$56.26B|
|AGG||iShares Core U.S. Aggregate Bond ETF||BlackRock||0.05%||$53.02B|
My Personal View
I love the new NGPF investing simulation, STAX, since it actually teaches investing—long-term investing—rather than gambling. It’s my hope that STAX will be used in every high school in America. But this game isn’t just for your kids and grandkids. Spending 20 minutes giving it a go may just improve your investing skills and actually move up your own financial independence.
Allan Roth is the founder of Wealth Logic LLC, an hourly based financial planning firm. He has been a nonpaid panelist at one of NGPF's conferences for high-school teachers, but is not part of its organization. He is required by law to note that his columns are not meant as specific investment advice. Roth also writes for the Wall Street Journal, AARP and Financial Planning magazine. You can reach him at [email protected] or follow him on Twitter at Allan Roth (@Dull_Investing) · Twitter.