Let Your Kids Buy Stock in the REAL Stock Market!
After teaching economics for a few years, I finally decided to have my students play the Stock Market Game in my class. I am far from a stock market expert, but knew enough basics that would allow me to have them set up “fake portfolios”.
At the start of each semester I would tell each student they were given $100,000 of “pretend” money that they would use to buy stock in 3-4 companies. They would keep track of their gains and losses and then the winner of the game (person who made the most money) in each class would be given a small prize. Some of the students wanted to buy and sell, but I don’t know all the facets of how it works, so I kept it simple and made them buy at the start of the semester and sell at the end. I made them invest in between 3-4 companies because we learned from Enron, that you should not have all of your “eggs in one basket” and should diversify. (On a side note, if you have never watched the film, Smartest Guy in the Room – based on the Enron story, I highly recommend it! You will learn so much and it is interesting. The only bad thing is that it has a lot of cursing.)
I did this with both my academic (grade level) and Advanced Placement classes. I felt it was important to do it with all the kids because this is one of the avenues that helps create wealth. I personally feel that people who are not living paycheck to paycheck have an exponential advantage to getting ahead because they can invest money and have it grow at a much faster rate than those who can barely make ends meet. I spent most of my 14 years teaching at lower socioeconomic schools and realized that in order to break the cycle of poverty, you have to teach all kids this important life lesson.
Four years ago my nephew Morgan (who just turned 20 and is a sophomore engineering student at LSU) was a high school student who wanted to buy some stock. He always had a job and was good about not blowing all of it on junk. He saved $500.00 and wanted to invest it. Dave helped him understand the process and Michelle helped him set up an account because minors can not buy stock on their own (or at least I don’t think they can!).
Here is how he has done:
He invested in three companies- Sprint (S), Verizon (VZ), and Cheniere (LNG). He bought 8 shares of Sprint at $5.67 a share. He bought 8 shares of Verizon at $35.02 a share. He bought 18 shares of Cheniere at 8.49 a share.
Sprint: $45. 36 ($5.67 purchase price)
Verizon: $280.16 ($35.02 purchase price)
Cheniere: $152.82 ($8.49 purchase price)
He has wisely held onto all shares and today his 34 shares ($478.34 market value) and today has a market value of $2026.28.
Sprint: $39.68 ($4.96 today’s price)
Verizon $401.68 ($50.21 today’s price)
Cheniere $1339.56 ($74.22 today’s price)
You can see the only money he has lost has been $5.58 in Sprint. He invested $478.34 and it is now worth $2026.28. He has seen a 423% return on his investment. Is this normal? No. He got lucky that one of his stocks went crazy high. However, a good rule of thumb is about a 10% return per year. I know I wish I would have purchased Netflix Stock when they were going through their crazy period.
Netflix sold for $8.42 a share in May 2002. It was selling for $295.14 in July 2011. It plummeted to $63.86 in November 2011, and today it sold for $360.28.
Many of you are now thinking, WOW, how can my kids do this?
If you want to teach your kids about the stock market, here is my advice. The cost of each trade varies, but E-trade charges $10.00 to buy it and $10.00 to sell it. If you have $50.00 or $100.00 for your kids to invest, you have to realize $20.00 is a large percentage for them to recoup. I would suggest that if your child wants to invest their own money, you gift them the trading fees (because it is a small amount of money) so that they can just keep track of their initial investment. Adults have to set up the E-Trade Accounts.
So my question for you, who is ready for their kids to learn how to get rich so they can support their parents?