Last week, I received the weekly newsletter from my two older sons’ school, where they are in 1st grade and kindergarten. At first I was excited to see that the school seemed to be providing some personal finance and investing education.

But, once I got past the first lines of the email, I realized that, in the long run, it may have been even better if they did nothing.

In this case, no investing education may have actually been better.

The email

This was the blurb in the weekly newsletter…

“We’re thrilled to announce that the sixth-grade teams have shined brightly in the Fall 2024 Stock Market Game, securing 1st and 2nd place in the New York State middle school division! The Stock Market Game, hosted by the SIFMA Foundation, challenges students to manage a simulated $100,000 portfolio. Our student teams grew their $100,000 portfolios to $169,438 and $139,687 in just 12 weeks.

Beyond the competition, students gain invaluable skills in research, risk assessment, and decision-making. These lessons deepen their understanding of economic principles and instill a sense of financial responsibility and readiness for future academic, career, and personal finance challenges.”

Why does this amount to (at best) poor and (at worst) harmful investing education?

Let’s dig into this a bit deeper…

1. Conflicts of interest abound

This stock market game was created and hosted by the SIFMA Foundation.

On their website, SIFMA describes itself as “the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s one million employees, we advocate on legislation, regulation and business policy affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development.”

On their site you can also find their sponsors, which are basically a bunch of financial advisors, brokerage firms, and Wall Street who’s who’s.

Thus, the game was created by biased industry members to get kids used to investing with pretend money so that they can later invest their real money…ideally with these industry members.

Again, I am not anti-financial advisor. Getting good advice for the right price is fine. But you need to make sure you are getting good advice. (Asking your potential financial advisor these 7 questions can help…)

Anyway, this all wouldn’t be so bad, except…

2. They are largely teaching active investing strategies

While no specific investing strategy is laid out explicitly on the website for the stock market game, it does appear that active investing strategies are the focus.

What makes me say this?

Well, there is a “short sell” button featured prominently on the site and in their mobile app.

Further, and maybe I am cynical, but I doubt that these Wall Street firms sponsoring the game and making tons of money in exorbitant fees are teaching a passive approach. Again, they have a vested interest in teaching an active approach. Even if that is worse for the investor.

As a quick refresher…

Active investing strategies like stock picking and timing the market don’t work. Passive investing strategies like index fund investing beats active investing 80% of the time. And no active manager has been able to beat the market more than that predicted by luck.

Why?

Well, I’ve admitted before that pricing errors do likely exist in the stock market.

And that sounds exciting at first. It even gives credence to the idea that active investing can generate persistently higher than expected returns (alpha). It just makes sense. In just about every aspect of our lives, errors can be exploited for gain.

But the stock market is different.

Because there are costs associated with exploiting these errors. And these costs outweigh the gains from exploiting the market.

And the reason the costs outweigh the gains is because the stock market is efficient. Efficient because any effort to exploit errors inherently eliminates the error. And because we are investing against the entire market and all of the cumulative and instant information that it reflects at any moment.

What are we to do?

There is some good news here.

Investing gets a whole lot simpler once you accept the notion that you can’t successfully and persistently exploit any pricing errors in the stock market.

Once you accept this, the only logical approach is to invest according to your chosen asset allocation in broadly diversified passive index funds. And then do nothing other than rebalance yearly. And this logical approach is supported by the research and data.

Do this with at least 20% of your gross income. These are the main tenants of the formula to reach financial freedom!

However, it doesn’t appear that these strategies are what is being taught to students of this game.

And that’s a shame.

3. The students’ performance is suspect

Let’s look at the performance of the two student groups from the original school email. Over 3 months, one student group saw a return of nearly 70% while another saw a return of close to 40%.

Those are amazing returns! They way beat the VTSAX return of just over 5% for the same presumed time period.

However, there is a problem

These two student teams comprised 2-3 students each. That means there were likely about 10 teams in the grade level.

We have no information about the performance of the other 8+ groups. But presumably they did worse. In fact, these odds kind of line up with the overall trends that only 20% of active investors beat their appropriate index benchmark. And at a rate not above that expected by chance.

This is magnified even more in this stock market game as these kids played over a very short period of time, just 3 months.

Basically, the winning groups got lucky. But they don’t know that. Because the game is designed to reward luck. And make it seem like skill.

Unfortunately, that gives the wrong impression to these kids. And my cynical self thinks that may be on purpose to serve the motives of the foundation and sponsors that created the game.

If this is the case, why do schools use the stock market game?

I think there are a few reasons.

1. It’s fun

First, it is fun. Active investing is like gambling or speculating. And gambling is fun. And addicting. So of course the kids love it! You might as well have FanDuel sponsor a sports betting game where kids start with $100k and see how far they can go with wagering on professional sports.

The same thing would happen. Some would get lucky. Others wouldn’t. But schools would never go for that right?

2. The alternative is boring

Here is what the game would look like if the right investing education was being provided:

• All kids start with a pretend $100,000
• They all invest in index funds based on their risk tolerance (likely 100% stocks because they are kids with a long investing horizon)
• They do nothing for the remaining 3 months of the game
• After 3 months, they check their returns which really mean nothing in the long run as they (like you) should be investing long term

I’m bored myself. But successful and wise investing is boring…until you realize it’s pushing you to financial freedom. Which is pretty exciting.

3. Schools and teachers probably don’t know better

This is a sad reality.

It is very likely that the teachers and schools that use their game for their students don’t have a solid base of investing education and financial literacy either. They fall for the allure and misgivings of Wall Street. And thus, this game seems to demonstrate the “right” way to invest.

Plus the site for the game touts, without much evidence, the benefits of the game.

They don’t realize how potentially devastating this education really could be.

Am I taking this too seriously?

Maybe I am. But I don’t think so.

Financial well-being is so important to overall well-being. For doctors, for everyone. And I commend the school for trying to implement some financial education to kids.

But this is a case where nothing is probably better than something. The potential downfield ramifications are huge. The best case scenario if proper education is not received at another time is that the investor loses mild to moderate returns due to the higher fees and taxes associated with active investing. The worst case scenario is that they partake in more risky active strategies and lose significant returns.

Either way, the goal posts of financial freedom are moving backwards. And that is the opposite of the point.

What should we do?

Personal finance education and financial literacy needs to be integrated into public education. And the education cannot be provided by members of the financial industry, no matter how well meaning they may appear or actually be. There is just too much potential for bias. It has to come from an impartial educator. I’ve advocated for this at the medical student and resident education level for some time now.

Unfortunately I don’t see this happening in the US school system anytime soon.

That is why it is so important for us all to invest time and sometimes even money into our own financial education. And then we need to take the onus to pass it down to our kids.

Financial freedom has the power to improve all of our well-being. For physicians, it makes us better doctors and is better for our patients.

The impact is just too high to ignore the issue. Take action today and get on the road to financial freedom, for yourself and your family, today!

Here are 3 ways you can get started right now:

• Watch my Masterclass Webinar on The 12 Steps to Financial Freedom for Physicians here!
• Check out my best-selling book, Money Matters in Medicine!
• Learn more about my hands-on course, Graduating to Success, with 12 modules that guides and teaches you to thrive as an attending physician – personally, professionally, and financially!

What do you think? Is this an example of poor investing education? Am I overreacting? What exercise would be better to teach financial literacy? Let me know in the comments below!