The Stock Market: why aren’t we learning this at school?
The driving energy of economies is the stock market. It underpins our savings, investments, pensions, policies – in fact our very lifestyle, standard of living, achievements, aspirations and everyday experience. It is the engine of development, business, progress and the creation of wealth. It is the wheel of fortune, the genie jar and sometimes the deadly game of Russian roulette. But whichever way you look at it – it dictates our experience of life in one way or another. It is fundamental to how we have set up our monetary systems in the world.
So why isn’t it taught at school?
Basic banking, insurance and higher purchase is not taught either. We learn math, science, history, geography – all well and good. But the basic tool to real survival in the world is mostly ignored. The stock market doesn’t discriminate against poor or wealthy, race, creed or nationality…it operates indifferently and is only engaged in perception, sentiment and risk-tolerant minds ready to become versed in the volatility of sharp declines and heady success.
The beauty of compound interest
It is so important to explain to young people how this can work for them or against them. When interest is gathered on investments, reinvested to grow even higher interest, which is again reinvested – there is potential for enormous returns over time. However, too many people become familiar with compound interest on debt rather than its creative prospective in a unit trust account or share portfolio. They graduate with a desire to get stuff as soon as possible without understanding the importance of patience and budget planning.
Once the positives of compound interest on savings are explained, students enter the working world with an understanding of what debt actually costs and the alternative effect of compound interest on long-term savings. If this basic distinction is taught, imagine how differently many of our young people might approach the start of their adult lives.
The labyrinth of the stock market
There is a perception among so many people that the stock market is too intricate for ordinary people and can only be understood by those with advanced degrees in business and finance. While qualifications are useful, it is perfectly possible to learn a great deal about the world’s stock markets and how they work while at school.
If for instance, in the last two years before matriculation, weekly discussions were introduced on the basic structure of companies, profits, investments, and the sometimes bewildering jargon of the markets – by the time students enter the working world, no matter their chosen career (or even lack thereof) they will have some basic and useful comprehension of the fortunes of the stock market; how to read prices, buy and sell intelligently, understand dividends, evaluate businesses – and spot the potential of any new but stable raft in the heaving sea.
How can we teach the stock market in a more simplified way in our schools?
- Use examples of businesses that exist in the teenager’s world. Apple, Starbucks, Disney, Google make excellent starter tools – kids know and like what these businesses do. From there you can talk about how they can become investors. They need to understand the meaning of shares, and that every time people buy the products of a company, the company profits and therefore their shares in that company become more valuable. This is tangible evidence.
- Teach the power of long-term and the returns on various asset classes – and how to pick a good mix that will best meet their needs.
- To begin with, don’t talk to much about volatility, diversifying, risk tolerance or mutual funds. Begin with the basic strategies of evaluated selections and purchase. Hammering on about complexities may have a negative, even confusing effect. Students need to grasp the positive potential first to become interested. Once you’ve got them hooked and interested in learning more, there will be plenty of opportunity for the other important lessons. While a class or a book can teach the fundamentals of the market, there’s nothing to beat direct experience to persuade students to become lifelong investors.
- Set up a school investment account in which all students can participate – or on an individual class basis. If students become part of the process rather than passive learners, they will understand the control they can have over their decisions – and in that way they will become more interested in learning about investing. Make the investments regular, helping them to understand the discipline of regular contributions, and make them responsible for choices and timing. Let them track the performance of their account as a team.
- Begin with a list of stocks, or funds they can choose from, then help them analyse any particular company or fund that takes their fancy. Let them have a sense of ownership but require them to explain why they have chosen a particular stock and why they think it is good. As long as their explanation sounds somewhat rational, let them buy the investment. It is important to allow them to fail and then work out the reasons, and also investigate options for possible recovery.
- There are web-based platforms that do an excellent job of teaching financial literacy—often using gaming technologies to keep younger minds engaged. Schools should tap into these options and create competitive teams in the class.
At Foster Wealth we believe knowledge is the key to creating wealth. We feel that knowledgeable people are advantaged people in our world – and this knowledge can be extended to anyone and everyone. That’s why we are here to offer not only professional advice but also dedicated time in fruitful and informative discussion with our clients. Working the wheels of fortune in the financial markets may be our qualified forte – but imparting knowledge and success to others is our passion. We make it our business.
Find out more about us at: www.fosterwealth.co.za