The game that could turn your kid into a financial pro

What if we told you there was one activity that could teach your child all there is to know about finances?

Well, maybe not all there is to know.

Of course, the activity in question — The Stock Market Game — isn't magic. As a parent, you'll still have to put effort into properly teaching your kid about money … but this game can certainly help.

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At least that's what Dr. Hersh Shefrin, the Mario L. Belotti chair in the department of finance at Santa Clara University's Leavey School of Business, believes.

In a joint report that he produced with Chase Blueprint, "Born to Spend?", Dr. Shefrin delves into the psyche of American consumers, highlighting how we spend and borrow — as well as what kind of financial education our kids are receiving both in school and at home.

"What we know is that, for the most part, financial education around the country is spotty," says Dr. Shefrin. "[Our kids'] test scores have declined, and students who did take financial literacy courses are doing no better than those who didn't."

But the one bright spot, says Dr. Shefrin, is The Stock Market Game, a classroom game that was developed by the Securities Industry and Financial Markets Association in 1977. In fact, studies have shown that students who play it tend to do significantly better on financial literacy exams compared to those who don't participate in the game.

So what's all the fuss about? Dr. Shefrin explains.

How the stock market game works

When it comes to teaching kids about money, experts have found that experience-based lessons tend to win out over lectures. And that's the guiding principle behind The Stock Market Game: Students are divided into groups of three to five and then given $100,000 of fake money to make simulated investments in the stock market using actual research and news. The goal is to compete against each other to create the best-performing portfolios.

It's the competition aspect, along with the experience, that gets kids coming back for more. "People are competitive by nature," says Dr. Shefrin. "We like to win, and we like to play games. And this game gets all of those reward centers activated, which doesn't happen when kids are just sitting and listening to a lecture."

The group dynamic also helps further learning: When you put kids in a game setting, it's an effective way to get them motivated to learn. "The key is that once kids understand what's going on in the game," says Dr. Shefrin, "parents can then build on that progress."

Get your own game going

If The Stock Market Game isn't currently being taught in your child's classroom, you can register to bring it to your school on the game's site. Most schools introduce the concept in grades 4 through 12, since the program correlates to national and state standards for multiple topics covered in those years, including economics, mathematics, and business.

But keep in mind that even if your kid is one of the 13 million children who have participated in the game since it was developed, you can't expect your kid to glean everything he needs to know about money from one classroom exercise. Parents also have to play a part by setting good financial examples in their own lives, as well as including their kids in key family financial decisions.

"For example, this game teaches people to be active investors, making trades and decisions all of the time," says Dr. Shefrin. However, if history has taught us anything, a passive approach — setting your stock decisions, and letting them grow over the years — is usually better when it comes to playing the market. "This doesn't mean that your kid shouldn't play the game," adds Dr. Shefrin. "It just means that parents need to keep the conversation going at the same time."

Need help figuring out what types of conversations to have with your kid about money? Dr. Shefrin suggests starting with the following:

• If you have preschoolers: Give them piggy banks to introduce them to the concept of saving money.
• If you have grade-school- to middle-school-aged kids: Offer them an allowance, and explain why it's important to divvy up the money into various accounts set aside for savings, charity, and fun money.
• If you have high schoolers: Help them find the perfect first job to further teach them responsibility outside of the home, and increase the amount of money they need to budget and save.

At the end of the day, "the key is to help kids create good financial habits they can carry throughout life," says Dr. Shefrin. "That's what will really make a difference."

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