For many people, the lessons about investing and personal finance are learned the hard way. Now Marketplace has a new show on YouTube called “Financially Inclined” that aims to teach young people about money in a less painful way.
It’s made in collaboration with Next Gen Personal Finance, a financial literacy nonprofit, and is hosted by Yanely Espinal, who says digital tools like computer games can help engage inexperienced investors. The following is an edited conversation between Espinal and Marketplace’s Meghan McCarty Carino.
Yanely Espinal: The reality is that no matter how much money you add to a savings account, you simply cannot accumulate wealth within a savings account. You have to learn to invest to build wealth. And there are many ways to invest, but the most accessible, I would tell almost anyone, regardless of their credit score or how much money they have, could start investing with $1 and a WiFi connection. So I think it’s really important for us to start teaching students about investing in the stock market so that we can help set them up for long-term success and not just think about finances this month or next month, but really think long term. of their life
Meghan McCarty Honey, Yanely shows me an old-school browser game, created by Next Gen Personal Finance, to help illustrate some of what she’s talking about.
spinal: So right away, start with some money, because you have to have some if you want to invest money.
McCarty Honey: They have given me $4,000, which is a good amount.
spinal: That’s a good chunk.
McCarty Honey: The idea is to invest it in various opportunities that appear in the game, from savings accounts to stocks, and watch that cash grow over 20 years, which in-game is about 20 minutes.
spinal: So it’s like you need a strategy in this game, where you’re always going to be able to have some cash on hand that you take liquid, but also while building wealth in the long run, at the same time. I hope you don’t have to interrupt.
McCarty Honey: I’m getting another investment opportunity here, “certificate of deposit.” This is not something I’m very familiar with.
spinal: And honestly, I don’t think many people know that. But there are different types of savings accounts. There is no single type of savings account. So right now you started, again, with a traditional savings account. You now have a certificate of deposit, which is a special type of savings account where you can lock up your money for a set period of time and get a little more interest than your traditional savings.
McCarty Honey: Uh-oh, wait. Something is happening. Okay, “ding-dong, wedding bells are ringing.” She says I have a wedding and I have to spend $7,000. This is actually a reasonable wedding.
spinal: That is a very affordable wedding. Most weddings are more than that.
McCarty Honey: Okay, so I spent the $7,000. Now I have another investment opportunity that has come up, “index fund”. Tell me about this.
spinal: Nice. So now you are investing in the market. So before, where you had your savings account and your savings certificate of deposit, that money is just being held by a bank in an account that’s pretty liquid. But now, with an index fund, you’re actually investing in investments that can be bought and sold on the stock market, which is really exciting, because now you’re actually buying what’s called securities, which you can’t actually buy. . a bank account, but you can buy into an investment account.
McCarty Honey: Well, I feel pretty smart now that I’m in the stock market.
spinal: Now, I noticed that the CDs are flashing. And you didn’t realize that…
McCarty Honey: I did not collect them.
spinal: Now you collected them. So that money was probably sitting there waiting for you to pick it up for a while. You have to pay attention to your money when it’s under lock and key.
McCarty Honey: So much to pay attention to.
spinal: I know, girl, you have to handle all the things. It’s a lot, but it’s great that it’s all in one place here, because I think in real life, it doesn’t always end up that way. As if you have to manage many accounts.
McCarty Honey: Alright. Well, yes, we reached the end of the game. In 20 years I earned $294,473. Alright.
spinal: Assuming you maintain reasonable 6% annual growth, you could retire in another 20 years with $944,415.57.
McCarty Honey: That sounds like a lot to me.
spinal: That’s almost a million dollars. That’s pretty big.
McCarty Honey: Is that good? Yeah, that sounds good for retirement.
spinal: That’s really cool. So this is where you learn what was happening in the game, because you were playing against a computer. They weren’t against each other, it was you against a computer, and you say, know that the computer wins 70% of the time. So you can look below to see what it did compared to what the computer did.
McCarty Honey: The computer portfolio was all index funds. I feel like that’s cheating.
spinal: Yeah, I mean, the computer has an advantage because it knows what tends to work long-term in the market, which is simple: less is more.
McCarty Honey: And how can games and technology like this really help young people master some of these financial education basics?
spinal: Yeah, I mean, they’re not living it yet. If you’re 15 or 16, chances are you don’t have an investment account. Most 15-year-olds don’t. So the reality is that they can learn by doing a simulation. So game-based learning actually gives them a simulated environment, where if they make mistakes, hey, it’s still not real money. Let’s have them practice this way and learn this way. And it feels real, and they get the lessons of the real world, but without having to put up real money that they may or may not have access to. And also, maybe their families aren’t too comfortable with them yet. So if they jump in a bit later, they’ll have the knowledge of game-based learning early on.
McCarty Honey: Now, I think that digital consumer tools have made investing much more accessible to everyday people. I’m thinking of the whole Gamestop meme stock phenomenon in the Robin Hood app. But, I mean, is this some kind of double-edged sword? Does it also make it easier for people to get into trouble with risky investments?
spinal: It is, 100% yes. But I think ultimately it’s going to do more good, I think, than harm just exposing young people to this kind of thing. And there are all these headlines, as you mentioned GameStop. If it’s not GameStop, it’s crypto or the closure of Silicon Valley Bank and that can be really scary. But if you have certain fundamental lessons that you learned that you know are tried and true and information that you trust, especially if it comes from a very formal financial education and not from the hard knock school where you try things and make mistakes. , then you can have some confidence in the fact that you have made a plan, that you are implementing your strategies for the long term. And adults have to take responsibility for educating the next generation.
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There is another digital tool that apparently a lot of people are using to get investment advice: ChatGPT. In a recent episode, we spoke with an analyst from investment advice platform The Motley Fool about his recent survey showing that about half of American adults have used the chatbot to pick stocks. Big language models like ChatGPT can do a great job of synthesizing large amounts of information and historical trends. But, as you’ll know if you’re a regular listener, they have a tendency to make things up. Therefore, you may not want to trust him with your life savings.