In the past year, personal finance educator Fred Masters has presented virtual investing seminars to hundreds of Canadian university students. And each time, he has fielded questions about trading cryptocurrency and “meme” stocks — the often volatile assets trending on social media platforms such as Reddit, Twitter and TikTok.
“A lot of today’s young investors are trying to hit a home run with one pitch,” says Masters, President and Founder of Masters Money Management in Kitchener, Ontario, and author of the soon-to-be-released book, Lessons on Mastering Money: The personal finance guide for Canadians in their 20s and 30s. “The idea of ‘get rich slow’ is almost counter-cultural—young investors often want everything fast,” he said in a recent interview.
The moral of the story is, if we’re not teaching our teens about investing — including core principles such as diversification and mitigating risk — they could be getting a skewed view of the stock market from the internet. And, because students receive very little, if any, financial education in high school, they can be particularly vulnerable to the rags-to-riches stories that proliferate online from investors who claim to have struck it rich on crypto or a stock that went “viral.”
Secondary school curriculums vary across the country, but dedicated courses in personal finance are rare, and those that do exist are optional credits, not a requirement to graduate, says Masters. In terms of required courses, this year Ontario added material on interest rates, budgeting and financial decision-making to its new Grade 9 math course, which every student must take, but it’s just one unit and limited in scope. As for instruction on the stock market and investing, that’s largely relegated to extra-curricular finance clubs.
Given this hole in students’ formal education — and the fact that any Canadian over the age of majority can open an investment account — it’s especially important to talk to 18- and 19-year-olds about market risk and reward tradeoffs before they put their hard-earned cash on the line. Masters has found that teens are keen to understand.
“They have an insatiable desire to learn about personal finance,” he says, which he saw first-hand running a financial-literacy club during his three-decade career as a high school accounting teacher. When he started the club, he wasn’t sure if anyone would spend their lunch period listening to a teacher when there was no credit on the line.
“But they came in waves. And then staff started to come,” he says, which made it clear to him just how deep the dearth of financial education runs. “This is a wellness issue cloaked in a taboo for our society. Money is emotional. The more we talk about this stuff and show kids the map to take care of their financial life, the more we help them.”
Not sure where to start? Here are some tips from Masters on how to teach older teens about investing.
“Stock market simulations are a really powerful way to learn,” he says, adding they were a tool he used in his investment club. “The kids would trade on their phones day and night. They loved it.”
To boost the educational value, he would have students manage two virtual $100,000 mock portfolios with pretend money over a six-week period. One was a so-called couch potato portfolio made up of index funds, which they wouldn’t trade, but would observe to see the effects of time and compounding. The other was for active trading, and it was up to each student to research, buy and sell stocks with the goal of beating the performance of the market overall.
“At the end of the six weeks, very few kids would beat their couch potato portfolio by actively trading,” he says.
Discuss goals and values
While investing pretend money can be instructive for teens, the lessons should be connected to how gains or losses will affect their financial goals, Masters says. If the goal is to graduate debt-free from university, for example, they should understand the downside of missing that goal if they were to make investment decisions that were too risky for them. It could mean living at home longer after graduation, suggests Masters, since debt repayments would cut into their ability to pay rent or save for a down payment on a condo. “You need to have conversations about mitigating risk and protecting capital,” he says.
Finding investments that match up with younger investors’ values can also be a strong motivator. “Many want to know how they can go about investing in an ethical way in sectors that are aligned with their views on social, environmental and governance issues,” he says.
Explore a TFSA
At age 18, Canadians begin accumulating annual contribution room to a Tax-Free Savings Account (TFSA)*. Since interest paid on basic savings accounts is negligible these days, Masters believes a TFSA can be a great option for teens to begin investing to grow some long-term savings.
“While it’s unlikely most 18-year-olds could set aside $230 each paycheque to invest [which would get them close to the $6,000 of annual TFSA contribution room available for 2021], they may be able to afford a smaller amount that could help them create a pattern of savings,” he says.
Finally, Masters tries to reinforce the idea to teens that there are no shortcuts, regardless of what might be trending. “The market doesn’t offer up easy money on a regular basis. Lots of meme investors bought into the hype and got burned big time last year,” he says, adding that it’s important to approach any high-risk investment with eyes wide open. “I would hope nobody’s using their grocery money. It should be with money you can afford to lose.”
*TFSA contribution room starts accumulating at age 18, but the account can’t be opened until an individual reaches the age of majority in their province.