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Stocks 'R' us: teaching your kids about the stock market gives them a jump-start on investing.

Teaching your kids about the stock market gives them a jump-start on smart investing.

Next time you hear a 16-year-old kid talking stocks, listen up. Especially if it's Terrance O. Davis.

Last December, the junior at William Howard Taft High School in San Antonio, Texas, used the analytical skills he'd sharpened in his advanced math, English and computer classes to monitor Wisconsin Pharmacal Co. Inc. The precocious student was betting that Wall Street pundits were wrong in their belief that the government would soon approve Pharmacal's new contraceptive device. The teen's strategy? Sell his $200,000 worth of shares in a risky move called "shorting," then scoop them back up as the stock price plunged. In a matter of days, Pharmacal went from $20 to $15 per share--netting Davis a handy--if imaginary--$42,880 profit.

"You have to take risks," says Davis, whose Christmas coup helped him land top honors in the nationwide AT&T Collegiate Investment Challenge. By the end of the three-month contest, Davis had outwitted 1,800 high school students, growing his $500,000 play-money portfolio to $984,340, for a stunning 97% gain. Not only did he beat his closest competitor by $225,000, but he clobbered the Dow Jones industrial Average, which eked out a mere 4.5% in the same period.

While stock-picking tykes like Davis may not be in the same league as Warren Buffet, they're well on their way. As part of a national drive to make young Americans more proficient in economics and finance, programs such as the AT&T Challenge are surfacing from coast to coast: At least a half-dozen full-blown stock games are being played nationwide today. Even better, more and more black finance pros are sponsoring progams of their own, steering youths to the stock market--and great careers.

So whats in it for your child? A leg-up on money management, for starters. Today, despite sagging interest rates, African-Americans are still less than half as likely as their white counterparts to invest in common stocks. "We just haven't been as aware of the alternatives that the stock market offers, and we're more reluctant to expose our capital to risks," sums up Alan Bond, president and chief investment officer of New York City-based Bond, Procope Capital Management.

Adds Charles Ross, host of Your Personal Finance, a nationally syndicated radio program, "No matter how you cut it, if you want to build wealth, you need to be involved in the stock market."

No one knows that better than stock specialist Bond. "When I was 10 years old, my family went to Disney World," he recalls. "When we got back, my parents said, 'We've got $5,000 to put in the stock market; what should we buy?' I said I thought we should invest in Walt Disney, because it was so much fun, and Delta Air Lines, because it flew us there, and GM (General Motors Corp.) because we had rented one of their cars." Good thing his parents listened: Over the next decade, those three stocks soared, and helped pay for Bond's four years at Dartmouth College.

Today, Bond shares his market smarts with inner-city youngsters. For six years, he has sponsored "A Day On Wall Street," a program that introduces sixth-graders to the stock market. The adventure, which includes a visit to the floor of the New York Stock Exchange and lunch in its ornate, beaux-arts boardroom, helps teach youngsters that the products they use can open the door to investments and profits.

Based on his own childhood experiences, Bond, now 31, encourages kids to "invest in names they know," such as Reebok, Blockbuster Entertainment, Apple Computer, Nintendo, Delta and Johnson & Johnson. (For more on this approach, see "The Power Of Investing In What You Know," December 1992.) But his young charges don't place bets on a whim. Under Bond's program--which includes about 70 students from New York City-area public schools--kids "buy" their imaginary stock only after they've done careful research.

"We make the concepts very elementary, but the kids learn to do fundamental research," says Bond, who introduces them to The Wall Street Journal, stock tables and other tools of the trade. Then he urges them to consider," 'Are the products good? How many will they sell? Do they have good marketing? Does the product have longevity?' They learn the key components of assessing a company and a product."

The children also learn to recognize smart buys by paying attention to the world around them--noticing that every kid in their school suddenly owns the latest Reebok athletic shoe, for instance. Soon, they learn what every smart investor knows--how to recognize a trend before the rest of the market does. (See "How To Pick A Stock Before It Gets Hot," October 1992.)

Stocks In The Classroom

Most experts agree that it's never too early to start coaching kids on the complexities of stocks. In fact, teaching students the basics of investing gives them "extra credit." For instance, stock prices are reported as fractions, an important math concept for grade-schoolers. Researching companies by following developments in the newspaper improves reading and communications skills. And for older children, learning how stock prices relate to corporate performance means grasping a range of complex economic information.

Stocks also influence other aspects of American life, including politics and entertainment. They can also show how the world economy is becoming truly global. The Japanese company Nintendo, for example, is a perennial favorite of young American investors.

But if basic math is an anathema to most kids, how on earth can they get excited about stock splits, P/E ratios and betas? Try the thrill of competition, the challenge of weighing risks against rewards--and swelled chests.

The nation's first effort to bring Wall Street into the classroom was the Stock Market Game, launched in 1977 by the Securities Industry Association (SIA). Today, the program helps boost morale for hundreds of thousands of kids from coast to coast, In New Jersey alone, approximately 30,000 youths boned up for the 10-week challenge last year.

Players start out with an imaginary $100,000, which they can invest in any stock listed on the New York or American stock exchange, or on over-the-counter markets tracked by the National Association of Securities Dealers' Automated Quotation system (NASDAQ). They can borrow another $100,000 in a margin account, and they can short the stocks (remember stock jockey Davis?) if they expect them to fall.

Difficult stuff? Maybe. But Andre Brooks, a senior at Howard University, learned years ago that the markets aren't so mysterious. "Lawyers have a lot of weird terms for things that are actually quite simple," he observes. "Investing is the same--not as complex as people make it sound."

Even fourth-graders would agree. Last year, Adele Braswell's class at the Jackson Academy in East Orange, N.J., played the SIA's Stock Market Game. When Braswell asked her pupils what stock to buy, young Selwyn Roberts shot up his hand and suggested CBS Inc., "because of the Olympics," he recalls. On the basis of this single, timely investment, Braswell's class was among the top finishers in the Garden State. After realizing a paper fortune from CBS, the class (fans of the Disney Channel) voted to cash out of the network and switch to Disney.

Started in 1989 and administered by Boston-based Replica Corp., the AT&T Collegiate Challenge gives players a generous pot of $500,000 to play with. During three months of simulated trading activity, participants (from both high schools and college campuses) trade more than 5,000 stocks on three exchanges, using contest staff as "brokers." In this particular game, there's big incentive to win: The college student who finishes with the fattest portfolio drives away in a new car and pockets $8,000, plus two tickets to the Bahamas. Not bad for what many of the kids chalk up to "luck."

To win these games means taking big risks. Specifically, the most successful students trade actively--a strategy that's practically de rigeur to win a game that lasts only a few weeks or months. While such risk-taking may sound synonymous with stock investing, in reality it isn't. Conventional Wall Street wisdom says that the best way to make money in stocks is to purchase the securities of sound, well-managed companies and hold them for years, oblivious to the day-to-day volatility for which common stocks are renowned. Even this year's AT&T winner, Davis, knows that.

"I was going for the really quick gain," he says of his strategy. "Because if you play conservatively, you won't win." The aspiring stockbroker confesses, however, that in real life, "I wouldn't be as risky with real money." Once Davis is actually on Wall Street, he knows he'll have to apply his skills with an emphasis on long-term purchases.

Nicole Nelson, a senior at Greater Polytechnic in Fort Worth, applied a long-term perspective to the AT&T Challenge. "We made some decisions and we stuck with them," she says. Nelson didn't buy on margin or sell short. Instead, the National Merit Scholarship semi-finalist took stock in companies she could identify with--such as Dillard Department Stores--and held them fast. "I know them through experience," she says matter-of-factly. "You go to the store and can see that they're making a lot of money." Her other picks were equally familiar: Nike (the shoes she wears), Motorola (the electronics products she uses), Mattell (the toys she buys) and Delta Air Lines (the carrier she flies).

The Payoff

For many parents, the bottom line is this: Getting children interested in stocks pays dividends--literally. Consider this: $9,000 invested 10 years ago in McDonald's Corp--a favorite among small-fry investors--would today be worth $50,000. The same amount stashed in certificates of deposit (CDs) would have grown to a measly $17,540. Translated another way: The original $9,000, just enough to fund a year's tuition at any top college at the time, would today pay for more than two years at Harvard--despite a roughly 50% increase in tuition fees.

In addition, learning about the stock market opens career doors to a host of highly paid occupations, from municipal finance, to Wall Street and beyond. "Students in the minority community aren't exposed to finance careers," notes Wardell R. Lazard, managing principal of WR Lazard & Co. Inc. in New York City. Lazard, who sponsors his own "A Day On Wall Street," says that his program teaches portfolio management and other subjects specifically to encourage the students to pursue careers in finance.

Eric Harris has seen how a bit of financial knowledge can go a long way. Each year, as a member of the National Association of Investors Corp., in Royal Oak, Mich., Harris helps local schools participate in an NAIC-sponsored stock game.

"Understanding how companies work and how companies profit can do wonders for a young person," says Harris, a computer consultant who mentors inner-city youths in North Carolina. "It gives them insights into many career opportunities beyond just the investment field," such as accounting, law, and management.

Play Money To Real Money

The most avid young "investors" will one day want to swap phony money for the real thing. For instance, Howard University senior Andre Brooks, who participated in this year's AT&T Challenge, says he finds more satisfaction investing real cash through the Mo' Money Investment Club, which he founded last October. Though his fledgling club has yet to see any gains, playing the Challenge gave Brooks and his buddies more confidence to purchase real company stock. "Investing is a hands-on thing," he notes.

You don't even have to play one of these organized games to learn about investing. Charlene Ross, the oldest daughter of radio host Charles Ross, is 11 now, and on the verge of taking the step from saving to investing. "Charlene is very conservative," says Ross, who introduced her to saving first.

This spring, however, Charlene will start venturing into the stock market with her dad's help. "She likes to buy toys, so that's what she's going to look into," says Ross, who is getting his daughter ready to prepare a research report.

Other parents who aren't financial whizzes can get their kids started easily, too--through one of the stock games mentioned above or other step-by-step guides and games. (See sidebar, "For More Information.")

Enterprising kids usually open what are called trustee accounts under the Uniform Gift to Minors Act, even if the funds they employ were earned, rather than a gift. That gives them legal entitlement to the funds, although, as a practical matter, parents typically control such funds until the child reaches legal maturity at age 18.

Unfortunately for young investors, notes Raymond Russolillo, senior tax manager for Coopers & Lybrand in New York City, the so-called "kiddie tax," targeted at children of the wealthy, also snares everybody else. Children can have earned income of as much as $3,600 without paying any income tax (although they must file a tax return if they earn more than (600). But for kids who make dollars from investments, the tax bite kicks in at $1,200.

Still, "stocks are an excellent investment for kids, especially for those under 14," says Russolillo. "They invest in growth assets, so income is deferred, which works out well not only from a tax point of view but also from an investment point of view."

Speaking of investments, Bond has a thing or two on his mind lately. This year the first alumni of his program will graduate from high school. And what is the money manager most looking forward to? "One of them is going to knock on my door, or call me from Howard University," he says. "He or she will say, 'I remember when you brought me down to Wall Street, and I've never forgotten that. Now I'm graduating and I'm looking for a career opportunity. And by the way, I think I can pick stocks better than you do.' You can bet that I'll hire that person in a minute."



Now that you realize your kids can help pay for their own college and graduate education, its time to find out how to engage their interests and inspire them. One way is to enroll your son or daughter in the sixth annual AT&T Collegiate Investment Challenge. Each fall, this nationwide educational stock-trading competition gets students into the excitement of the market--without risking real money. Last November, more than 20,000 students participated. The Challenge is open to high school and college students. Each person starts off with a fictional $500,000 account. The goal is to turn the stake into the highest portfolio value before the contest closes the following February. The top high school and college stockpickers receive $1,000 and $8,000, respectively, plus other prizes. For additional information, call 800-545-8808.


The Stock Market Game, a 10-week simulation game that uses actual stock market data, is sponsored by Securities Industries Association. It is set up for grades four through college. Student teams compete against one another during the fall and spring semesters. They invest a fictional $100,000 in stocks on the New York and American exchanges and the NASDAQ National Market System. The entry fee is $18. There is an optional Research Analysis Essay Contest. For more information, call 609-771-3288.


Kids' Money Book by Neal Goodfrey, Checkerboard Press, New York, $12.95. This question-and-answer book teaches kids about banking, credit and the stock market.

Stocks and Bonds: The Stock Market Game, Avalon Hill $25. Avalons sells board games that mimic the stock markets. The object: to make mo' money.

Pit, Parker Bros. $7.50. The goal of this card game is not to see who screams the loudest. But since it simulates the commodites exchanges, a good set of lungs can't hurt. You win when you corner the market in oranges, wheat, oil or....
COPYRIGHT 1993 Earl G. Graves Publishing Co., Inc.
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Author:Middleton, Timothy
Publication:Black Enterprise
Article Type:Cover Story
Date:May 1, 1993
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