Behavioral Finance

/Behavioral Finance
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Snapchat Is Going Public. Would You Buy Their IPO?

First an admission. I have never used Snapchat. Despite that, I thought their upcoming IPO would be a good hook to get students interested in how the stock market works. Before diving into the specifics of Snapchat (actually it is their parent company, SNAP, who is going public), here’s a good video from Wall Street Survivor that explains what an IPO is:

Questions:

Who’s the Fiduciary: The Butcher or The Nutritionist?

Opened the Saturday paper in search of good blog material and Ron Lieber of NY Times comes through again in his latest column “Pepper a Financial Adviser with Questions About Fees.” Fiduciary is a word being tossed around lots these days when it comes to the relationship between a financial advisor and their clients. It might surprise a lot of people that in the current regulatory environment, a financial advisor is NOT required to act in their clients’ best interest (hmmm…surprised?). This fiduciary standard (to act in best interests of your client) was about to be applied to advisors providing retirement investment advice but the new Administration appears keen on delaying this, according to CNBC.

By |February 13th, 2017|Article, Behavioral Finance, Current Events, Investing, Video Resource|

Activity Idea (with Spreadsheets): Let’s Make An Index Fund

I awoke this morning thinking “how can you make index funds more tangible for students?” Why do I care about this? Anyone who has heard my rantings before either in this blog or on the NGPF podcast knows that I abhor the Stock Market Game. It teaches all the wrong lessons about investing: the short term nature of it, the “luck” factor, the highest risk strategy wins and so on. At some point, I will create a game to counter these lessons that is focused on index funds. The trick is how to make it appealing to a risk-seeking teen audience who loves the “action” of buying and selling stocks. Unfortunately good investing isn’t really about “action”, my buddy Allan Roth has it right when he says, as investors we should “dare to be dull.”

So, here’s the kernel of the idea: Have students take on the role of an investment manager hired to do the following:

Videos: 4 Simple Rules of Investing From Marginal Revolution University

I have been meaning to check out these videos since I met a representative from Marginal Revolution University (MRU) at the RI JumpStart conference in December (yes, my to-do list is TOO LONG!). Tyler Cowen, a well-known economist out of George Mason and blogger, is the intellectual force behind this endeavor. Since I know investing tends to be the “achilles heel” for many teachers, I thought I would focus first on the MRU videos on this topic.

What do I like about these videos?

  • The simple “four rule” approach to investing and the recommendations he provides on how people should invest
  • Real-life examples to demonstrate key points
  • Charts and graphs are used effectively to provide evidence
  • Duration of videos is 4-6 minutes and just focus on 1 rule at a time
  • Five practice questions at conclusion of each video

I provided some notes on their key points and some ideas on NGPF activities that you can pair with these videos, so students can apply their learning.

  • How Expert Are Expert Stock Pickers (6:28)
    • Rule #1 for Smart Investing: Ignore the expert stock pickers
      • Burton Malkiel’s book A Random Walk Down Wall Street and the “Blindfolded dart-throwing monkey” story
      • Mutual funds: Difference between active and passive funds, most years S&P500 beats the actively managed funds, past performance doesn’t predict future performance
      • Hard to differentiate luck from skill: Coin flip example and laws of probability
      • Don’t pay big bucks for professional money managers
  • Can You Beat the Market? (6:07)
    • Rule #2: It’s hard to beat the market
      • Example of thematic investing about aging of U.S. population
      • Efficient Market Hypothesis: won’t be able to systematically outperform the market; both buyers and sellers have information for their decisions
      • What about hot stock tips? Space Shuttle Challenger example and stock price reactions; what happened six months later?
      • Random walk with a positive upward drift: what does that mean?

As More And More Spending Moves Online…

It becomes easier to spend mindlessly. This is a great graphic (for more, check out this CNN article) to get your class talking about their spending habits:

Sketch-OneClickBuy

Ask your students to think back to items they have bought online recently from Amazon (or other websites) and how many are

Looking to Save Money…Start With A Small Step

Reading one of my favorite newsletters, Farnam Street, last week and came across some good advice regarding that most difficult of human habits: Savings. Here was  their $1/day strategy:

Small Steps for saving money:

By |January 22nd, 2017|Behavioral Finance, Savings|

NGPF Podcast: Tim Talks to Author, Columnist and Personal Finance Advocate Beth Kobliner

Screen Shot 2017-01-19 at 1.08.43 PM

I had a great conversation with Beth Kobliner recently. Beth has an incredible personal finance focused CV. She’s been a columnist at Money Magazine, authored one (and soon to be two) New York Times Bestsellers (Get a Financial Life: Personal Finance in Your Twenties and Thirties), served on the President’s Advisory Council on Financial Capability, and gave financial advice to Elmo on Sesame Street (and a whole lot more too)! In this NGPF podcast, Beth shares the money lessons she learned growing up in Queens, New York as well as the motivation for her latest book, Make Your Kid a Money Genius, to be released in February. You will benefit from Beth’s insights on how to invest, use credit cards wisely and a simple test to control those impulsive purchases. Parents will find Beth’s new book a godsend in describing developmentally appropriate actions to build that financial decision-making muscle that your children need to thrive in this financially complex world. Enjoy!

Details:

Know Thy Source: Rule #1 in Digital Literacy

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Those who use NGPF resources know that we place a premium on teaching students how to navigate the web, discern credible sources of information and do the research required to make sound financial decisions. Occasionally we get pushback that our content should be “commercial free” and that linking to an online article that has ads anywhere on the page is “commercial” and students should not be subjected such distraction. Newsflash: The Internet has gone commercial. All that free content has to be paid for somehow. Isn’t it better that we teach students to be skeptical, critical thinkers about advertising instead of pretending that they can wall themselves off in an ad-free world.