The enormous tragedy for young people today is that so many are sealed off by law from any involvement in the commercial marketplace… until it is too late. This means that they know not the heartbeat of civilization itself. This terrible condition persists until their young adulthood.
It is their luxury — for the first time in world history! — to sit at desks for a full decade after they are old enough to be working. Instead of skills and experience, they mostly learn little how to be bored for extended periods.
When that time is up, they are thrown out into a world they can’t possibly navigate or even comprehend and told: “Get a job, pay your debts, and be a success.”
Great system? Not so great.
In fact, this isn’t working. This whole trend has turned out precisely the opposite of what the dreamers imagined in the interwar period. People were once thrilled that kids would be liberated from the demands of work so they could be in school and better themselves. The literature and philosophy they would learn!
Their whole presumption got out of hand. In the 1930s, the government banned kids from the workplace to help with the problem of persistent unemployment. Then the government boosted the numbers attending college after World War II. Further, the government created vast numbers of colleges and subsidized others and, finally, gave loans to everyone to partake in this machinery.
It turns out, however, that school might be the worst possible teacher. The workplace is probably better. The old system in which kids worked from an early age alongside adults better prepares them for the practical arts of life itself. It is not the military but commerce that permits us to be all that we can be, engaging reality in ways that draw on our highest ideals and potentials as human beings.
As a result of the bad system governments set up, kids get their first taste of real life at the age of 22 and are then shocked to discover that nobody wants to reward them for having played by the rules all those years. They are expected to actually contribute something to this world, about which they know nothing. When it doesn’t work out as expected, they blame the markets, capitalism, commerce, and the 1% and otherwise languish in a sense of being victimized. More and more, they just drop out.
How to address the problem? Let me suggest a small way that parents and grandparents can help raise the consciousnesses of teens toward commerce and the market economy. Instead of giving a gift for the holidays or giving them money they can spend, a better path is to open an online trading account in their name with you as the overall administrator, populating it with some seed money. Let the young person become his or her own broker. This one action could be a turning point.
You might start with $1,000. The account can go to anyone 12 or older or so. It’s a big attention-getting gift. The rules attached to the gift are simple. If the teen loses the money, there is no obligation to pay it back. This is a gift. But if he or she makes money, it is his or hers to keep and reinvest.
Most likely, the teen won’t have any idea what he or she has been given. That gives you an opportunity to explain how the financial markets work. They will be amazed to discover that they can be part-owners in their favorite companies. You can explain how these institutions developed and what they are for.
This alone will make quite the impression. Crucially, to be an owner of stocks changes a person’s perception of their own interest. Instead of joining the culture of hate, the owner might start to cheer on the success of business and enterprise.
If they own McDonald’s stock, eating a Big Mac takes on all-new significance.
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They will become curious about what makes a firm succeed or fail. They will be interested to discover just how tricky it is to interpret price signals. They will discover what it means to find bargains and avoid overpriced stocks. They’ll get interested in what the buy and sell signals are.
One teen I know first attempted to buy stock that had a history of going up, but as soon as he bought it, it turned south. Learning his lesson, he started to buy stock that had a history of going down, except that after purchasing that one it went down further. Crucial lesson: The future is unknown, and entrepreneurial judgment is an inescapable fact of life.
This tutorial period alone will open up a whole new world. And unlike knowledge obtained solely from books, the mind is more focused when we are talking about real resources and the opportunity to actually do something with them.
Maybe they will start using their smartphones for market research, rather than just texting and Facebooking.
These days, too, there are so many research materials online. Every chart is a click away. Online accounts provide access to vast data. But what do these charts mean? The teen will find that opinions on particular stocks are all over the place and that no one in this world knows anything for sure. Yet you still have to decide, still need to commit. And the teen will also find that there are times when it is best to sit out and stay in safe places without committing.
There is a low probability that the teen will make money this way, and that’s OK. He or she will learn from this experience just how hard money is to come by. Maybe that doesn’t sound like a revelation, but it truly is for many young people today who have never worked, never experienced that relationship between labor and wages, and never had to make economizing decisions.
It is good, too, not to manage their accounts in every detail. They should be permitted to make some judgments in a real sense. You can suggest that the teen put half in relatively safe places, just to be somewhat protected from the downside. But with the other half, they can take some risks. Penny stocks are a blast. And they can buy into their favorite companies, like Facebook or Nike, or a restaurant chain or two — stocks that tap directly into their experiences as consumers. Maybe gold stocks are a good idea — and here is an opening to talk about the relationship between precious metals and hard economic times.
Instead of just being consumers, they will begin to think of themselves as being on the producers’ side. They will begin to appreciate just what an awesome responsibility it is to be the CEO of a company who’s trying to deal with a huge consumer base on one hand and a massive number of stock owners who can bail or buy at the slightest whim on the other.
To become part of this is a mind-opening experience. One thing a teen will discover quickly: This is not the easy path to riches. In fact, chances are the teen will lose money within the first weeks and then become risk averse, wanting to move entirely into cash. This is not a good path, however, because, as you can explain, you lose all potential for upside. If they hold a stock that has been creamed but then recovers, they will see with their own eyes the advantages that come from outsmarting the mob, being contrarian, and thinking more critically and outside the box.
What if, after a year or two of account management, the teen ends up losing most of the money? Well, there is a lesson there. Maybe as a society we should show a bit more respect for successful investors and capitalists? What if it is a struggle to keep the account in the black and it never really takes off? No problem. But if the account balance goes up, there will be clear reasons for it. Some stocks and funds did well, and those are balanced out against those that did badly. Just discovering the reasons is an education in itself.
Consider the gift of education you have given. Parents spend such amounts all the time on private lessons, trips, tutorials, clothes, etc. This is an expenditure that deals in some measure with the great problem that faces the new generation, their near total isolation from the real world that they will soon have to engage in fierce competition.
This one gift could be a turning point in their lives, lifting them out from the rabble that drifts by year after year without giving them a clue about what is going on in the world. It might be the beginning of a brilliant capitalist career and the foundation for serious success in life. It’s a risk, but so is everything with payoffs. They will learn that lesson too.
To manage real money provides a kind of education you can’t get sitting at a desk and listening to someone else’s view of what you should know. To manage real resources is the beginning of a great process of discovering what makes the world work.