For a lot of people, 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 fashion.
It’s made in collaboration with Next Gen Personal Finance, a financial literacy non-profit and hosted by Yanely Espinal, who says digital tools, like computer games, can help get inexperienced investors engaged. The following is an edited conversation between Espinal and Marketplace’s Meghan McCarty Carino.
Yanely Espinal: The reality is no matter how much you add money to a savings account, you just can’t build wealth inside of a savings account. You have to learn about investing to build wealth. And there’s lots of ways to invest, but the most accessible, I would say to pretty much anyone, regardless of your credit score, or how much money you have, like, you 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 we can really help them set themselves up for long term success and not just thinking about this month’s, next month’s finances, but really thinking about the long term of their life.
Meghan McCarty Carino: Yanely shows me an old-school browser game, made by Next Gen Personal Finance, to help illustrate some of what she’s talking about.
Espinal: So right off the bat, you start with some money, because you have to have something if you want to invest money.
McCarty Carino: I’ve been given $4,000, which is a pretty good chunk.
Espinal: That is a nice chunk.
McCarty Carino: The idea is to invest it in various opportunities that pop up in the game from savings accounts to stocks, and see how that cash grows over 20 years, which in the game is about 20 minutes.
Espinal: So it’s like you kind of 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 you’re building wealth over the long term, at the same time that you hopefully don’t have to interrupt.
McCarty Carino: I’m getting another investment opportunity here, “certificate of deposit.” This is not something I’m super familiar with.
Espinal: And honestly, I don’t think a lot of people do know that. But there are different types of savings accounts. There’s not just one type of savings account. So right now you started, again, with a traditional savings account. Now you have a certificate of deposit, which is a special type of savings account where you can lock the money away for a set term and get a little bit more interest than your traditional savings will get.
McCarty Carino: Uh-oh, whoa. Something’s happening. Okay, “ding-dong, wedding bells are ringing.” It says I have a wedding and I have to spend $7,000. This is actually a reasonable wedding.
Espinal: That’s a very affordable wedding. Most weddings are more than that.
McCarty Carino: Okay, so I spent the $7,000. Now I have another investment opportunity that’s come up, “index fund.” Tell me about this.
Espinal: Nice. So now you’re actually investing in the market. So before, where you had your savings account and your certificate of deposit savings, that money is just 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 exchange, which is really exciting, because now you’re actually buying what’s called securities, which you can’t really buy in a bank account, but you can buy in an investment account.
McCarty Carino: Okay, I feel very savvy now that I’m in the stock market.
Espinal: Now, I noticed that the CDs are blinking. And you didn’t realize that…
McCarty Carino: I didn’t collect them.
Espinal: Now you collected them. So that money was probably just sitting there waiting for you to collect it for a little while. You kind of have to pay attention to your money when it’s on lock.
McCarty Carino: So much to pay attention to.
Espinal: I know, girl, you have to manage all things. It’s a lot, but it’s cool that it’s all in one place here, because I think in real life, it doesn’t always end up being that way. Like you have to manage a lot of accounts.
McCarty Carino: All right. Well, yeah, we got to the end of the game. In 20 years, I made $294,473. All right.
Espinal: Assuming you maintain a reasonable yearly growth at 6%, you could retire in another 20 years with $944,415.57.
McCarty Carino: That sounds like a lot to me.
Espinal: That’s almost a million dollars. That’s pretty big.
McCarty Carino: Is that good? Yeah, that sounds good for retirement.
Espinal: That’s really cool. So this is where you kind of learn what was happening in the game, because you were playing against a computer. You weren’t versus each other, it was you versus a computer, and it says, know that the computer wins 70% of the time. So you can look below to see what you did versus what the computer did.
McCarty Carino: The computer’s portfolio was all index funds. I feel like that’s cheating.
Espinal: Yeah, I mean, the computer has an advantage because it knows what tends to work over the long run in the market, which is simple: less is more.
McCarty Carino: And how can games and technology like this really help young people master some of these financial literacy basics?
Espinal: Yeah, I mean, they’re not living it yet. If you’re 15, 16 years old, chances are you probably don’t have an investment account. Most 15-year-olds don’t. So the reality is, they can actually learn by doing a simulation. So game-based learning is actually giving them a simulated environment, where if they make mistakes, hey, it’s not real money yet. Like let’s have them practice this way and learn this way. And it feels real, and they get the real world lessons, but without having to actually put in real money that they may or may not have access to. And also, maybe their families might not be too comfortable with them jumping in just yet. So if they jump in a little later, but they’ll have the knowledge from game-based learning early on.
McCarty Carino: Now, consumer digital tools have, I think, made investing a lot more accessible to regular people. I’m thinking of the whole Gamestop meme stock phenomenon on the Robin Hood app. But, I mean, is this kind of a double-edged sword? Does it also make it easier for people to maybe get into trouble with risky investments?
Espinal: It is, 100% yes. But I think ultimately it’s going to do more good, I think, than harm just to get young people exposed to this type of stuff. And there’s all these headlines, like you mentioned GameStop. If it’s not GameStop, it’s crypto or Silicon Valley Bank closing and that can be really scary. But if you have certain foundational lessons that you’ve learned, that you know are tried and true and information that you trust, especially coming from a very formal financial education and not the school of hard knocks where you’re trying things and making mistakes, then you can have some trust in the fact that you made a plan, that you are putting your strategies into place for the long run. And adults have to take the responsibility for educating the next generation.
There is one other digital tool that apparently a lot of people are using for investment advice: ChatGPT. On a recent episode, we talked to an analyst at the investment advice platform The Motley Fool about its recent survey showing about half of U.S. adults have used the chatbot for picking stocks. Large language models like ChatGPT can do a great job of synthesizing large amounts of information and historical trends. But, as you know if you’re a regular listener, they do have a tendency to make things up. So you might not want to trust it with your life savings.