GameStop drama offers lessons for young investors

Quick show of hands: Have your kids heard of GameStop? What about hedge funds? And are they asking if Robinhood has anything to do with Nottingham?

Figuring out what’s happening in the stock market these days — especially as talk about GameStop plays out daily on the news — is mind-boggling enough for seasoned investors.

But what if your kids are asking what’s going on with all this stock market craziness? Perhaps they’re curious because they buy games and game systems at GameStop. Perhaps they’ve heard the stories on social media about a GameStop investor turning $500 into $200 million, or shareholders paying off their student loans from their quickly gained stock profits.

Parents, you’ll be doing your kids a real disservice if you don’t try to explain these stock market moments to your kids, even in a limited, age-appropriate fashion for younger children.

Think about this comment about the volatility in the market from Kevin O’Leary of “Shark Tank.” He said recently on CNBC that investors “are learning about the risks of the market. We forgot to educate them in high school, so let them learn in the real world, which is even better.”

His words made me cringe. To me, it’s better to teach children about the wild swings on Wall Street while they’re young and the stakes are low.

I don’t expect too many younger children to know much about the stock market — not because they’re not curious or it’s too complicated, but because their parents or grandparents haven’t taken the time to talk about it.

If you trade stocks, talk to your kids about how you got started and explain what it means to own a share. Encourage them to follow GameStop or some other companies and see what happens over the next month or two.

I think the most important thing a parent can do is to educate their investors-in-training about risk. Make sure they know that stocks fall and rise, and that there are plenty of GameStop losers whose stories don’t generate headlines for every person in the news who got rich seemingly overnight.

Many young, novice investors jumped on the GameStop bandwagon late in the market drama and rode the stock way down from its peaks. Did they understand the risk? Was it money they could afford to lose? These are all questions for your kids to ponder as they are introduced to the stock market.

There’s also a lesson on buying stocks based on a company’s underlying value, such as earnings and prospects for future growth, rather than getting caught up in a social media trend or having an emotional attachment, said Jamie Bosse, a financial planner with Aspyre Wealth Partners in Overland Park, Kansas.

Finally, encourage kids who are following the stock market to invest with long-term vision rather than hopping on the quick-gain rollercoaster. This point was expressed perfectly by Jim Zimmerman, who wrote me recently about lessons he learned as a young investor.

His stock market experience started after his parents gave him seven shares in a Wisconsin utility company as a high school graduation gift.

“It was a good, long-term investment” in a safe, conservative company, he said.

With his buy-and-hold strategy, Zimmerman has watched his investment grow while steering clear of trendy stock picks.

Zimmerman’s overarching advice for young investors? “Let it ride.”