Students at one Arkansas school won their region’s stock market game 7 years in a row. Their teacher explains how.

For the middle school students in Lillian Hemphill’s economics class, their first lesson in saving and investing starts with the shoes on their feet.

Hemphill, who teaches econ and civics at Watson Chapel Junior High School in Pine Bluff, Arkansas, asks the kids how much they paid for their Nike Air Jordans, how many pairs they own and how often they buy a new pair. She has them run the numbers to see how much they spend on shoes, which can run to hundreds of dollars each year for many students.

For the same money, she then tells them, they could purchase shares of Nike stock that will pay them dividends, allow them to vote on the company’s direction and maybe even grow into a sizable nest egg — all benefits that accrue to stockholders, but not the average consumer.

“I tell them, you might even get to sit down to lunch with Michael Jordan himself, because guess what? If you own shares of Nike stock, he works for you,” she says. “And for a lot of kids, it’s mind-blowing. It hooks them and they run with it.”

For Hemphill, getting middle school kids to consider opportunity costs when thinking about what they pay for shoes is just the starting point in an intensive lesson about saving, investing and putting your money to work for you. Those lessons are driven home in the weeks to follow, when the students get hands-on experience in managing their own portfolios of stocks, bonds and mutual funds by participating in The Stock Market Game (SMG) as part of her economics class.

Offered by the SIFMA Foundation for Investor Education for use by educators in elementary, middle school and high schools nationwide, the SMG is a competitive simulation designed to help young people better understand the functioning of the global capital markets and prepare for their financial futures.

Hemphill’s students have logged an impressive record of success in the program. In fall 2016, Watson Chapel teams placed first and second in their region, marking seven years in a row her students led the regional competition. It’s a particularly notable achievement given her school’s socioeconomic profile, she notes.

“You have to remember, we’re in the Delta of Arkansas, where poverty is high,” Hemphill says. “The majority of my students are either free- or reduced-lunch. So when you talk about investing, especially with parents, they look at you like, ‘look I’m trying to put food on the table, I don’t have time for this’.”

The SMG helps level the playing field for financial capability, particularly in underserved communities, by giving teachers like Hemphill a powerful way to teach students real-world lessons about capital markets and key economic principles, according to SIFMA Foundation President Melanie Mortimer.

“The SIFMA Foundation is dedicated to providing teachers with engaging and effective financial educational resources to build a pathway for their students’ success,” Mortimer explains. “This competition makes learning fun and real-world, drawing students in and enabling them to learn first-hand about otherwise complex but important economic concepts such as inflation, price indexes, cycles and trends.”

Here’s how it works: Each team starts with an account of $100,000 in virtual cash to help them make the imaginative leap into investing in the market. Just as in a real bank account, their “cash” holdings earn interest when it’s not invested elsewhere.

Over the course of the 10-week program, Hemphill’s students will learn how to trade stocks listed on the NASDAQ and New York Stock Exchanges, mutual funds, ETFs, and bonds, with a 1% broker’s fee charged for all transactions. Along the way, they learn lessons about researching public companies, evaluating their suitability as an investment opportunity, developing and executing trading strategies, and diversifying a portfolio.

Teams track their progress throughout the game. At the end of the game, winners are determined based on either the size of their equity holdings or the percentage return compared to the S&P 500 for the game period.

In the first week, Hemphill devotes class time to teaching basic principles of markets and investing. Students learn about how to calculate price-to-earnings (P/E) ratios, how dividends work and other key concepts.

The students form their own teams, and from that point forward they’re responsible for building and managing their own online portfolios. Along with the investing lessons, Hemphill’s players learn qualities of teamwork, communication and leadership they wouldn’t necessarily get in a typical classroom setting.

For example, students have a degree of latitude as to how they form teams, but Hemphill has one rule: whenever possible, no all-black or all-white teams. That’s sometimes unavoidable, since Watson Chapel is a majority African-American school, but Hemphill urges students to break out of their comfort zones and work together.

“I tell them, what’s the policy in my classroom?” she says. “When you’re cooking soup, does the salt go on one side and the pepper go on the other side? No. When you stir it, it gets mixed up together. So I said, you better stir. I also tell them, just because a person is your friend doesn’t make them a good business partner.”

Hemphill emphasizes that every team member has to do the work and contribute — no coasting on the efforts of others. Most teams take to the job with surprising levels of energy and enterprise, she says, often forming new friendships along the way.

“Some will set up Google chats, some of them will eat lunch together, some will come to school early,” Hemphill says. “I had a team that was primarily made of the basketball team, our state champion basketball team, and they’d be sitting on the sidelines talking about stocks during the basketball game! So they did it all over the place, which in real life is how it is.”

If there’s a secret sauce to winning seven regional competitions in a row, Hemphill and her students aren’t quick to disclose it — they’re nearly as proprietary about their specific investing strategies as a successful hedge fund manager.

“Lillian’s students are always very knowledgeable about their investment strategies, but they don’t always share their winning investment selections, because there’s always another simulation and competition to follow,” says Marsha Masters, associate director of Economics Arkansas, a non-profit educational organization that sponsors the SMG in Arkansas schools. “Their award-winning strategies are top secret.”

‘It’s a game-changer’

From Hemphill’s perspective, while many of her students may start with an economic disadvantage, they can apply lessons from their own life to an investing strategy.

Children who grow up in struggling households, where bargain hunting is key to stretching a budget, often have a sharp eye to spot opportunities others miss, Hemphill says. It’s an approach that’s not far from the essential outlook of legendary value-investor Warren Buffett.

“I can almost tell you, the poorer my students are, the better they do,” she says. “I ask them, how many of you like to go bargain hunting? A lot of my kids have what I call the ‘survivor mentality’ — ‘I’m gonna go for cheaper first.’ I tell them to take that mentality and apply that to purchasing stocks. Go for the clearance bin. Follow your instincts. Look for the bargains. What does your gut tell you?”

Then, she says, they need to take that first impulse and back it up with research and analysis. Not infrequently, the results even surprise their teacher. She tells a story of one student who saw value in Netflix stock when shares were trading at about $5. She was so convinced that she told her parents that all she wanted for Christmas was Netflix shares. A year later, her Netflix stock was trading at more than $400 per share.

Or consider the male student who was convinced feminine hygiene products were a promising investment. He surveyed his female classmates and even walked to the grocery store, notepad in hand, to research the products and their manufacturers. That led to an investment in Procter & Gamble that grew nicely over the course of the game.

“At that time, it dawned on me, these students, even though we come from the environment we come from, they’ll look at this and they’ll make great business decisions,” she says. “I’ve learned that whenever I see them do something that I think is crazy, I should start investing in it.”

Of course, not all the players post gains. Hemphill has watched teams go from leading the game to losing everything in a matter of days, which is a lesson in itself, albeit a hard one. But those losses often spark a sense of resiliency, she says, as students look at the calendar and scramble to get back in the game. If nothing else, the losses teach humility.

“They think they know it all, and I say, you just lost $50,000,” she says with a laugh. “You don’t know it all, do you?”

Hemphill’s front-line observations about the program’s effects on students are borne out by research. A 2009 study of the game by American Institutes for Research found that students who participated in The Stock Market Game outperformed students who hadn’t played the game on mathematics tests, and boasted substantially higher scores on tests of financial literacy. Moreover, many students boost their own savings and investing habits as a result of participating in the program.

For students in underprivileged communities like Pine Bluff, the benefits may be even more pronounced. Hemphill suggests the SMG introduces a way of thinking about opportunities that can change a marginal student’s trajectory.

“Usually my students who have been in the worst trouble, this game changes them,” she says. “I had one that constantly got in trouble. When he did The Stock Market Game, it was a game changer. He hasn’t been suspended since, and he was a student who would sit in the back of the classroom and crack jokes with the bad kids. And now he sits in the front of the class. It’s a complete turnaround.”

That’s one reason that Hemphill advocates for making the SMG more broad-based, letting a wider range of students participate.

“A lot of schools only let their AP [Advanced Placement] students play the game — big mistake,” she says. “Every student should be allowed to participate. The other thing I’d like to see is to encourage more minority teachers, more teachers that live in high-poverty areas, more schools from this area in the Delta, to use the game.”

Building the foundation for financial capability

For Hemphill, this is more than a classroom exercise — it reflects a personal commitment to developing financial capability that began for her years ago.

She started investing for herself when she was 24 years old (“I had to teach myself,” she says), and she’s been spreading the gospel ever since. Prior to becoming a teacher eight years ago, she worked as a retail store manager. When her younger employees were eligible for the company 401(k), she urged them to enroll so they could start saving for retirement early.

Hemphill’s students at Watson Chapel appear to be following her example.

“Now a lot of my students, they go to their parents, and they say, ‘How’s your retirement?’” she says. “They’ll say, ‘You know I gotta put you in a nursing home, and I’m not going to have the money to raise my kids and be taking care of you two, so how are we looking on this retirement?’”

“In the environment we come from, they don’t talk about stuff like that,” she continues. “I’ve had parents tell me, ‘I have never invested in a 401(k) at my job — but my kid made me do it.’ It changes the whole mentality. I have a lot of parents come back and tell me, your class is the only class my kids sit down and talk to me about. If kids are sitting down to talk to their parents about what they learned in class, that’s an excellent thing.”

For Lillian Hemphill’s students, the life lessons continue beyond the game. Each year Economics Arkansas hosts an awards ceremony in Little Rock for SMG winners, and Hemphill pushes her teams to make the best impression possible by delivering handwritten thank you notes to corporate sponsors (her 2016 teams were sponsored by 3M). And no jeans and t-shirts for Hemphill’s teams — she requires professional dress and behavior.

“My kids are dressed up,” she says. “We may be a poor school, but you’re going to wear a suit and tie, heels, dresses — you’re going to look businesslike. You’re going to shake everybody’s hands, look them in the eye and thank them for their support.”

“We come in very polished,” she says. “That’s just how we roll.”

‘A great equalizer’

Of course, the money isn’t real, so these students won’t show up on the list of world’s youngest billionaires as a result of their investments (not just yet, anyway). But the experience gives them an opportunity to explore how capital markets work and to demystify the investing process.

Many of Hemphill’s former students have gone on to college, with a significant percentage electing to major in business. Perhaps some may go on to pursue financial and investing careers, as many SMG participants have done.

“We continue to be amazed as we hear from students who are now adults who participated in this simulation and have now applied the principles they learned as they became individual investors or industry experts,” says Masters of Economics Arkansas.

But even students who took part in the program and pursue differing careers plans at least have learned valuable early life lessons about investing, researching, compounding and other key concepts that can set them up for later success in their own financial lives. At a time when too many American households show low levels of financial literacy and capability, that’s a positive outcome.

Participating in The Stock Market Game introduces students to an alternative way of looking at the world, Hemphill suggests, that empowers young people to think more broadly about their opportunities.

“When you invest in the stock market for the first time, a person is not judged by the color of their skin, or their gender, their sexuality or anything,” Hemphill says. “Because the only color that matters is green. Some people take that the wrong way, but I quote a lot of rap lyrics when I’m teaching, and I tell them, ‘It’s all about the benjamins, baby’ — quoting the great prophet Puff Daddy.

“Money doesn’t care if you’re black, green, white, purple, whatever, if I can make my money work for me,” she continues. “And a lot of my kids, they look at this and they see this is an opportunity, and they realize, this is a great equalizer. They think, this is a smart way out. They realize, I may be a poor kid, but I can still be as good as anyone else. They learn that they’re smarter than they think they are. For a lot of them, it’s eye-opening.”

*Photo courtesy of Lillian Hemphill, West Chapel Junior High School