My daughter loves playing Roblox. The popular online gaming platform has announced its plans to go public in 2021, so I saw this as an opportunity to teach her about investing in stocks.
I’ve tried to teach my daughter about investing before, since it’s what I do for a career. I even put money she accumulated from birthdays in a Betterment account. But there’s still a disconnect when I try to tell her why she has money invested.
Then it dawned on me to take the opportunity to use one of her favorite games to explain investing; specifically in stocks. I broke down our conversation into six parts:
Part 1: Explain that Roblox wants to get better.
Roblox was started by two guys, and one of them still owns the company. The company has been doing extremely well—so well they want to expand even more. They want to build more servers and hire more employees so kids can have an even better experience playing the games.
Part 2: They need money.
But, to do this they need money.
If your kids have ever started a mini “business,” even selling lemonade, you can connect it to their experience. My daughter used to make and sell bookmarks. Here’s how I connected the dots for her:
When you started making bookmarks, they were pretty simple at first, right? As you got better at making bookmarks and had more customers, you wanted your bookmarks to be of better quality, so you bought things like stickers, markers, a laminator, and a typewriter.
But you didn’t have the money to do this. What were your options for getting money?
Part 3: First option—get a loan.
Since you didn’t have the money, you asked us for money. We agreed to give you money, but part of it was a loan. You were able to make better bookmarks and sell them at a higher price, but you also had to take a portion of your income to repay your loan.
Roblox can decide to get loans, and they probably have gotten loans in the past. But this time they decided on a different option.
Part 4: Second option—they can sell ownership in their company.
The owners of Roblox decided to give up their ownership of their company. Instead of owning the company by themselves, they are going to make ownership available to anyone—the public.
But they don’t just give away their ownership for free. They split up ownership into millions of parts called “shares” and sell these shares for a certain price—like $40 each.
Once this happens, anyone can buy ownership in Roblox by buying shares. We call these shares “stocks.” If you buy Roblox stock, you are now a part owner of Roblox!
Part 5: Roblox now has more money to grow.
Because people paid them for millions of pieces of ownership, Roblox now has a lot of money that they can use to make better products. And because it’s not a loan, they don’t have to pay it back.
Part 6: Your share of Roblox stock can increase in value.
If you bought Roblox stock, you don’t have to keep it forever. Let’s say you bought one share for $40. You can sell it to someone else any time you want. You can look and see what price someone will pay you to buy your share from you.
If Roblox continues to do well and makes more money, people will be willing to pay more for your share, so the price of your Roblox stock can increase.
Teach your kids about investing and capitalism
Yes, investing is about growing your wealth. Even kids can get excited about seeing their dollars increase.
But talking to your kids about investing is also a good opportunity to share the purpose of the capital markets—supplying capital to businesses and doing good with your money. Sure, you probably aren’t getting in at the IPO and are likely buying in the secondary market instead. But a functioning and liquid secondary market is critical to ensuring the primary markets can work properly.
I love teaching my kids about capitalism. Not complex things—just simple, unplanned moments about how businesses and entrepreneurship have the power to make our world a better place.
Investing is one aspect of capitalism that our kids should grow to understand and love.