I mentioned in a previous post how I am teaching my eldest daughter about money, saving, and frugality using a “money jars” system. I have been looking for a good way to introduce the concept of investment, risk, and return to her but I realized yesterday that one of her favorite pastimes is providing her with a great introduction to the subject.
Every big mall in Indonesia, and pretty much all over Asia, has a video arcade. In Indonesia, the biggest chain of these arcades is called Timezone. A lot of the games give out tickets based on how well you have performed in the game. A large number of the games are games of chance, for example; the kind of game where you have to press a button that drops a ball into a spinning wheel of fortune which, depending where it falls, could either win you one ticket or one hundred. Some of the games are more skill or reaction time focused such as hitting moving crocodiles on the head with a mallet or metal fish with a magnetic fishing rod.
At the end of your session in the arcade, you can take your collected tickets and exchange them for toys and knick-knacks at the main desk. The more tickets, the nicer the gift. If you are feeling particularly frugal, you can save up your tickets over the months and go for a particularly large item (the biggest thing I ever saw being collected was a portable air conditioner for about 15,000 tickets which must have taken years to save up for).
The fascinating thing to watch is how my daughters learn the likelihood of a good return from a particular game. It has some useful parallels to investment. For instance, they know from experience that they will earn 9 or 10 tickets from playing a basketball game. They’ve done it before and their skills are unlikely to have diminished. It is a low-risk investment.
A purely luck-based game, however, might have a top prize of 500 tickets but a tiny likelihood of winning. The most likely outcome from such a game is only 1 ticket. It is a high risk investment.
My daughters have a fairly high risk appetite and it is actually a lot of fun to watch them making investment decisions balancing their assets (20 coins to use in the machines), their financial goals (a minimum of 50/60 tickets covers some distracting little toys for the trip home), and their urge to win big and collect one of the enormous prizes from the top shelf. To meet these goals, they invest about half their coins in low-risk low-return games to generate the required “income” and half in high risk games in the hope of winning big.
Now I come to think of it, they may have a healthier attitude to risk than me. My own investment strategy is the equivalent of playing the same low-risk basketball game with all twenty of my coins. Maybe I should be learning about investment from them.