Before Investing Their First Dollar, Students Need to Understand How to Invest Safely

If your students are fortunate enough to learn about investing at your school, they are undoubtedly learning about the difference between money market funds, mutual funds, stocks, ETFs, and bonds. Hopefully, they even participate in classroom investing practice games or even phone apps that help to familiarize them with important concepts.

It’s great to teach children about the risks and rewards of moving some of their money into the markets, but have they learned how to participate safely in an online world? They need to make sure that their money — and identities — are secure. Here’s a possible syllabus to get you started.

How to Make Sure That a Broker Complies With Regulations

You already know that brokers are held to certain regulatory standards. For example, when it comes to handling account applications they can only accept signed documents that are sent by postal mail, hand-delivery, or fax. Unfortunately, it’s nearly impossible to learn all the rules. It’s even harder to consistently recognize when a financial institution is flouting any of those rules.

Considering that numerous government entities place regulatory demands on brokers, it would be overwhelming to try to explain all of them to your students. You can, however, teach your students about a single resource that can demystify regulatory issues. The tool, BrokerCheck by FINRA (Financial Industry Regulatory Authority, Inc., a non-government regulator) provides the information needed to make informed choices before selecting a broker.

How to Identify a Broker’s Vigilance With Security Issues

Regulatory compliance is only a first step; brokers that care about security go well-beyond these measures. Even if your students don’t understand all of the technical details, they should look for brokers that do the following:

• Data encryption: When brokers encode all data rather than storing it on their computers or in the Cloud in its raw, plain-text form, the data is unusable to hackers if it ever gets stolen
• Security questions: This long-standing system helps ensure authorized log-ins by setting up a list of personal questions and answers that have been previously created by the user. These can include anything from mother’s maiden name to the name of the first pet.
• Two-factor identification: This feature goes beyond security questions by requiring account holders to log in with two forms of identification. Most typically, they enter a password; then the broker texts a code to their phones. Entering this code on the site helps prevent unauthorized users from successfully gaining access to an account.
• Strong password requirements: Brokers should require that user passwords are of sufficient length and that they only accept passwords that contain both upper- and lower-case letters, numbers, and special characters.

What Details to Learn Before Signing up for an Online App

Your students will want to use their phones for investment transactions. Of course virtually all known brokerage houses offer phone apps, along with other online and even phone-in options. Other companies offer only phone and online service. Before signing up, your students should absolutely become familiar with the security methods used by any financial institution.

Equally important, they need to determine how the institution gets paid for its services. Even those that brag about free trades get paid somewhere. Perhaps they charge monthly or annual participation fees. Maybe they grab the interest earned on money sitting in cash accounts. Of course, they may develop countless methods that no one has yet conceived of. As investors, your students need to uncover the secrets and determine if they seem fair and affordable so that they do not overly-affect investment returns.

The Importance of Protecting Data Before Sending it

Your students must understand that many things can happen to their information before their transactions reach a financial institution. They must pay close attention to their device and network security so that serious threats have a near-impossible time getting through.

Broker apps are not the only things used on a student’s device. Even seemingly-benign apps should have strong passwords, and every free game or other app should be researched to ensure that it won’t carry threats that get installed on a device.

Additionally, no student should feel safe without installing a good anti-virus system, which should be immediately updated after installation. Virus definitions should be updated every day, and devices should be regularly scanned for any malware that might have previously escaped detection.

Finally, make an extra effort to remain updated on the latest threats that your students should know. For example, one threat that’s making the news is called “juice-jacking.” Phones that get battery boosts through public charging stations, such as those that are increasingly common at airports, are likely to load malware along with a battery charge. Students need to limit their charging activities to places that they absolutely know to be safe.

Investment Returns Are Only Part of the Picture

Your students have lots to learn before becoming knowledgeable investors. Back in the 1700s, investment options were pretty much limited to cash and stocks. Bonds made the scene in the 1800s as a useful vehicle for funding government projects and businesses, and stock indexes were introduced shortly thereafter.

These types of investing were generally limited to a relatively small group of affluent people. Once mutual funds were introduced in the 1980s, the markets opened up to everyday people. New types of investments are now introduced with some regularity. Each new alternative opens the doors to the keep informed in an effort to retain some semblance of control over investment returns. Your students need to learn many things in order to become successful investors.

Now, as myriad online alternatives have entered the mix, they also need to learn how to protect their devices and remain updated on an ever-increasing forms of security threats. As their teacher, your role has become more complicated. Provide them with the right security mindset now, and your lessons can carry them well into the future.