WHAT’S 44 INCHES TALL AND HAS $20,000 TO INVEST? THESE CHICAGO FIRST-GRADERS: ARIEL, NUVEEN CHIP IN TO GIVE HANDS-ON LESSON

Remember in the first grade how you dressed up like Pocahontas to learn about Thanksgiving? Or when you donned a stovepipe hat and scruffy beard and recited the Gettysburg Address to show what you had learned about the Civil War?

In one Chicago inner-city school, pupils will soon be dressing up as Peter Lynch – figuratively speaking, of course – as part of an effort by two mutual fund companies to instill early on the virtues of investing.

Ariel Capital Management Inc. and John Nuveen & Co., both in Chicago, this week formed a $20,000 portfolio for the first grade at the two-year-old Ariel Community Academy. Each new first-grade class will get its own $20,000 portfolio.

In father’s footsteps

“It’s important that kids get exposed to these issues earlier in life. That’s exactly what my father did for me when I was 12,” says Ariel chief executive John W. Rogers Jr., who, like the school’s 160 students, is African-American. The non-profit arm of his company pays for after-school activities at the public school.

The class portfolio initially will be invested in the Ariel Growth Fund and the Nuveen Rittenhouse Growth Fund, and a committee from the companies and the school will manage it until sixth grade, when the youngsters take over management of 25% of it. The next year, they’ll manage half and in high school the students will make all investment decisions.

When they graduate, an inflation-adjusted amount from the fund will go to incoming first-graders to start the cycle again. The remainder, if any, will go for scholarships or other gifts, as the graduates decide. Ariel and Nuveen expect the project to be self-funding after the first cycle of students graduates.

Mr. Rogers cited relatively low savings and investing rates for African-Americans as one reason for starting the project. In a national study conducted this year with San Francisco-based Charles Schwab Corp., Ariel found that African-Americans are less active in the stock market than whites. In households with income of more than $50,000, 57% of African-Americans said they had money in the stock market, as compared with 81% of whites. And black households have an average of $117,000 saved or invested, vs. $224,000 for white households.

not a savings place

Mr. Rogers also cites Securities and Exchange Commission and Ariel research showing that Americans, regardless of race, don’t save enough. Indeed, he and others see the program as helpful for students, parents, faculty and administrators.

Lennette Coleman, the school’s director, is developing an investing curriculum for parents. Monthly statements on portfolio performance will be mailed home, along with class-related material. Mr. Rogers and other investment professionals will describe investment strategies and other fundamentals.

“There are dramatic changes in financial realities that require increased investment in economic education,” says Timothy R. Schwertfeger, Nuveen’s chief executive, alluding to defined contribution pensions and the possible privatization of Social Security.

what about basics?

Some financial advisers say an education rooted in the fundamentals of macroeconomic concepts will teach students sophisticated investing concepts, encouraging them to look for more aggressive returns.

Others say the program should be focused more on everyday personal finance issues – such as comparison shopping, coupon clipping and identifying value – rather than the stock market and larger investment goals.

“Personal finance is so specific,” says Maria Scott, editor of the journal of the Chicago-based American Association of Individual Investors.

“To make decisions about what you want and don’t want, it needs to be something dear to you, with your own money,” she says. “It’s something different with money that someone else has given to you.”