Mix It Up!
It's true—kids love snacks. As those with kids in our lives, we love and see the benefits of healthy snacks. In this post, we’re sharing a very heathy and fun-to-create snack that includes a very important secret ingredient: knowledge! It's always a smart idea to help explain more complicated ideas by connecting these concepts to things kids already understand. Check out this tasty little metaphor that your kids can see and taste right in front of them to grasp the more complex concept of Mutual Funds, a powerful investment strategy.
We're using a trail mix recipe to help explain that Mutual Funds combine many different funds (or ingredients) to shape the fund portfolio into a healthy and diversified offering. When you think about it, the same is true of trail mix. So, with the help of a just a little mix of pretzels, cereal and animal crackers, kids will experience the same process as is used to create a mutual fund. Kids will gain understanding of what makes something low or high risk, and have a much better conceptual framework of various types of investing—risky, safer or diversified. They may even discover a bit more about the kind of investor they could become one day.
This activity works well at home, at school, and in after-school settings at community centers, just to name a few. All you need is a collection of ingredients for a tasty, allergy-friendly trail mix recipe, a bowl, and some hungry kids! By giving kids a first-hand “taste” of what mutual funds are all about, everyone can gain awareness in this delicious and memorable way.
You might also want to check out the full-blown tasty exercise from the Mutual Fund Section of the Investing Strand of FUTURES: Financially Literate Kids for a Financially Literate Society™. Just download the PDF of the entire section and share it on an iPad or print out a copy for each of your new “investors!”
The Sum of Its Parts!
Remember, mutual funds are a combination of different investments that are selected and managed by a mutual fund manager: pay the manager to pick the stocks and bonds for the portfolio. If the kids are having trouble understanding, tell them it's like going to restaurant for lunch: instead of making the meal yourself, you're paying someone else to prepare your meal – someone you trust will do a better job than you. What would you rather have, a meal cooked by yourself or a meal cooked by a chef?
A Few Raisins Go a Long Way
Not every ingredient in trail mix is used in the same quantity to make a master blend of trail mix. Just like some companies are bigger parts of a mutual fund portfolio, the same is true of particular trail mix ingredients. Too many raisins, for example, could make the trail mix much too sweet, but too few and it might not have the zing the recipe calls for. Just like a mutual fund, trail mix is all about balance.
Un-Mix It Up!
If the kids are still having difficulty wrapping their heads around this concept of a mix of ingredients in different amounts, no worries; the trail mix can help them “sort it all out” simply by deconstructing it.
Once the trail mix ingredients have been combined, give each kid a cup of the mix.
Hand out paper towels and ask each student to “sort” out the ingredients on their paper towel before eating their snack.
They’ll see the diverse ingredients and the quantity of each that went into the mix.
No matter what trail mix recipe you opt to adapt, there’s a very good chance your kids will find a greater number of pretzel than chocolate candies, for example. Reversing the combining of ingredients can remind kids that each ingredient in trail mix, just like each company in a mutual fund, must stand alone, making its own special contribution to the mixture. This deconstruction can give them an even more practical understanding of how mutual funds function.
Your Turn!
After explaining what each trail mix ingredient represents, let the kids make their own mutual fund mix of investments. Ask the following questions:
How many stocks are you investing in?
How many bonds are you investing in?
How many shares do you have in each of each investment?
Is your mutual fund risky or safe?
Balancing out a mutual fund is not nearly as easy as whipping up a batch of trail mix. A lot of research, hard work, and careful monitoring are needed in order to put together a balanced mutual fund. It's a good idea to engage kids by asking what kind of mutual fund they were trying to put together.
Were you trying to play it safe?
Did you opt for something a little more balanced and diversified?
Did you choose companies you like, just like adding extras of the ingredients that you want to eat the most, like chocolate?
No Risk, No Reward?
At this point, it's important to stress that each individual investor can choose which kind of mutual fund to invest in. Just like there's all types of chefs and restaurants to choose from, there's all kinds of mutual funds. Ask your kids:
Do you want to build a risky mutual fund that offers more of a more immediate payout?
Do you want to choose a safer mutual fund that doesn't offer the immediate pay out, but is a safer long-term investment?
Do you want to pick a diversified mutual fund, one that blends a mix of safer and more risky investments for a more well-rounded option that offers some short-term earnings along with safer long-term investments?
Do you prefer to have a mutual fund manager (chef) to put together your mutual fund?
Would you have known which investments (foods) to choose for your mutual fund to meet your personal preference?
Variety Is the Spice of Life
Be sure to ask kids what they think their investing philosophy might be. Ask them to explain it to you. This is great way for kids to speak about their own motivations, and to actually engage in thinking about what kind of investing strategy appeals to them, not to mention what kinds of returns they are willing to work to achieve.
No Nuts, No Risk!
Many kids today grapple with allergies related to tree nuts, peanuts, coconuts, and even chocolate. Be careful when creating your trail mix with your group of kids. Be sure to confirm any and all allergies before working with kids and foods. Many kids need to ingest a food before having a reaction, but other kids can’t even be in the same space with a tree nut, for example. Allergic reactions can be very serious. Always ask and double check allergies.
Your version of a safe and healthy trail mix might be gluten free, lactose free, nut-free, egg-free or even sodium free—and it will still be delicious! Just like a mutual fund can avoid certain types of companies, trail mix can be made with—and without—many types of ingredients. While it might take a few minutes to substitute any even potentially risky ingredients, it’s definitely worth it and all your kids can safely partake in your mutual fund snack adventure!
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Check back tomorrow for our next financial literacy post. For more information about FUTURES: Financially Literate Kids for a Financially Literate Society™, this amazing (and FREE!) financial literacy program for students in kindergarten through eighth grade, or to download sections from the program, please click below.