Now that kids are familiar with the basics of personal finance, economics, and entrepreneurship, it’s time to invest! Today we’re taking a page from the FUTURES: Financially Literate Kids for a Financially Literate Society™ program’s investment strand and teaching kids about stocks and investments. These topics might sound out of reach for younger—or even older—students, but after learning some key terms and the main decisions involved in investing, they’ll be thinking like future stock brokers in no time.
What’s It Called?
First, they’ll need to learn a few key terms:
What is a stock?
A stock represents ownership in a company. A person who owns a share—called a shareholder—is allowed to vote on decisions made by the company.
What is a share?
Think about a pizza. The pizza represents a company. Each piece is a share of the company. Each piece of the pizza is an equal share.
What is a dividend?
A dividend is a sum of money paid periodically by a company to its shareholders out of its profits. A dividend is paid out periodically.
To Sell or Not to Sell?
To sell or not to sell: this is the big question when it comes to investing. When a stock value goes up after the shareholders have purchased it, shareholders can choose to sell their stock and receive the money they earned. However, when stock is sold, shareholders are no longer part owners of the company and can’t earn any future dividends.
To Risk or Not to Risk?
Stocks are considered to be a risky investment. Unlike a bank that guarantees a particular rate of interest and can ensure that you won’t lose the money you deposit, while stocks can increase in vale after shareholders purchase shares, they can just as easily dramatically drop in value, too. This is why the stock market is considered to be more volatile and investment strategy. Even if an investor researches a company and feels confident about a decision to invest and buy shares in that business, the company might still do poorly and the investor can lose money.
This easy-to-follow downloadable flowchart will guide kids in making decisions about their stocks when the price of a share is up or down. Download it here.
Buy, Sell or Hold?
Now kids will have the chance to make their own investment decisions! If you’re working with younger kids, help them to gather financial news stories about a publicly traded company with available stock. Older kids can research news stories on their own. Tech-minded kids might decide to research Apple, while kids into sports or fashion might dive deep into news about Nike. Encourage kids to think about products thy use every day. Clothing companies, foods they enjoy, and social media companies also are good directions for kids to explore.
Choose Two!
Once you and your kids settle on two top companies, share that the kids have a fixed amount of money to invest. (Consider an amount that is easy for kids to compute; a fixed dollar amount of $500 might let your kids purchase more stocks in one company than the other.)
Once your kids have made their “purchase,” have them consider the latest news about their company or suggest two or three possible scenarios, based on the current status of the company. If the company they’ve chosen happens not to be in the news at the moment, ask these “What IF” questions to propose some hypothetical scenarios that could prompt their buy, sell, and hold decision:
What if the company loses a big deal?
What if the company is coming out with a new product?
What if the company just gave a lot of money to a worthy cause?
What do these events tell you about the company?
Will you continue to invest, sell your shares, or buy even more shares in the company?
It’s Decision Time
As they sort through available information and consider your questions, they should analyze the factors that are likely to affect the prices of the stocks and their decision to buy, sell, or hold.
Prompt them to review the flow chart above.
Finally, it’s decision time! Did your kids decide to buy, sell or hold their stocks in Company X?
Kids should be able to explain clearly why they made the decision they did, and back it up with information from the news and your scenarios.
Visit Us Every Day in April
Tomorrow check back for another day of Financial Literacy Month as we explore the concept of mutual funds. Kids will learn what a fund manager does by creating their own blend of real—and tasty—trail mix.
For more information about FUTURES: Financially Literate Kids for a Financially Literate Society™ for students in kindergarten through eighth grade or to download any of the 29 sections of the program, please click below.