Learning, Earning, and Investing
Investment Basics
Funding for this workshop
is provided by:
National Council on Economic Education
US Dept of Education
University of Illinois Extension
Instructors
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Dr. Angela Lyons, Associate Professor
University of Illinois Urbana-Champaign
(217) 244-2612; anglyons@uiuc.edu
Debra Bartman, Extension Educator
Quad Cities Center
(309) 792-2500 (x217); dbartman@uiuc.edu
Patricia Hildebrand, Extension Educator
Effingham Extension Center
(217) 347-5126; phildebr@uiuc.edu
Objectives
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Introduce:
(1) Learning, Earning, and Investing
(2) The Stock Market Game
(3) Plan Well, Retire Well
Experience activities to use in the classroom
Answer questions about curriculum and other
resources
You will receive…
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Curricula with lessons and activities to use in the
classroom
6 CPDUs
Certification to reproduce and replicate workshop
materials
Network of colleagues to share experiences
Resources available at U of I Extension
Why Is Saving and Investing
Education Important?
Setting the Stage….
Increasing Consumer Responsibilities
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Movement towards the
privatization of social
security.
Over 92% of pensions
today are defined
contribution plans, not
defined benefit plans.
Financial World Has Become More Complex
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The number of financial services
offered to consumers has
increased.
There has also been an increase in
the number of financial products
that are offered.
Credit-scoring technology has
improved.
People Are Involved in the Financial Markets
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Millions of small investors
have increased their net
worth by participating in the
stock and bond markets.
Millions of other investors
depend on income from
owning stocks and bonds.
Importance of Financial Education
Many Americans, especially
young adults, lack the basic
knowledge and skills needed
to make informed financial
decisions and manage their
investments effectively.
It’s Hard to Learn What You Are Not Taught
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Financial education is a
growing national priority.
Stock market simulations and
games are very popular.
But young people can’t learn
financial skills unless they are
taught explicitly.
Several studies of financial
education programs,
especially those with specific
objectives such as
increasing savings or
decreasing debt, have
succeeded in improving the
financial behaviors of young
people and other consumers.
Where Do You Find Data?
The Federal Reserve Board
http://www.federalreserve.gov/
Brian K. Bucks, Arthur B. Kennickell, and Kevin B. Moore.
2006. “Recent Changes in U.S. Family Finances: Evidence
from the 2001 and 2004 Survey of Consumer Finances.”
Federal Reserve Bulletin, vol. 92, pp. A1 – A38.
Learning, Earning and Investing
An Overview
• 23 lessons
• High school and middle school
• Complete lesson plans
• Web site (http://lei.ncee.net)
• Accompanies stock market
simulations or games
• Linked to standards: NCEE, NCTM,
Jump$tart
• Field tested and reviewed
Table of Contents
Theme 1: Basics of Financial Investing
1.
2.
3.
4.
Why Save?
Investors and
Investments
Invest in Yourself
What Is a Stock?
5. Reading the Financial Pages:
In Print and Online
6. What Is a Bond?
7. What Are Mutual Funds?
8. How to Buy and Sell Stocks
and Bonds
Theme 2: The Markets
9. What Is a Stock Market?
10. The Language of Financial Markets
11. Financial Institutions in the U.S. Economy
Theme 3: Financial Planning
12.
13.
14.
15.
16.
Building Wealth Over the Long Term
Researching Companies
Credit: Your Best Friend or Your Worst Enemy?
Why Don’t People Save?
What We’ve Learned
Theme 4: The Markets and the Economy (High School only)
17.
18.
19.
20.
How Financial Institutions Help Businesses Grow
How Are Stock Prices Determined?
The Role of Government in Financial Markets
The Stock Market and the Economy:
Can You Forecast the Future?
21. Lessons from History: Stock Market Crashes
22. Investing Internationally: Currency Value Changes
23. Investing Involves Decision Making
Lessons
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Description
Key concepts
Objectives
Time required
Materials
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Procedure
Visuals
Activities
Closure
Assessment (multiple-choice and essay)
* Glossary terms for all lessons (pp. 323-332)
Key Features of the LEI Web Site
About the Materials:
• Table of Contents
• Sample Lessons
• FAQs
• Order Information
Resources:
• Interactives
• Related Web Links
• Related Lessons
• Glossary
• Visuals on PowerPoint
• State Stock Market Games
Web Site:
http://lei.ncee.net
Table of Contents:
Lessons
Concepts
National Standards
Resources:
Interactives
Investment Web links
Related Lessons
Visuals
Stock Market Simulations
Workshop Leader’s Guide
LEI Lessons
Lesson 4: What is a Stock?
Lesson 7: What are Mutual Funds?
Lesson 12: Building Wealth for the Long-Term
Lesson 15: Why Don’t People Save?
Lesson 18: How Are Stock Prices Determined?
Lesson 4
What is a Stock?
Income, Saving and Investing
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Households earn income.
Income is payments received by a household by selling
or renting productive resources.
Households usually spend some of their income and
save some of it.
Saving is income not spent on consumption or taxes.
Some households use their savings to purchase stocks.
Activity 1: Certificate of Ownership (p.42)
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Students work in small groups that are households.
For each correct T/F answer, students receive a strip of
paper worth 15 shares of stock in The Economics and
Mathematics Knowledge Company.
Groups that answer all questions correctly receive a stock
certificate worth 150 shares. Groups that answer fewer
questions correctly receive fewer shares.
Visual 1:
Mathematics and Economics Questions
Question 1.
Stocks represent
ownership in a
corporation.
Answer 1.
True.
Stocks are shares of
ownership in a
corporation.
Question 2.
50% written as a
decimal is 5/100.
Answer 2.
False.
50% written as a
decimal is .5.
Question 3.
Mark bought 100
shares of Nike stock,
and each share sold
for $35.50. If no fees
were involved, Mark
paid $3,550 for the
shares.
Answer 3.
True.
100 x $35.50 =
$3,550.
Question 4.
If Jenny has $100 in a
savings account and
earns 2 percent
interest this month,
she has earned $20
in interest.
Answer 4.
False.
2 percent of $100 =
$2.00
Question 5.
The closing price for a
share of Wal-Mart stock
was 37.25. This means
that the price of the share
was $37 and one-quarter
of a dollar. One-quarter
of a dollar is .20.
Answer 5.
False.
The closing price for a
share of Wal-Mart
stock was $37 and
one-quarter of a dollar.
One-quarter of a dollar
is .25, not .20.
Question 6.
People who own
stocks are
guaranteed a return
on the money they
have invested in
stocks.
Answer 6.
False.
Investing is stocks
involves risk. Less
risky investments are
savings accounts and
government bonds.
Question 7.
The only way
stockholders make
money is through
dividend payments
while they own the
stock.
Answer 7.
False.
Stockholders make
money through
dividend payments or
by owning stocks that
increase in value.
Question 8.
One way stockholders
make money is to sell
their stock for more
than they paid for it.
Answer 8.
True.
A common way for
stockholders to make
money is to sell their
stock for more than
they paid for it.
Question 9.
Stockholders can
reduce the risk on
their stock investment
by diversifying their
portfolios.
Answer 9.
True.
A common way for
stockholders to reduce
risk is by owning
stocks in a variety of
corporations.
Question 10.
The New York Stock
Exchange is the only
place where people
can buy and sell
stocks.
Answer 10.
False.
In addition to the New
York Stock Exchange,
people may buy stocks
on the American Stock
Exchange and the
NASDAQ.
Shares and Dividends
• Calculate shares
• Calculate dividends
• Dividends are equal to 1/5th of a share
• 15 shares = 3 pieces of candy (1/5 X 15 = 3)
• 30 shares = 6
• 45 shares = 9
• 60 shares = 12
• 75 shares = 15, etc….
Wrap-Up
• Role playing (Activity 2)
• Closure (discussion questions)
• Assessment (multiple choice and essay)
Lesson 7
What are Mutual Funds?
Mutual Funds and Investment Clubs
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In this lesson, students form class investment clubs that
work much in the way mutual funds do.
They invest $3,000 in up to six stocks.
One year later they revalue their shares and determine
how the total value has changed.
They read about mutual funds to learn about the
advantages of diversification.
Class Investment Clubs
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Each club has $3000 to invest.
You may buy any of 6 stocks, but you must buy at least
3 stocks. You may divide money among all 6 stocks if
you wish.
You must invest the entire $3000.
Activity 1:
Year One: An Example (p. 95)
Price
per
Share
No. of Shares
Owned
Amount
Invested
American Cellular
$ 5
100
$ 500
Big Box Stores
$ 20
50
$1,000
Biotech Industries
$ 10
0
0
General Grocery
$ 20
0
0
Giant Auto
$ 10
100
$1,000
Gold Mining Group
$ 5
100
$ 500
XXXX
XXXX
$3,000
Company
Total Investment Value
Activity 2:
One Year Later: An Example (p. 96)
Price
per
Share
No. of
Shares
Owned
Amount
Invested
Investment
Value
1 Year Later
American Cellular
$ 8
100
$ 500
$ 800
Big Box Stores
$ 23
50
$1,000
$1,150
Biotech Industries
$ 8
0
0
$
0
General Grocery
$ 22
0
0
$
0
Giant Auto
$ 11
100
$1,000
$1,100
Gold Mining Group
$ 4
100
$ 500
$
XXXX
XXXX
$3,000
$3,450
Company
Total Investment Value
400
Yahoo! Finance
http://finance.yahoo.com
MSN Money
http://moneycentral.msn.com
CNN Money
http://money.cnn.com
Visual 2: Types of Mutual Funds
Low Risk and
Low Potential Reward
Moneymarket
funds
(short-term
securities)
Bond funds
(corporate or
longer- term
government
bonds)
High Risk and
High Potential Reward
Income funds
(high- yield
stocks and
bonds)
Growth funds
(larger
company
stocks longterm capital
gains)
Aggressive
growth funds
(smaller
company
stocks; shortand long- term
capital gains)
Lesson 23, Visual 2:
Very High Risk
Junk bonds,
Risk Pyramid
options
High Risk
Growth stocks, growth funds,
aggressive-growth mutual funds
Moderate Risk
Income funds, balanced mutual funds,
bond funds, municipal bonds,
corporate bonds, blue-chip stocks
Very Low Risk
Treasury bills, CDs,
money markets funds, savings accounts
Preview of Coming Attractions….
Lesson 12 Visual 13: Mutual Funds
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A mutual fund pools investors’ money.
The fund puts its investors’ money into the
markets on their behalf.
In effect, investors own small amounts of many
different assets.
Mutual funds enable investors to avoid the risk
that comes from owning any one asset. In
other words, mutual funds make it easy to
diversify.
Other Activities
• Mutual Fund Facts (Activity 3)
• A Mutual Fund Prospectus (Activity 4)
• Each has discussion questions
Lesson 12
Building Wealth for the Long-Term
Factors that affect how much savings grow:
Time
The earlier or longer you save, the more
savings you will have.
Investment Size
The more you save each year from your
income, the more savings you will have.
Rate of Return
The higher the interest rate or rate of
return, the more savings you will have.
Time Value
of Money
The earlier you save,
the more $$’s you
will have.
Three Rules for Building Wealth
1. Start early
Give money time to grow.
2. Buy and hold
Keep your money invested.
3. Diversify
Don’t put all your eggs in one basket.
A Tale of Two Savers (revisited)
• Charlayne becomes a
millionaire by accident.
• Marcus’ mistake.
• Explain how Charlayne, the
accidental millionaire, followed
all 3 rules.
Visual 4:
The Magic of Compounding
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When you save, you earn interest.
When you take the interest out and spend it, it stops growing.
But if you leave the interest in your account so it can grow, you start to
earn interest on the interest you earned previously.
Interest on interest is money you didn’t work for. It is money your
money makes for you!
Over time, interest on interest can increase your total savings greatly.
Visual 10:
Forms of Saving and Investing: Benefits and Costs
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Savings accounts:
Provide a small but steady return.
Certificates of deposit:
Very safe, but instant access carries a penalty.
Bonds:
Lending money to a corporation or government, with a promise of
higher returns than those offered by bank savings accounts and CDs.
Stocks:
Part ownership in a company, offering higher risks and, potentially,
higher returns than some other investments.
Real estate:
The risks and benefits of being a landlord.
Activity:
Trade-Off Between Risk and Return
Floor Markers:
• Mattress
• Savings Accounts
• CDs
• Bonds
• Stocks
• Mutual Funds
• Real Estate
Visual 11:
Investment Situations: Which Form Will You Choose?
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You have $5,000 to invest. No other information is available.
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You have $4,000 that you’ll need six months from now.
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You inherited $10,000 from your great-aunt; she has suggested
that you save it for use in your old age.
You are just starting a career and can save $50 per month for
retirement.
A new baby arrives, and Mom and Dad plan to save $100 a
month for the child’s college education.
Lesson 15
Why Don’t People Save?
The Risky Behavior Mystery
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People usually know what is good
for them, but they often act as if
they don’t know.
Some people:
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Drive too fast
Fail to take medications
Smoke
Why would people do things that
don’t seem to be in their interest?
Visual 1:
Why Don’t People Do What They Should Do?
Question
How many of you know that smoking is unhealthy?
How many of you know people--even people your age--who
smoke?
How many of you know that eating foods that are high in transfats,
such as packaged cookies, margarine and peanut butter, isn’t
healthy?
How many of you know people who eat foods that are high in
transfats?
How many of you know that regular exercise provides many
health benefits?
How many of you know people who don’t exercise regularly?
Number of Yes
Responses
Perhaps the answer lies in identifying
the costs and benefits….
• Costs:
All the things that have to be given up when a
choice is made.
• Benefits:
Gains or favorable outcomes that make people
more satisfied when a choice is made.
An analogy
• Saving is like diet
and exercise.
Benefits and Costs of Diet and Exercise
(Discussion Questions)
• What are the benefits of eating a healthy diet and
exercising regularly?
• Do the benefits of diet and exercise occur now or in
the future?
• If people choose a healthful diet and exercise
regularly, are they guaranteed these benefits?
• What are the costs of choosing a healthful diet and
exercising regularly?
Saving
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Most people know that
starting to save money at an
early age and saving
regularly are good habits that
lead to financial well being.
Yet many people fail to save
early and regularly.
Why?
Costs and Benefits of Saving
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The costs of saving are
immediate and certain.
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People have to give up things
they could buy now.
The benefits of saving occur in
the future and are uncertain.
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Events might prevent people
from reaping the benefits of
saving.
Opportunity Cost and Incentives
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The opportunity cost of spending
might change how people analyze
the costs and benefits of saving.
Setting goals is an important factor
related to saving.
Goals act as incentives to save.
Interest provides another incentive
to save.
Activity:
Setting Savings Goals
• What are some things
for which you would like
to save?
Short-Term
Medium-Term
Savings Goals
Savings Goals
(One year or less) (One to five years)
Long-Term
Savings Goals
(Over five years)
Activity 6:
A Game (p. 213)
Key Concepts:
• Savings
• Costs and Benefits
• Opportunity Cost
• Goals (short, medium, long-term)
• Incentives
Lesson 18
How are Stock Prices
Determined?
Visual 10: Laws of Supply and Demand
Applied to Financial Markets
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The law of demand states (regarding stocks) that buyers
choose to purchase more shares at lower prices and fewer
shares at higher prices.
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The law of supply states (regarding stocks) that sellers
choose to sell more shares at higher prices and fewer
shares at lower prices.
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An equilibrium price exists when the quantity of shares
demanded at that price equals the quantity of shares being
supplied.
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Stock prices change as a result of changes in the supply
and demand for shares of the stock in question. Shifts in
supply and demand can establish new equilibrium prices.
Activity: Stock Price Simulation Game
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Students use knowledge of supply and demand to participate
in a stock market simulation, which shows how the price of a
share of stock is determined in a competitive market.
Divide the class into buyers and sellers. Distribute BUY and
SELL cards and score sheets. Assign one student to be
keeper of the cards and another to record the transactions.
Clear a space that will serve as the TRADING FLOOR.
When the MARKET IS OPEN, buyers and sellers meet on
the trading floor and try to agree to a price for one share of
stock.
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Buyers start the game with one BUY card on their score sheet.
The goal is to buy at the lowest price they can. If the price they
pay is equal to the price on their BUY card, buyer breaks even.
If less than, there is a gain. If more than, there is a loss.
Sellers start the game with one SELL card on their score
sheet. The goal is to sell at the highest price they can. If the
price they pay is equal to the price on their SELL card, seller
breaks even. If more than, there is a gain. If less than, there is
a loss.
Students buy (or sell) as many shares of stock as they can in
the allotted time. But the price of a transaction must always be
in multiples of 5 ($5, $10, $15, $20 and so on).
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As soon as a stock is bought (sold), students record the
transaction on their score sheets. In addition, SELLER reports
the negotiated price to the recorder.
They then turn in their BUY (or SELL) card, receive a new
card, and begin the negotiation process again.
Students have 5 minutes to make transactions and then the
TRADING FLOOR IS CLOSED.
The game is played in three 5-minutes rounds. The goal is to
make as much money as you can by the end of the game.
Helpful Resources
University of Illinois Extension
Consumer and Family Economics
www.ace.uiuc.edu/cfe
National Council on Economic Education
www.ncee.net
Illinois Council on Economic Education
www.econed-il.org
University of Illinois Extension
Consumer and Family Economics
www.ace.uiuc.edu/cfe
NCEE
www.ncee.net
Summary and Questions
The Stock Market Game™ Program
www.stockmarketgame.org