Learning, Earning, and Investing Investment Basics

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Learning, Earning, and InvestingInvestment
Basics
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Funding for this workshop is provided by
National Council on Economic Education US Dept
of Education University of Illinois Extension
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Instructors

• Dr. Angela Lyons, Associate Professor
  University of Illinois Urbana-Champaign
  [phone] anglyons_at_uiuc.edu
• Debra Bartman, Extension Educator
  Quad Cities Center
  [phone] (x217)
  dbartman_at_uiuc.edu
• Patricia Hildebrand, Extension Educator
  Effingham Extension Center
  [phone] phildebr_at_uiuc.edu

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Objectives

• 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

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You will receive

• 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

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Why Is Saving and Investing Education Important?
Setting the Stage.
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Increasing Consumer Responsibilities

• Movement towards the privatization of social
  security.
• Over 92 of pensions today are defined
  contribution plans, not defined benefit plans.

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Financial World Has Become More Complex

• 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.

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People Are Involved in the Financial Markets

• 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.

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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.

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Its Hard to Learn What You Are Not Taught

• Financial education is a growing national
  priority.
• Stock market simulations and games are very
  popular.
• But young people cant learn financial skills
  unless they are taught explicitly.

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• 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.

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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.

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Learning, Earning and InvestingAn 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, Jumptart
• Field tested and reviewed

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Table of Contents
Theme 1 Basics of Financial Investing

1. Why Save?
2. Investors and Investments
3. Invest in Yourself
4. What Is a Stock?

1. Reading the Financial Pages In Print and Online
2. What Is a Bond?
3. What Are Mutual Funds?
4. How to Buy and Sell Stocks and Bonds

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Theme 2 The Markets

• What Is a Stock Market?
• The Language of Financial Markets
• Financial Institutions in the U.S. Economy

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Theme 3 Financial Planning

1. Building Wealth Over the Long Term
2. Researching Companies
3. Credit Your Best Friend or Your Worst Enemy?
4. Why Dont People Save?
5. What Weve Learned

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Theme 4 The Markets and the Economy (High School
only)

1. How Financial Institutions Help Businesses Grow
2. How Are Stock Prices Determined?
3. The Role of Government in Financial Markets
4. The Stock Market and the Economy
   Can You Forecast the Future?
5. Lessons from History Stock Market Crashes
6. Investing Internationally Currency Value Changes
7. Investing Involves Decision Making

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Lessons

• Description
• Key concepts
• Objectives
• Time required
• Materials

• Procedure
• Visuals
• Activities
• Closure
• Assessment (multiple-choice and essay)

Glossary terms for all lessons (pp. 323-332)
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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

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Web Site http//lei.ncee.net
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Table of Contents Lessons Concepts National
Standards
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Resources Interactives Investment Web
links Related Lessons Visuals Stock Market
Simulations Workshop Leaders Guide
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LEI Lessons
Lesson 4 What is a Stock?Lesson 7 What are
Mutual Funds?Lesson 12 Building Wealth for
the Long-TermLesson 15 Why Dont People
Save?Lesson 18 How Are Stock Prices Determined?
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Lesson 4
What is a Stock?
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Income, Saving and Investing

• 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.

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Activity 1 Certificate of Ownership (p.42)

• 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.

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Visual 1Mathematics and Economics Questions

• Question 1.
• Stocks represent ownership in a corporation.

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• Answer 1.
• True.
• Stocks are shares of ownership in a corporation.

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• Question 2.
• 50 written as a decimal is 5/100.

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• Answer 2.
• False.
• 50 written as a decimal is .5.

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• 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.

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• Answer 3.
• True.
• 100 x 35.50 3,550.

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• Question 4.
• If Jenny has 100 in a savings account and earns
  2 percent interest this month, she has earned 20
  in interest.

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• Answer 4.
• False.
• 2 percent of 100 2.00

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• 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.

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• 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.

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• Question 6.
• People who own stocks are guaranteed a return on
  the money they have invested in stocks.

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• Answer 6.
• False.
• Investing is stocks involves risk. Less risky
  investments are savings accounts and government
  bonds.

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• Question 7.
• The only way stockholders make money is through
  dividend payments while they own the stock.

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• Answer 7.
• False.
• Stockholders make money through dividend
  payments or by owning stocks that increase in
  value.

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• Question 8.
• One way stockholders make money is to sell their
  stock for more than they paid for it.

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• Answer 8.
• True.
• A common way for stockholders to make money is
  to sell their stock for more than they paid for
  it.

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• Question 9.
• Stockholders can reduce the risk on their stock
  investment by diversifying their portfolios.

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• Answer 9.
• True.
• A common way for stockholders to reduce risk is
  by owning stocks in a variety of corporations.

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• Question 10.
• The New York Stock Exchange is the only place
  where people can buy and sell stocks.

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• Answer 10.
• False.
• In addition to the New York Stock Exchange,
  people may buy stocks on the American Stock
  Exchange and the NASDAQ.

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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.

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Wrap-Up

• Role playing (Activity 2)
• Closure (discussion questions)
• Assessment (multiple choice and essay)

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Lesson 7
What are Mutual Funds?
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Mutual Funds and Investment Clubs

• 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.

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Class Investment Clubs

• 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.

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Activity 1 Year One An Example (p. 95)
Company 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
Total Investment Value XXXX XXXX 3,000

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Activity 2 One Year Later An Example (p. 96)
Company 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 4 100 500 400
Total Investment Value XXXX XXXX 3,000 3,450

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Yahoo! Finance http//finance.yahoo.com
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MSN Money http//moneycentral.msn.com
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CNN Money http//money.cnn.com
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Visual 2 Types of Mutual Funds
Low Risk and Low Potential Reward Low Risk and Low Potential Reward High Risk and High Potential Reward High Risk and High Potential Reward
Money-market funds (short-term securities) Bond funds (corporate or longer- term government bonds) Income funds (high- yield stocks and bonds) Growth funds (larger company stocks long-term capital gains) Aggressive growth funds (smaller company stocks short- and long- term capital gains)
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Lesson 23, Visual 2 Risk Pyramid
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Preview of Coming Attractions.Lesson 12 Visual
13 Mutual Funds

• 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.

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Other Activities

• Mutual Fund Facts (Activity 3)
• A Mutual Fund Prospectus (Activity 4)
• Each has discussion questions

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Lesson 12
Building Wealth for the Long-Term
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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.

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Time Value of Money
The earlier you save, the more s you will have.
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Three Rules for Building Wealth

• Start early
• Give money time to grow.
• Buy and hold
• Keep your money invested.
• Diversify
• Dont put all your eggs in one basket.

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A Tale of Two Savers (revisited)

• Charlayne becomes a millionaire by accident.
• Marcus mistake.
• Explain how Charlayne, the accidental
  millionaire, followed all 3 rules.

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Visual 4The Magic of Compounding

• 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 didnt work
  for. It is money your money makes for you!
• Over time, interest on interest can increase your
  total savings greatly.

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Visual 10 Forms of Saving and Investing
Benefits and Costs

• 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.

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Activity Trade-Off Between Risk and Return

• Floor Markers
• Mattress
• Savings Accounts
• CDs
• Bonds
• Stocks
• Mutual Funds
• Real Estate

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Visual 11Investment Situations Which Form Will
You Choose?

• You have 5,000 to invest. No other information
  is available.
• You have 4,000 that youll need six months from
  now.
• 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 childs college education.

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Lesson 15
Why Dont People Save?
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The Risky Behavior Mystery

• People usually know what is good for them, but
  they often act as if they dont know.
• Some people
• Drive too fast
• Fail to take medications
• Smoke
• Why would people do things that dont seem to be
  in their interest?

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Visual 1Why Dont People Do What They Should Do?
Question Number of Yes Responses
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, isnt 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 dont exercise regularly?
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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.

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An analogy

• Saving is like diet and exercise.

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Benefits and Costs of Diet and Exercise(Discussio
n 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?

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Saving

• 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?

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Costs and Benefits of Saving

• The costs of saving are immediate and certain.
• People have to give up things they could buy now.
• The benefits of saving occur in the future and
  are uncertain.
• Events might prevent people from reaping the
  benefits of saving.

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Opportunity Cost and Incentives

• 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.

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ActivitySetting Savings Goals

• What are some things for which you would like to
  save?

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Short-Term Savings Goals (One year or less) Medium-Term Savings Goals (One to five years) Long-Term Savings Goals (Over five years)

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Activity 6A Game (p. 213)

• Key Concepts
• Savings
• Costs and Benefits
• Opportunity Cost
• Goals (short, medium, long-term)
• Incentives

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Lesson 18
How are Stock Prices Determined?
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Visual 10 Laws of Supply and Demand Applied to
Financial Markets

• The law of demand states (regarding stocks) that
  buyers choose to purchase more shares at lower
  prices and fewer shares at higher prices.
• The law of supply states (regarding stocks) that
  sellers choose to sell more shares at higher
  prices and fewer shares at lower prices.
• An equilibrium price exists when the quantity of
  shares demanded at that price equals the quantity
  of shares being supplied.
• 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.

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Activity Stock Price Simulation Game

• 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.

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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

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University of Illinois Extension Consumer and
Family Economics www.ace.uiuc.edu/cfe
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NCEE www.ncee.net
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Summary and Questions
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The Stock Market Game Program
www.stockmarketgame.org
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