VCEE Scope & Sequence EPF Unit 12 : simplebooklet.com

UNIT 12 - INVESTMENT & SAVINGS PLANNING (11 Days)All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away. 2. Lessons that do not have a hyperlink can be found on the lesson plan resource calledVirtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for freeby participating in a VCEE training session. Visit www.vcee.org for more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/A comprehensive financial plan requires understanding the various types of investment vehiclesthat can be used for short, medium and long term goals, as well as income from pensions andsocial security. As a background to all investing and saving, however, one must first understandthe relationship between risk and reward.EPF.18 The student will demonstrate knowledge of investment and savings planning byb) comparing and contrasting investment and savings optionsDay 1 Risk and rewardDay 2 Calculating outcomesEPF.18 The student will demonstrate knowledge of investment and savings planning byc) comparing costs and income sources for investmentsDay 1 Where can the money come from?Day 2 What does it cost to save?EPF.18 The student will demonstrate knowledge of investment and savings planning byd) examining the fundamental workings of Social Security and the system’s effects onretirement planningDay 1 Examining Social SecurityEPF.18 The student will demonstrate knowledge of investment and savings planning bye) contrasting alternative retirement plansDay 1 IRAs, 401(k)s, pensions and annuitiesDay 2 Help from your employerEPF.18 The student will demonstrate knowledge of investment and savings planning byf) describing how the stock market worksDay 1 What are stocks? The difference between speculating and investingDay 2 What makes a stock rise or fall?EPF.10 The student will develop consumer skills byi) accessing reliable financial information from a variety of sources.Day 1 Evaluating sources of information1Virginia Council on Economic Education

Page 3

Evaluation DayEPF.18 The student will demonstrate knowledge of investment and savings planning byb) comparing and contrasting investment and savings optionsDay 1 - Risk and RewardContent KnowledgeBefore making any investment or saving decision, it is important to recognize its potential risksand rewards and consider that in making your decision. Rates of return and interest rates providea way that individuals can assess risk. The higher the potential reward (the higher the rate ofreturn or the interest paid out), the greater the risk. Thus, the safer the investment, the lowerwill be the reward. High returns are a necessary inducement paid to people in return for theirwillingness to take on significant risk. Savings vehicles such as passbook savings generally paylittle interest, because they are very liquid – that is, they can be easily converted into cash. Sincepeople are sacrificing very little opportunity to spend by leaving the funds in passbook savings,not much inducement is needed to encourage people to hold their funds this way.VocabularyConvenience – This is a sense of the relative ease with which a financial instrument orinstitution can be accessed in terms of time and location.Liquidity – This is a measure of how quickly a financial instrument can be converted to cash.Reward – The benefit or return gained from an investment.Risk – The chance of losing money.Virginia Board of Education FrameworkSavings options includesavings accountscertificates of depositmoney market fundsSome investments options includestocksbondsgovernment savings bondsmutual fundsreal estateretirement plansFactors used to compare savings and/or investment options includerisk2Virginia Council on Economic Education

Page 4

rewardconvenienceliquidityTeaching Tips1) Introduce the relationship between risk and reward, and the concept of liquidity. Ingeneral, if funds are being invested for a goal that is more distant in time, riskieralternatives may be appropriate, since there is more time to recover from possible losses.Discuss this idea with respect to short, medium, and long term goals that studentsidentified at the start of the previous Unit 11 – Goals, Saving, Interest and Banking.2) An alternative to the above lesson introduction can be the Risk and Return Grab Bag(Bell Ringer Activity from the Atlanta Federal Reserve Bank) can be used.3) Have students research the average rate of return for a number of investment options.These can include passbook/statement savings at a local financial institution,money-market funds at local financial institution, certificate of deposit (one-yearmaturity) at a local financial institution, a 1-year U.S. Treasury security, a U.S. savingsbond, the stock of a familiar corporation, and a mutual fund based on the S&P 500.4) The researched information can be used as a review of the PACED decision makingmodel from the previous Unit. Students should create a decision-grid and follow thesteps below.a. Define the problem at the top (Which investment option should I choose to meet Xgoal?),b. List the various alternatives along the vertical axisc. List the criteria characteristics of risk, reward, liquidity, and convenience alongthe horizontal axis. Keep the focus on the goals that they identified at the start ofthe previous Unit.d. Evaluate the various alternatives, using the criteria characteristics to determinewhat may be the best alternative for them.e. Students should explain their choices, identifying the trade-offs for each and theirpersonal opportunity cost (the next best alternative). Goals having different timeframes should result in different choices.5) If you have already recently used the PACED model with your class and prefer a moreactive alternative, lesson 9: Building Wealth Over the Long Term in Learning, Earningand Investing for a New Generation can be used instead. This lesson can also be found onVirtual Economics 4.5.6) A student’s personal tolerance for risk is also a factor to consider in making theirinvestment decisions. The risk tolerance online assessment cited below could beassigned for homework or used as an extension activity.3Virginia Council on Economic Education

Page 5

Lessons and ResourcesFinancial Fitness for Life Grades 9-12 Lesson 21: There is No Free Lunch in InvestingLearning, Earning & Investing for a New Generation Lesson 9, Building Wealth Over the LongTerm:Khan academy on the difference between stocks and bonds (9:20)https://www.khanacademy.org/economics-finance-domain/core-finance/stock-and-bonds/stocks-intro-tutorial/v/bonds-vs-stocksInvestment Risk Tolerance Quiz, http://njaes.rutgers.edu/money/riskquiz/Risk and Return Grab Bag (Bell Ringer Activity - Atlanta Federal Reserve Bank)https://www.frbatlanta.org/-/media/documents/education/lessons-and-activities/bell-ringer/risk-and-return-grab-bag.pdfThe Pros and Cons of Saving and Investing (Atlanta Federal Reserve Bank)https://www.frbatlanta.org/-/media/documents/education/publications/extra-credit/2016/fall/lessons-and-activities/high-school/personal-finance/saving-and-investing-activities/extra-credit_pros-and-cons-of-saving-and-investing-activity.pdfDay 2 - Calculating outcomesContent KnowledgeToo often people make financial decisions by looking at a single aspect of the investment – rateof return or risk. Consequently, they may not reach their financial goal. By focusing on both theimpact of the rate of return and the risk/reward trade-off, people can make more informedinvestment decisions.VocabularyBonds - A certificate of indebtedness issued by a government or a publicly held corporation,promising to repay borrowed money to the lender a fixed rate of interest and at a specified time.(Optional: Bonds are rated according to their perceived risk. AAA is the highest rating. B- or B3is the lowest for a bond of a firm or government that is not in default.)Certificates of Deposit (CD) - A (interest bearing) certificate issued by a bank to a persondepositing money in an account for a specified period of time (often six months, one year or twoyears). A penalty is charged for early withdrawal from CD accounts.Money Market Account - An interest-bearing account similar to a checking account. Depositsmay be added at any time; some money market accounts limit the withdrawals depositors maymake without paying a penalty. Also known as money market deposit account.4Virginia Council on Economic Education

Page 6

Mutual Funds - A pool of money used by a company to purchase a variety of stocks, bonds ormoney market instruments. Provides diversification and professional management for investors.Real Estate - Property such as land, houses and office buildings.Stocks - An ownership share or shares of ownership in a corporation.Treasury Securities – Bonds issued by the United States Treasury to investors when the federalgovernment borrows money. (Treasury bills have maturity of one year or less. Treasury noteshave maturity of one to ten years. Treasury bonds have maturity of more than 10 years.)Teaching Tips1) This is an extension of the Day 1 activity. Have students use average rates of return for allinvestment vehicles suggested in the Day 1 activity. It does not matter if students haveslightly different rates of return, as they may be using different financial institutions,different stocks, etc. Once students have gathered the information, make a list of theinstruments and rates of return on the board. Have students calculate doubling time for a$2,000 investment for each instrument. This doubling time can be determined by usingthe Rule of 72. Divide 72 by the rate of return to determine the time it will take theinvestment to double. Have students also estimate the number of times their investmentshould double between now and a retirement age of 70.2) Ask: Which investment will potentially provide you with the best retirement fund. Why?What are the advantages and disadvantages of each instrument in terms of return and risk,based on what you have already learned? Can you provide examples or hypotheticalsituations? What would you do as an individual investor?3) Discuss the results of their risk tolerance assessments, contrasting the differing resultsamong students.Lessons and ResourcesPersonal Decision Making: Focus on Economics Lesson 14: Savings and Personal Investment: IfYou’re So Smart, Why Aren’t You Rich?Learning, Earning, and Investing for a New Generation Lesson 1: Why SaveYour Credit Counts Section 5: Strategies for Wealth BuildingAsset Management – lessons and videohttp://www.pbs.org/teachers/access-analyze-act-economy/curriculum/assets/asset-managementKhan Academy tutorial on how to compare investments by calculating return on capitalhttp://www.khanacademy.org/video/return-on-capital?playlist=Finance5Virginia Council on Economic Education

Page 7

EPF.18 The student will demonstrate knowledge of investment and savings byc) comparing costs and income sources for investmentsDay 1 - Where can the money come from?Content KnowledgeMany people plan to begin saving later in life, but never do. Too often individuals will put theirhopes for savings on sources of funds that are unpredictable as to timing and size.VocabularyGifts – A voluntary present of money or some other valuable asset.Inheritance – Money or other assets given to a party upon one’s death, also known as a bequest.Market Gains – Proceeds from previous investments in the form of interest payments, dividends(regular distribution of profits) or capital gains (realized income from selling an investment at ahigher price than was paid for it).Savings - Money set aside for a future use that is held in easily-accessed accounts, such assavings accounts and certificates of deposit (CDs)Virginia Board of Education FrameworkSources of income funds for investing includesavingsgiftsinheritancesmarket gains.Cost to consider when investing includefinance charges and feesopportunity costsRisks to consider when investing includemarket lossesinterest rate risk.Teaching Tips1) Have the students examine the sources of funds for investing. Savings can be the easiestas they depend on income and can be as predictable as one wants. Gifts and inheritancecan be unpredictable both as to frequency and size. Market gains can fall between theseextremes. Some investments produce regular payments either as dividends or interestpayments, while others only produce capital gains which are subject to swings in themarket and perceived value of the investment. And one can lose money invested in themarket as well.6Virginia Council on Economic Education

Page 8

2) If readily available, students can use their research from Day 2 of Unit 11 (the amount ofmoney it would take to reach various goals). Also, using the information from theprevious day, have students calculate how long it will take to accumulate enough moneyto reach various goals using the alternatives from the recent PACED chart. Have studentsvary the age at which they begin saving or investing to see the effect on goal attainment.Lessons and ResourcesFinancial Fitness for Life (Grades 6-8) Lesson 12: Types of Savings Plans and InvestmentsRate of Return – powerpoint and lessonhttp://educateiowa.gov/index.php?option=com_docman&task=cat_view&gid=1025&limit=5&limitstart=0&order=hits&dir=ASC&Itemid=4434Day 2 - What does it cost to save?Content KnowledgeInvestors are often captivated by low fees, or low loads and end up paying more for aninvestment than they anticipated. This combined with natural investment volatility, can result ina lower nest egg for future use. Students need to be able to identify the costs associated withvarious investments and to understand how costs affect return on an investment by reducing theprincipal or the return. While no-load funds offer clear advantages, loads are not necessarily a“bad” thing. This is because no-load funds typically have higher annual costs, on average. Thatmeans, depending on how long you own the fund, you may be better off with a load.VocabularyFinance Charges/Fees - The total cost of credit, including interest and transaction fees.Interest Rate Risk - The chance that interest rates may change (upward) while the saver is"locked in" to a (lower) rate for a time deposit (a CD, for example) or a bond. Also the chancethat interest rates may change (downward) while a borrower is “locked in” to a (higher rate) on aloan.Load – A fee charged for purchasing (front-end) or selling (back-end) shares of a mutual fund.Loads are usually calculated as a percentage of the amount of the transaction. Some mutual fundsare no-load funds.Market Gains/Losses – The loss of value of an investment due to market conditions.Teaching TipsThe teacher will want to examine and explain the various types of fees that some investmentsmay carry. This will include annual maintenance fees, loads, and per transaction fees.7Virginia Council on Economic Education

Page 9

Hypothetical:Fund A Fund BNo load 5 % front-loadAnnual fee 1.5% Annual fee .75%Initial investment - $10,000 $10,000Rate of return 6% Rate of return 6%Ending Balance Year 1Investment + 6% - 1.5% Investment – 5% + 6% - 0.75%$10,441 $9,994.47Ending Balance Year 2Preceding balance + 6% - 1.5% Preceding balance + 6% - 0.75%$10,901.45 $10,514.68Ending Balance Year 3Preceding balance + 6% - 1.5% Preceding balance + 6% - 0.75%$11,382.20 $11,061.97Ending Balance Year 4Preceding balance + 6% - 1.5% Preceding balance + 6% - 0.75%$11,884.16 $11,637.75Ending Balance Year 5Preceding balance + 6% - 1.5% Preceding balance + 6% - 0.75%$12,408.25 $12,243.49Ending Balance Year 6Preceding balance + 6% - 1.5% Preceding balance + 6% - 0.75%$12,955.45 $12,880.76Ending Balance Year 7Preceding balance + 6% - 1.5% Preceding balance + 6% - 0.75%$13,526.79 $13,551.20By the end of year 7, the difference in annual maintenance fees more than offsets theload.Lessons and ResourcesEconEdLink.org The Five Stages of Investinghttps://www.econedlink.org/resources/the-five-stages-of-investing/8Virginia Council on Economic Education

Page 10

Page 11

EPF.18 The student will demonstrate knowledge of investment and savings planning byd) examining the fundamental workings of Social Security and the system’s effects onretirement planningDay 1 - Examining Social SecurityContent KnowledgeThe Social Security system is a key part of the U.S. financial support system, providing benefitsfor retirees, the disabled and the survivors of workers. Everyone needs to understand what itmeans for them during their working lifetimes (how FICA affects their gross pay) and inretirement (how much income they can expect to receive from social security).VocabularyBenefits – monetary payments paid to workers who have contributed to the system when theyare retired or disabled or to their survivors in case of death.Federal Insurance Contributions Act (F.I.C.A.) - A federal system of old-age, survivors,disability and health-care insurance (Medicare) which requires employers to withhold (ortransfer) wages from employees' paychecks and deposit that money in designated accounts.Social Security System - A federal system of old-age, survivors', disability and hospital care(Medicare) insurance which requires employers to withhold (or transfer) wages from employees'paychecks and deposit that money in designated accounts.Virginia Board of Education FrameworkSocial Security was designed as a safety net to provide income to older people when they couldno longer work.Social Security benefits are determined by the amount an individual has contributed to thesystem and the individual’s age when claiming benefits. Social Security benefits includedisability and survivor benefits, as well as retirement income.For retirement planning, Social Security payments are likely to be less than income has been.Most retirees will need to supplement through savings, investments, continued employment, oradjusted lifestyle.Teaching Tip1) The video cited below can be used as an introduction. Upon completion of the video, askstudents key questions about how social security operates, how it is structured, and whocan receive benefits and under what conditions.Lessons and Resources10Virginia Council on Economic Education

Page 12

Social Security Educators Toolkit (includes two lesson plans, infographics, and assessments)https://www.ssa.gov/thirdparty/materials/pdfs/educators/05-10016_Educator%20Toolkit.pdfEdSitement Lesson 2: The Social Security Acthttp://edsitement.neh.gov/lesson-plan/social-security-actLesson Plans on Aging Issues – The Baby Boomers and Social Securityhttp://www.ithaca.edu/gerontology/schools/pdf/Baby%20Boomers%20and%20Social%20Security.pdf11Virginia Council on Economic Education

Page 13

EPF.18 The student will demonstrate knowledge of investment and savings bye) contrasting alternative retirement plansDay 1 - IRAs, 401(k)s, Pensions and AnnuitiesContent KnowledgeIndividuals who are fortunate to have some form of retirement benefits through their employerare no longer restricted to traditional pensions, and defined-benefit pensions are becoming rarer.In some circumstances, individuals can augment their retirement with IRAs. And manyemployers offer 401(k) plans. Individuals are increasingly responsible for making choices thatwill affect the funds available for their retirements.Vocabulary401(k) – A type of retirement savings account allowed in the United States. This account isfunded a variety of ways involving contributions from the employee and employer. In somecircumstances, funds are contributed pre-tax and the proceeds are taxed upon withdrawal.Annuity – A financial contract where an individual makes a series of payments over time. At anagreed-upon time, the individual stops making payments and begins to receive payments, eitherfor the rest of their life or for a defined period of time.Individual Retirement Account (IRA) - An account in which an individual may set asideearned income in a tax-deferred savings plan for his or her retirement. There are two types ofIRAs, traditional and Roth, each with its own qualifications and rules governing contributionsand withdrawals.Keogh Plan - A federally-approved, tax-deferred savings program for self-employed people,allowing them to set money aside for their retirement.Pension Fund - An account established by a business to fund retirement benefits for its workers.Pension funds invest in stocks, bonds, mutual funds and real estate. Funds can either be definedbenefit (the amount withdrawn upon retirement is set in advance – frequently as a percentage ofsalary); or defined contribution – where the amount contributed is defined and the amountwithdrawn is dependent upon market performance and investment choices.Pre-tax – A portion of the wage or salary that has not had taxes withheld prior to being allocatedto a retirement plan or other approved benefit.Virginia Board of Education FrameworkSome retirement plans currently available includeIndividual Retirement Account (IRA)Tax-sheltered annuity (TSA)Keogh planannuityemployer retirement planpublic pension plan.12Virginia Council on Economic Education

Page 14

Evaluating retirement plans requires knowledge of the costs and benefits of each type. Forexample, one cost of an IRA is the severe early-withdrawal fee, which is countered by the benefitof contributions reducing taxable income.Teaching Tips1) The teacher should spend time with the students discussing and constructing a table orchart as shown below.2) Have students complete a costs and benefits comparison of each retirement investmentoption.RetirementInvestmentWhocontributesmoneyRiskPayoutTax Issues401K -retirementsavings plansponsored by anemployer.Employeescontribute apercentage oftheir income intothe fund.Many employerswill willcontributematches to theemployeescontributions.Employees cancontrol how theirfunds areinvested. Mostplans offer aspread of mutualfunds composedof stocks, bonds,and moneymarketinvestments. Themost popularoption tends to betarget-date funds,a combination ofstocks and bondsthat graduallybecome moreconservative asyou reachretirement.No access to yourfunds before age59 ½ or if youleave youremployer at age55 or older.If you dip in early,expect a 10%penalty — on topof the usual taxbill.Contributionsare made onpre-tax dollars.Withdrawals aresubject toincome tax.403B - alsoknown as atax-shelteredannuity (TSA)plan, is aretirement planfor certainEmployeescontribute someof their salary tothe plan. Theemployer mayalso contributeto the plan forEmployees cancontrol how theirfunds areinvested. Mostplans offer aspread of mutualfunds composedMost plans allowemployees totake money outof the plan whenthey:reach age 59½;There aresignificant taxadvantages forparticipants in a403(b),including pre-taxcontributions to13Virginia Council on Economic Education

Page 15

employees ofpublic schools,employees ofcertaintax-exemptorganizations,and certainministers.employees.of stocks, bonds,and moneymarketinvestments. Themost popularoption tends tobe target-datefunds, acombination ofstocks and bondsthat graduallybecome moreconservative asyou reachretirementhave a severancefromemployment;becomedisabled;die; orencounter afinancialhardship.If an employee isfully vested, heor she may electto withdraw theaccumulatedbenefits and besubject to certaintax liabilitiesand/or penalties,or transfer it toan IndividualRetirementAccount (IRA)or, in somecases, to anotheremployer plan.a 403(b) planand earnings onthese amountsare not taxeduntil they aredistributed fromthe plan.Annuity - is afinancial productthat pays out afixed stream ofpayments to anindividual,primarily used asan incomestream forretirees.Annuities arecreated and soldby financialinstitutions,which acceptand invest fundsfrom individualsWhile variableannuities carrysome market riskand the potentialto lose principal.The lump sumput into theannuity isilliquid andsubject towithdrawalpenalties.Annuities can becreated so that,uponannuitization,payments willcontinue so longas either theannuitant or theirspouse (ifsurvivorshipbenefit iselected) is alive.Alternatively,annuities can bestructured to payout funds for aAnnuity earningsare subject toincome tax whenpayouts arereceived. Iftaken out beforeage 59½, may besubject to a 10%IRS penalty.14Virginia Council on Economic Education

Page 16

fixed amount oftime, such as 20years, regardlessof how long theannuitant lives.Furthermore,annuities canbeginimmediatelyupon deposit of alump sum, orthey can bestructured asdeferredbenefits.Traditional IRA- a way to savefor retirementthat gives youtax advantages.You makecontributions toa traditional IRAwhich may befully or partiallydeductible,depending onyourcircumstances.General marketrisk.Withdrawals canbegin at age 59½, butwithdrawalsmade prior tothat age aregenerally subjectto a 10% penalty.Earnings aretax-deferreduntil withdrawn.Pension - aretirementaccount that anemployermaintains to giveyou a fixedpayout when youretire.Your employermakescontributionsinto your cashbalance pension.A pension thatincludes cliffvesting typicallymeans that if youleave the job infive years orless, you lose allpension benefits.A pension thatincludes gradedvesting you willreceive aminimum of20% of yourbenefit if youleave after threeyears andultimatelyYour payouttypicallydepends on howlong you workedfor youremployer and onyour salary.When you retire,you can choosebetween alump-sumpayout or amonthly"annuity"payment.You will payincome taxesupon receivingpayouts fromyour pension.15Virginia Council on Economic Education

Page 17

receive 100%after seven yearsof employment.Keogh Plan -tax-deferredpension planavailable toself-employedindividuals.Theself-employedindividual willcontribute apercentage ofprofit into theplan.General marketrisk.Also, Keoghplans have moreadministrativeburdens andhigher upkeepcosts 401(k)plans, but thecontributionlimits are higher.Funds can beaccessed as earlyas age 59.5, andwithdrawalsmust begin byage 70.5.You will payincome taxesupon receivingpayouts from theplan.Lessons and ResourcesRetirement Planning Project (Atlanta Federal Reserve Education)https://www.frbatlanta.org/-/media/documents/education/publications/extra-credit/2015/spring/lessons-and-activities/high-school/personal-finance/project-based-learning-for-personal-finance-classroom/projects/10-retirement-planning.pdfPBS Frontline: How Much Will You Have When You Retire?http://www.pbs.org/wgbh/pages/frontline/teach/retirement/lesson1.htmlReadingWhy We Can All Learn a Lesson From Michael Jackson (estate planning)http://retiresecure.com/why-we-can-all-learn-a-lesson-from-michael-jackson/Day 2 - Help from your employerContent KnowledgeSome employers offer a monetary match for funds the employee contributes toward a retirementplan. Too many people choose not to participate in employer match programs. Essentially, theychoose to not collect part of their salary.Teaching Tips16Virginia Council on Economic Education

Page 18

1) This is an extension of the previous day’s activity. Have students calculate the value ofemployer contributions and employer matching programs for various types of retirementinvestments. Ask students what the opportunity cost of not participating in an employermatched plan means in terms of their total compensation – how much are they reallymaking if they participate fully vs. not participate at all?2) Refer to the principles of economic reasoning to understand why people fail to act toobtain the benefit of matching funds from their employers. See Unit 11, Day 1. Why dopeople fail to do what they know they should do? (Because the effects of many of ourdecisions are felt in the future, and humans have a natural tendency to deal with needsthat have immediate impact rather than taking time to arrange for benefits that will beexperienced in the future.) Discuss how students can set aside time to address their futurefinancial needs on a regular basis. Keeping a picture that represents fulfillment of afuture goal, in a prominent place, may help one to take action towards that goal.17Virginia Council on Economic Education

Page 19

EPF.18 The student will demonstrate knowledge of investment and savings byf) describing how the stock market works.Day 1 - What are stocks? What is the difference betweenspeculating and investing?Content KnowledgeUnderstanding what stocks are and how the stock market works will help students better evaluateinvestment decisions.VocabularyBroker – an individual license to buy and sell stocks on behalf of others.Capital Gains - A profit realized from the sale of property, stocks or other investments.Dividend - A share of a company's net profits paid to stockholders.Exchange – A place for the buying and selling of stocks, bonds or other investmentsInvesting - The process of putting money someplace in the long-term with the intention ofmaking a financial gain. Investment possibilities include stocks, bonds, mutual funds, real estate,and other financial instruments or ventures.Specialist – An individual who works at an exchange and whose job is to make a market whennone exists, essentially buying stocks when there is no buyer and selling stocks when there is noseller.Speculating – The process of putting money someplace in the short-term with the intent ofmaking a profit from market movement.Stock - An ownership share or shares of ownership in a corporation.Virginia Board of Education FrameworkCompanies that wish to raise funds for growth can borrow money or sell shares (stock) of theircompany. To issue stock, firms generally go to investment banks that put together a prospectuswith information for potential investors, help determine the market price of the offering, andissue the stocks in the primary market, where they are purchased. This provides businesses withfunds to finance growth.A stock exchange where buyers sell their shares is called the secondary market. Trades here areconducted between buyers; none of the money goes to the company.In the secondary market, for every buyer there must be a seller. If there is no buyer or seller, a“specialist” at the stock exchange is required to “make a market.” Buyers and sellers may workthrough a local broker who works through a floor broker at the stock exchange, or they mayplace orders for trades online. In either case, a commission is charged to pay the costs of thebrokerage firms and the stock exchange.18Virginia Council on Economic Education

Page 20

When companies make profits, they may keep the profits to help them grow or they may sharethe profits with shareholders in the form of dividends. Shareholders can make money throughdividends or through capital gains. A capital gain occurs when one sells a share for more thanone paid for it. Stock prices are determined by supply and demand based on investorexpectations. If a company is expected to be profitable in the future, demand for its shares risesand the price rises; when a company’s future looks less-than-profitable, demand decreases andthe price falls.Teaching Tips1) The teacher may want to refer to material covered in Unit 5 which addresses what stocks are,how they are created and traded, and why people choose to invest in them. Time should also bespent explaining the difference between investing and speculating.2) One activity is to have students select stocks and begin to track the movement of the stockover the period of a week or two, or longer. Students can use online or traditional media as a wayto find prices. Students should be encouraged to track the stock by creating a graph using Excelor other spreadsheet software.If students have not already used an online stock market simulation, this would be an appropriatetime to introduce such a simulation.Lessons and ResourcesLearning, Earning & Investing for a New Generation Lesson 3: What is a Stock?, Lesson 4:Finding Financial Information Online, and Lesson 7: What are Stock Markets?EconEdLink.org Developing a Financial Investment Portfoliohttps://www.econedlink.org/resources/developing-a-financial-investment-portfolio/Teaching about the Stock Market – Lesson Plans and Teacher Materialshttp://www.vcee.org/Teacher_MaterialEconEdLink.org NYSE Made Easyhttps://www.econedlink.org/resources/nyse-made-easy-lesson-plan/VideoUnderstanding Capital Markets - Tools for Enhancing The Stock Market Game™: Invest itForward™, Episode 1 (5:32)https://www.stlouisfed.org/education/tools-for-enhancing-the-stock-market-game-invest-it-forward/episode-1-understanding-capital-marketsSimulation19Virginia Council on Economic Education

Page 21

The Stock Market Game in Virginia – Student teams manage a $100,000 portfolio and cancompare their results with other teams in the region and the state. Recognition is given to theteams with the highest portfolios after a stated period of time (traditionally 10 weeks.)http://www.vcee.org/programs-awards/view/4The Stock Market Gamehttp://www.smgww.org/Day 2 - What makes a stock rise or fall?Content KnowledgeThe stock market reacts to reality and to expectations. Students can benefit from understandingthe difference and from distinguishing examples of each.Virginia Board of Education FrameworkStock prices are determined by supply and demand based on investor expectations. If a companyis expected to be profitable in the future, demand for its shares rises and the price rises; when acompany’s future looks less-than-profitable, demand decreases and the price falls.When the overall economy is robust and growing, people become optimistic about prospects forbusiness and the stock market goes up. Likewise, when investment interest rates fall, the stockmarket generally rises. When interest rates rise, the market goes down. When the overalleconomy is in decline, investors lose confidence and the stock market goes down.Teaching Tips1) The teacher should pick a stock and ask: What is likely to happen to demand for the stock(and its price) for each of the following headlines:Company reports 50% increase in sales.Company to pay all-time high dividend to stockholders of record at end of last month.Company being sued for damages – injuries to children by product.Company largest supplier files for bankruptcy – supplies uncertain.Company to open new store in largest shopping malls.Fifty new retail outlets open in largest cities of China, India.Lawsuit against company dismissed, appeal promised.New use found for company’s oldest product – may cure cancer.In each case, ask students to explain why they think the action will take place. If helpful tostudent understanding, this is an excellent opportunity to use a supply and demand graph toreview events that cause moves along the lines or cause the line to shift. Draw a supply/demandgraph where it can be seen by the class. Adjust the chart for each of the headlines above (moveone of the curves, move both of the curves or move along the curves)20Virginia Council on Economic Education

Page 22

2) Students should then be encouraged to use resources available to look for news items aboutknown companies and suggest whether they think this would make the company more attractiveor less attractive to investors and provide an explanation.Lessons and ResourcesLearning, Earning & Investing for a New Generation Lesson 14: How are Stock PricesDetermined?EconEdLink.org Here’s Your Chance to Make Millions in the Stock Markethttps://www.econedlink.org/resources/heres-your-chance-to-make-millions-in-the-stock-market-part-1/EconEdLink.org Stock Market Price Historyhttps://www.econedlink.org/resources/stock-market-price-history/21Virginia Council on Economic Education

Page 23

EPF.10i The student will develop consumer skills byi) accessing reliable financial information from a variety of sources.Day 1 - Evaluating sources of informationContent KnowledgeJust as there are news sources that can’t be trusted or may not present the entire picture, somefinancial sources are more reliable than others. Students need to be able to evaluate sources ofinformation before relying on them to help make investment decisions.Virginia Board of Education FrameworkData may be gathered from print, electronic, and verbal sources such as• newspaper financial pages• Internet sources• investor services and newsletters• financial magazines• brokers• banks• credit unions• financial advisors• annual reports.Financial data must be evaluated for reliability:• Some information sources have an incentive to sell a product.• Statistical data can be misrepresented, for example, to imply cause and effect.• Some information sources are opinion programs, and others are news programs.• Some advisors are more skilled than others.• Past performance is no guarantee of future performance.• It is the consumer’s responsibility to determine the reliability of the information.Teaching Tips1) This is an extension of the previous day. Ask: What makes a source of information reliable?Why do you believe things you are told by some people and not by others? Can you apply someof these “filters” to what you read or hear about financial information?Lessons and ResourcesEconedlink lesson: Evaluating Websites.https://www.econedlink.org/resources/cybersecurity-and-economics-evaluating-websites/22Virginia Council on Economic Education

VCEE Scope & Sequence EPF Unit 12

Page 1

Page 2