How Can Investments Potentially Increase a Person S Wealth?

Grade: 7 Lesson #15

How can investments potentially increase a person’s wealth?

SS.8.FL.5.1 Describe the differences among the different types of financial assets, including a wide variety of financial instruments such as banks, deposits, stocks, bonds, and mutual funds. Explain that real estate and commodities are also often viewed as financial assets.

SS.8.FL.5.5 Explain that the rate of return earned from investment will vary according to the amount of risk and, in general, a trade-off exits between the security of an investment and its expected rate of return.

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Correlated Literacy Standards:

LAFS.68.RST.2.4Determine the meaning of symbols, key terms, and other domain-specific words and phrases as they are used in a specific scientific or technical context relevant to grades 6–8 texts and topics.

LAFS.68.RH.1.3Identify key steps in a text’s description of a process related to history/social studies.

LAFS.7.SL.1.1Engage effectively in a range of collaborative discussions (one-on-one, in groups, and teacher-led) with diverse partners on grade 7 topics, texts, and issues, building on others’ ideas and expressing their own clearly.

LAFS.7.L.3.6Acquire and use accurately grade-appropriate general academic and domain-specific words and phrases; gather vocabulary knowledge when considering a word or phrase important to comprehension or expression.

Investing 101

Lesson #15

Correlated Florida Standards (See Full Text on Cover Page)

LAFS.68.RST.2.4

LAFS.68.RH.1.3

LAFS.7.SL.1.1

LAFS.7.L.3.6

Essential Questions

How can investments potentially increase a person’s wealth?
What are the benefits and possible risks of various f investment instruments?
How does the diversification of investments reduce the risk of loss?

Learning Goals/Objectives

Distinguish between savings and investment.
Define the term “investment” and identify various investment instruments.
Explain the concept of risk vs. reward when investing.
Define the term “diversification.”
Describe how diversification may help reduce risk when investing.

Overview

In this lesson, students continue to examine the importance of savings and are introduced to the basic concepts of investment and diversification. Students will also learn that investing involves taking risks for the possibility of earning financial rewards.

Materials

Computers and Internet access.
Copies of the Student Activity Sheet entitled. Savings vs. Investing. (Included in the lesson.)
Power Point presentation entitled, Investment 101 (Included in the file.)
Copies of the Student Activity Sheet entitled, Questions – Investment 101. (Included in the lesson.)
Copies of the Student Activity Sheet entitled, Types of Savings and Investment Instruments. (Included in the lesson.)

Time

50 minutes, plus time for homework.

Activity Sequence

INTRODUCTION/HOOK(10minutes)

Remind students that in the last lesson, we discussed the importance of savings and why savings helps to achieve long-term financial security. We also learned about some basic strategies for saving money. Finally, we learned how compound interest on savings makes money grow faster. Today, we are going to continue to look at the importance of savings while also looking at other ways to make money grow – investments.

Discuss the following:

Is there a difference between saving and investing?
Do you or your family have any investments? What kind? (e.g., stocks, bonds, real estate).Is one better than the other?
Do you think you’re in a position to begin investing? Why or why not?

ACTIVITY (35minutes)

To help students distinguish between savings and investing, review the Student Activity Sheet entitled, Savings vs. Investing. (Included in the lesson.). Emphasize that both saving and investing are ways to increase one’s wealth with the following in mind:

Saving = fewer risks, with less of a return
Investment = greater risk, with the possibility of a higher return

View the Power Point entitled, Investment 101. (File included with the lesson). Have students complete the Student Activity Sheet entitled Questions – Investment 101 (Included in the lesson.) while watching the Power Point. Discuss the questions, especially question #7.

Distribute copies of the Student Activity Sheet entitled, Types of Savings and Investment Instruments (Included in the lesson.) Explain that students will be researching various ways to save and invest money. Students will also evaluate the pros and cons of the savings and investment instruments and the risks that are involved in using these instruments.

Before beginning the assignment, discuss the example provided on simple savings accounts. This will better help students understand what needs to be included on the chart.

NOTE:Savings and Investment Instruments - Any type of financial arrangement that provides the holder or recipient with the possibility of earning some sort of return from that investment. A wide range of instruments are available from simple savings accounts to stocks, bonds, and real estate.

CLOSURE (5 minutes)

Close by re-asking the initial question:Is there a difference between saving and investing? Ask students to cite examples of investments.

OPTIONAL EXTENSION SUGGESTION/HOME LEARNING

Complete the Student Activity Sheet entitled, Types of Savings and Investment Instruments as homework.

Sources/Bibliographic Information that contributed to this lesson:

The following sources will be be helpful as students work to complete the Student Activity Sheet entitled, Types of Savings and Investment Instruments.

Savings vs. Investing

Saving / Investing
Short-term: Ready to go
Saving is typically for smaller, shorter-term goals in the near future such as saving for a vacation or having money for an emergency. / Long-term: Achieve major goals
Investing can help you reach bigger long-term goals (at least four to five years away), like saving for a child’s college education.
Ready access to cash
A savings account gives you access to your cash when you need it. But many savings accounts do limit how often you can take your money out. / Harder to access cash
When you invest your money, it’s usually not as easy to withdraw it quickly as you can with savings account.
Minimal risk
If your money is in an FDIC-insured savings account, it’s at minimal or no risk, because your funds are insured by the Federal Deposit Insurance Corporation (FDIC). That means that if anything ever happened to the bank, the FDIC insures each person’s money to at least $250,000. / Always involves risk
You may lose some or all of the money you invest.
Earn interest
You can earn interest by putting money in a savings account, but savings accounts generally earn a lower return than investments. / Potential for profit
Investments have the potential for higher return than a regular savings account. Your investments may appreciate (go up in value) over time. This increases your net worth, which is the value of your assets (what you own) minus your liabilities (what you owe). If you sell for higher price than you invested initially, you make a profit.

Source: Adapted from

Questions – Investment 101

Name: ______

Define investment:

List one example of an investment that is almost guaranteed to be valuable:

List one example of an investment that could be risky:

List five savings or investment instruments available to investors:

Complete the Investment Pyramid:

Highest risk at the top, lowest risk at the bottom

Questions – Investment 101 (continued)

What is diversification? Why is it important to diversify your investments?

In terms of investing, explain the phrase “Do not put all of your eggs in one basket.”

In your opinion, what three Simple Rules for Investing are the most important?

Which of these three rules is the single most important rule? Why?

Pretend you just received a special gift of $5,000. Thinking about the savings and investment instruments we have been studying, what would you do with this important gift? Explain your answer.

Types of Savings and Investment Instruments

Name: ______

Directions: Choose three savings or investment instruments from the Investment Pyramid to research on the Internet. (See your notes from Investment 101 for the pyramid.) Complete the chart below as you conduct your research.

Type of investment Instrument / Describe the investment instrument / What are the pros? / What are the risks? / Would you be interested in in this instrument? Explain.
Example:
Savings Account / A savings account is an account provided by a bank for individuals to save money and earn interest on the cash held in the account. / A savings account:

Keeps your money safe.
Your money grows with interest.

/ There are really no risks. Savings is insured by the FDIC up to $250,000. / Answers will vary.