The Stock Market

Lesson Plan - Get It!

Audio:

A lot of people dream of starting their very own business.

Let’s say you would like to start your own cupcake-baking company. That is a great business — everyone loves cupcakes and they are willing to pay for them! The only problem is that you don’t have that much money. You need to buy the pans and the baking ingredients — as well as the packaging for your delicious treats — and those things get expensive.

So, you ask the trusted adults in your life, “If you give me ten dollars now, I will give you twelve dollars back after I sell all my cupcakes.” Some of them turn you down, but three of them agree. They give you ten dollars each — more than enough to get started! One person decides to give you $30 — three times what you asked for! In return, you give them each a piece of paper and you write on it, “One share of stock - Sweet Wonder Cupcake Company - Value: $12.” Each of them gets two dollars more back than what they gave you! For that special helper who gave you $30, you give three pieces of paper, or shares, of your company stock.

After you make a certain amount of money, you pay your investors — the ones who invested or gave you the money to help build your company. You give them the $12 you promised at the start. For your special investor, you give him $36 dollars. They helped you start your company, and in turn each of them made some money by helping you. The more they invested or gave you, the more they made in return.

This is how stocks work. In the real world, the value of stocks goes up and down depending on whether the company is making or losing money. Learn more about stocks and investing by reading the article, Stock Market: Basics for bulls and bears, by Holly Hartman, courtesy of Sandbox Networks, Inc. As you read, write down answers to the following questions:

• What is a “market”?
• Why do companies issue or give stocks?
• Why do people buy stocks?

Collect your answers and share them with your parent or teacher, then discuss these questions together:

• What are the benefits of stocks? To the company? To the investors?
• What do you think could be some of the risks in buying stocks?
• What are some companies or kinds of companies in which you think it would be good to invest?

Investors — the people who buy and sell stocks — can make a lot of money. They spend many countless hours figuring out which companies are doing best. They make guesses about which ones are going to do well in the future and which ones are not going to do so well.

In the Got It? section, take a look at some of the real tools investors use to make their decisions.