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LESSON: STOCK MARKET SMART
Lesson Summary
In a very readable, question-answer format,
your students will learn all about the stock market - what the stock
market is, how it works, and how one can use it to build wealth for the
future. Your students will learn a personal approach to investing
based on personal, long and short-term goals. A glossary, list of
popular web site, and other references are included.
Concept: Market
Definition: A market exists whenever people
buy and sell goods and services. In a stock market, people buy and
sell shares of specific stocks. These shares represent
ownership in the company.
Comprehension Questions:
Stock Market Smart has a
question-answer format throughout the book. Many questions are
answered, but below are some key questions that you should present to your
students.
What is a stock?
A share of stock
represents ownership in a company. When a person buys a share of
stock, he actually becomes a part owner in the company.
Why do companies issue
stock?
Companies issue stock in order to raise financial capital to
start or expand the company’s business operations.
How does a company’s profits affect the
value of a stock?
If a company makes good profits, the value of the
shares typically goes up. If the company doesn’t make a profit, the
shares will likely fall. Over time, a company must make a profit to
remain in business.
What are dividends?
Dividends are
payments to stockholders that represent their share of the company
profits. Sometimes companies don’t give dividends. Instead
they invest the profits back into the business.
What are capital gains?
Capital
gains are profits that one makes on the sale of an investment, such as
stocks. A person must pay capital gains taxes on these earnings.
What is the Dow Jones Industrial
Average?
The Dow Jones Industrial Average is an indicator of how
the entire stock market is performing, base on the price of a certain
thirty “blue-chip” stocks. The average was developed in 1896 by
journalist Charles H. Dow. The Standard & Poors 500 Index and the
Nasdaq Index are other popular stock averages.
How do you buy stocks?
Many
people buy stocks through a stockbroker, who work for broker-dealer
firms. Some are full-service firms, while others, called discount
brokers, offer more limited services to investors. Stockbrokers earn
a commission for their services. You may also purchase stocks
from broker-dealer firms by using the Internet.
Why should you consider short and long
term financial goals before investing in the stock market?
It is
important to list long term and short term financial goals because every
investment – including stocks – has a certain level of risk. A
person who plans to use his savings in the near future would not want to
invest in a risky investment that could lose value.
What is the relationship between risk
and reward?
Generally speaking, the higher the possible return
(reward) on an investment, the riskier it will be.
How can you avoid being “scammed” when
you purchase stocks or other investments?
Unfortunately, some
dishonest people may try to “scam” people who make investments. For
example, these people may try to convince you that their investment will
give you a “guaranteed” high return, or that you must act immediately to
get in on the investment. Before you invest, you should always
investigate whether or not the firm is reputable. The best place to
do this is to contact your state Securities Regulator.
Other Concepts: Saving, Investing | 
