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This CNNfyi.com lesson plan is supplemented with material from

Growing up and growing rich

Mutual funds, Roth IRAs are some of many teen-sensible investments

April 3, 2001
Web posted at: 10:07 AM EDT (1407 GMT)

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Growing up and growing rich - Mutual funds, Roth IRAs are some of many teen-sensible investments

Editor's note: CNNfyi.com updates its page at 1 a.m. EST. Users can find stories from the previous five days under MORE STORIES/LESSON PLANS and under the Subject Areas archives.

Objectives

Students will be able to:

Explain the benefits of long-term investing beginning at an early age
Calculate interest rates using mathematics operations
Create and evaluate a two-week personal budget

Standards

National Council on Economic Education

10. Institutions evolve in market economies to help individuals and groups accomplish their goals. Banks, labor unions, corporations, legal systems and not-for-profit organizations are examples of important institutions. A different kind of institution, clearly defined and enforced property rights, is essential to a market economy.

11. Money makes it easier to trade, borrow, save, invest, and compare the value of goods and services.

Materials

CNNfyi.com article, "Growing up and growing rich -- Mutual funds, Roth IRAs are some of many teen-sensible investments"

(optional) Video from April 4, 2001 CNN NEWSROOM Business Desk segment

Internet access

Procedures

1. For the best possible presentation of this story, also use the video version from today's CNN NEWSROOM broadcast. Have students compare the video version to the Web news story. Ask: Do you discover different perceptions about the topic from one story to another? Which did you prefer in this case, and why?

2. After students read the CNNfyi.com article "Growing up and growing rich: Mutual funds, Roth IRAs are some of many teen-sensible investments," ask the following questions:

Who is Chris Stallman? How has he managed to save money for his college tuition? What example illustrates the benefit of saving for retirement, even when you are decades away from retiring? Does this example encourage you to begin investing? Why or why not?
What significant advantage do teens have over adults when it comes to financial planning? How does time work as an ally for teens who invest? Are there any downsides to investing and saving at an early age? Explain.
What is the difference between buying stocks or mutual funds? Which is more appealing to you, and why? David Brady, manager of the Stein Roe Young Investors Fund, says that young investors "definitely want to see their stocks moving...but if the company is giving something back, that would be ideal." What does this statement imply about teen investors?

3. Point out to students the story mentions "compound interest" and its advantages for teens in savings. Have students consult local banks or other resources to learn about compound interest and how it works. You might invite a local banker to explain the different kinds of interest one can earn on savings, and how teens benefit from saving money.

4. Teens can learn to manage their money by creating a budget worksheet. It should include a list of anticipated and actual income/savings and expenses and a list of purchasable goals. Some students don't know where to start when it comes to creating a budget or personal financial plan, because they don't keep track of their income and expenses. Direct each student to keep a two-week "money diary," including income generated from jobs, allowances, etc., and expenses, from daily/regular expenses to occasional spending on items such as CDs and movies. Direct students to list their predicted and actual daily income and expenses, then add up the totals at the end of the two-week period. They should also track whether or not their estimates were over or under their expectations, and by how much.

Assessment

Ask students to write reports on their experience with following a budget, including answers to the following questions:

Did the expenses outweigh income? Were any expenses frivolous ones?
Are you wasting money? Was there a portion of your income that could be set aside for savings or investment?

Discuss what students learned by monitoring their money and how this could benefit them when setting up a long-term budget or financial plan.

Accommodation

Mathematical students can learn about compounding interest by doing the following exercise:

1. Download a compound interest table, or use one found in an economics textbook.

2. Explain that the principal amount is the amount of money that a customer invests or deposits in a bank. Compound interest is the amount of interest that is paid on the principal, and then on the principal and any previously earned interest. So, if a student deposits $100.00 in a bank and it earns $6.00 interest over the course of a year, the new principal would be $106.00. The next year, his or her earnings would be compounded, because he or she will receive interest not only on the initial investment, but also on the interest earned the previous year.

3. Explain the use of the compound interest table over various time periods and at various interest rates. Ask students to calculate what they would earn on various amounts, such as $50.00, $75.00, and $100.00 at various interest rates over several time periods. Then have them determine answers to such problems as the following:

Which will make more money: $100.00 compounded for three time periods at the rate of five percent interest, or $65.00 compounded for nine time periods at the rate of eight percent interest? Ask them to show their work. They will need to add the interest rates found on the chart to their principal investment.

Give them other amounts, interest rates and time periods to work with so they can become proficient at using the table and understanding compounding interest.

Challenge

1. Students can research the investment services for youth by exploring several of Related Sites below. Have them create charts that allow for an analysis of comparable benefits and services. Based on their findings, they can determine the service that is best for their personal needs. If possible, challenge them to invest using the financial planning company. Request periodic short reports on how the service is working for them.

2. Students can attempt to create a household budget by using Highwired.com's "How to create a household budget."