Share the Wealth: Guaranteeing a high rate of return—Strategies for teaching investment fundamentals

Investing is a topic covered in the standards of most personal finance as well as some economic and business courses. However, this complex topic can often be a bit daunting for instructors. Never fear! Two teachers from the Southeast share some of the methods they use in the classroom for teaching about investing.

Gaining insight into personal investment philosophy
In her classes, Debbi Mottern, a personal finance teacher at Science Hill High School in Johnson City, TN, focuses on getting students to understand various investment tools like stocks, bonds, mutual funds, and real estate; concepts like rate of return and risk; and their own particular investment philosophies. Mottern asks her students to complete an investment risk tolerance quiz to help them understand their investment philosophies. They then discuss their quiz results, while Mottern prompts the students to think about why they might need to be aware of their investment philosophies and how their philosophies might change throughout their lifetimes.

Drawing on real life
Mottern introduces her students to the stock market by inviting a local financial planner to speak to her classes, which serves both to draw on the expertise of a professional and to expose the students to career opportunities.

A major project in Mottern's personal finance class involves students researching seven companies and identifying specific information about each company, including ticker symbol, industry, book value, price/earnings ratio, dividends, earnings per share, beta, current stock price, and stock classification. To find this information, students refer to the websites of the companies, newspapers, financial data firms, and stock exchanges. Once they complete the research, students are given the task of investing $2 million in five of the companies. As part of their investment strategy, students calculate the number of shares they can buy and compute a total cost of their portfolio. Over a six-week period, students track their stocks and compile a professional presentation detailing their portfolios and their results.

Getting experience and knowledge through activities Aaron Pickering, a social studies teacher at Oak Ridge High School in Oak Ridge, TN, teaches investment concepts in his economics and personal finance courses. As an investment activity, Pickering assigns his students a retirement account interview. Students interview an adult—usually a parent or guardian, grandparent, or older sibling—who is either saving for retirement or currently in retirement. They learn about the person's retirement accounts, the investment instruments in the accounts, how and when the person first started saving for retirement, and contribution/withdrawals from the accounts.

Based on the interview, students create an asset allocation graph and develop a written report. They then give an oral presentation to the class. Pickering says that the students enjoy taking on the role of financial advisers. For them, seeing how real people, especially their loved ones, are coping with retirement savings makes an otherwise distant subject intensely personal. Encouraging students, who are only just now developing their own financial resources, to dialogue with adults in their lives that are dealing with investing makes the topic relevant for the students.

The Stock Market Game (SMG) figures big in Pickering's classes. The SMG serves as a practical implementation of the academic content learned through the economics and personal finance courses. Pickering feels the most important lesson that the students learn by participating in the SMG is recognizing and avoiding the psychological traps that plague inexperienced investors. Students tend to be very optimistic at the top and pessimistic at the bottom. By looking at longer-term movements in stock prices, students calculate how they can achieve much greater capital gains by buying low and setting target prices for selling their high-performing stocks. They also learn firsthand that buying stocks that are on meteoric rises due to rumors and "irrational exuberance" almost always results in capital losses.

Imparting independence
Pickering firmly believes that one of the greatest contributions that teachers can make to society is putting students on the path to become financially independent. When his former students tell him about the growth they have already experienced in the Roth IRAs that they started as a result of taking his class, he says it is a wonderful feeling. He teaches students that financial independence and stability are possible for everyone if they start early.

Federal Reserve investment-related resources
Federal Reserve print and electronic resources related to investing include:

  • Glossary of Saving and Investing: Provides key terminology related to saving and investing.
  • Building Wealth: A personal finance education resource to help young people, adult consumers, families, and others develop a plan for building personal wealth. This publication presents an overview of personal wealth-building strategies that includes setting financial goals, budgeting, saving and investing, managing debt, and understanding credit reports and credit scores. Chapter 3 focuses specifically on saving and investing.
  • Investment Investigator lesson: Introduces the concepts of investment vehicles, return on investment, and risk. In this lesson, students engage in both self-directed and active learning, using a previous Extra Credit article and their research as a basis for their application of the key concepts.
  • Savers and Borrowers  , Lesson 3: Mutual Funds: Part of an activity-based teachers' guide that provides practical examples and realistic scenarios to assist students who will soon be making crucial financial decisions. This publication introduces financial concepts such as risk and return, collateral, and insured investments as part of the complex world of financial institutions and products. Lesson 3 teaches students that bank deposits are insured while investments such as mutual funds sold by banks are not insured. Students also explore the tradeoffs between risk and return for various financial investments.
  • The Money Circle, Money Magic lesson: Helps students interpret the types of saving and investing tools available and how they differ. This lesson helps students better understand the concepts behind making money grow and how knowing these concepts can improve their financial well-being.
  • Pathways to Getting Ahead, Saving and Investments: Advancing Along the Path: Provides useful information on how savings and investments are a step on the path to economic security and opportunity. This resource shares details about various saving and investing tools.

By Jackie Morgan, senior economic and financial education specialist, Nashville Branch
March 31, 2011