georgia council on economic education w w w. g c e e. o r g leland gustafson center for economic...

Georgia Council on Economic Education w w w . g c e e . o r g

LELAND GUSTAFSONCENTER FOR ECONOMIC EDUCATION

UNIVERSITY OF WEST GEORGIA

Investor EducationFinancial Fitness for Life

and

Economic and Financial Literacy is Important

• Citizens must understand basic economics to:– Fully participate in

our nation’s market economy.

– Understand policy issues and cast informed votes in federal and state elections.

• Citizens must understand personal finance to:– Plan for retirement.– Make saving and

investing choices.– Purchase insurance.– Buy a home.

Georgia Council on Economic Education w w w . g e e e . o r g

Why is K-12 financial education so important?

• More than ever there is a need for our citizens to have at least a basic knowledge of economics and financial management.

• If people cannot make well-informed and sound personal finance decisions, how are they to make well-informed and sound public policy decisions?


Why is K-12 financial education so important?

• Americans have approximately $1 trillion in revolving credit card debt.

- half make the minimum monthly payment.• Nationally, those under 25 are the fastest-

growing age group filing for personal

bankruptcy.


Overall levels of economic understanding are low.

1997 – 57% of questions answered correctly2000 – 52 % of questions answered correctly2002 – 50% of questions answered correctly2004 – 52% of questions answered correctly2006 – 53% of questions answered correctly2008 – 48% of questions answered correctly

Jump$tart Coalition Survey

Jump$tart Coalition Test of High School Students


Source: Federal Reserve Bank, St. Louis

Credit Card Usageby Family Income

Income Level

Lowest Middle Highest

Percentage of families with a credit card

1970 2 14 33

1989 17 62 89

1998 28 72 95

2003 47 91 99



Credit Card Balance by Family Income

Income Level

Lowest Middle Highest

Mean credit card balance

1970 $1,038 $950 $882

1989 909 2,502 3,960

1998 2,596 4,785 6,063

2003 2,938 6,077 14,713

• College students report having an average of 4.6 credit cards. Half have four or more.

• Seniors graduate with more than $4,100 in credit card debt, up from $2,900 in 2004.

• Only 17% said they regularly paid off all the cards each month.

• The remaining 83% carried balances and incurred finance charges each month.

• 84% said they need more education on financial management topics.

College Students and Credit Cards (Sallie Mae, 2009)

• 30% of college students with loans drop out without a degree

• Members of the class of 2011 graduated with an average of $26,600 in student loan debt

• One-third of parents are more comfortable talking with their kids about smoking, drugs, and bullying than about money

Bankrate.com, 2014

College Students and Loan Debt

But when students have personal finance instruction they are…

• More likely to display positive financial behaviors and dispositions

• More likely to save• Less likely to max out their credit cards• More likely to pay off credit cards in full each month• Less likely to make late credit card payments• Less likely to be compulsive buyers

Bankrate.com, 2014


The Problem of Economic and Financial Literacy…

Do You Need a Reason to Save for Retirement



Saving is a very fine thing. Especially when your parents do it for you.

--Sir Winston Churchill


About 8 of 10 Americans are comfortable About 8 of 10 Americans are comfortable with the level of financial planning they with the level of financial planning they are currently doing. are currently doing.



34% have not begun to prepare for 34% have not begun to prepare for retirement. retirement.

23% save nothing for long term goals.23% save nothing for long term goals.

25% do not know how much they are 25% do not know how much they are saving.saving.


On average, Americans expect to On average, Americans expect to retire at age 61 and live to 83.retire at age 61 and live to 83.



Personal Bankruptcies

Why Invest?

• Time is on your side.– Stock prices rise over

time.• Beat inflation.

– Overtime, investments in stock have good returns.

Why Invest?

• You can earn income.

– Owning stock is like a job.

• Rewards last a lifetime.

– Investing provides good assets

– Stocks, bonds, mutual funds

But, It’s Scary Out There

S&P 500 Annual Returns, 1952 -2014(includes reinvestment of dividends)

2014 13.80% 1993 10.17% 1972 19.15%

2013 32.10% 1992 7.60% 1971 14.54%

2012 15.88% 1991 30.95% 1970 3.60%

2011 2.07% 1990 -3.42% 1969 -8.63%

2010 14.32% 1989 32.00% 1968 11.03%

2009 27.11% 1988 16.64% 1967 24.45%

2008 -37.22% 1987 5.69% 1966 -10.36%

2007 5.46% 1986 19.06% 1965 12.45%

2006 15.74% 1985 32.24% 1964 16.59%

2005 4.79% 1984 5.96% 1963 23.04%

2004 10.82% 1983 23.13% 1962 -9.20%

2003 28.72% 1982 21.22% 1961 28.51%

2002 -22.27% 1981 -5.33% 1960 -0.74%

2001 -11.98% 1980 32.76% 1959 11.59%

2000 -9.11% 1979 18.69% 1958 43.40%

1999 21.11% 1978 6.41% 1957 -9.30%

1998 28.73% 1977 -7.78% 1956 6.38%

1997 33.67% 1976 24.20% 1955 28.22%

1996 23.06% 1975 38.46% 1954 55.99%

1995 38.02% 1974 -26.95% 1953 -0.80%

1994 1.19% 1973 -15.03% 1952 18.35%

STOCK MARKET RETURNS - S&P 500 Compounded Annual Growth Rate

STOCK MARKET RETURN WHEN INVESTING IN THE S&P 500

FOR 1 TO 40 YEARS ENDING IN THE YEARS 2000 TO 2014

Number of Years Investing

Ending 40 35 30 20 10 5 1

2014 12.23% 11.85% 11.38% 9.84% 7.60% 15.30% 13.80%

2013 10.99% 11.98% 11.11% 9.18% 7.29% 17.82% 32.10%

2012 9.77% 11.29% 10.85% 8.19% 7.01% 1.53% 15.88%

2011 9.85% 10.57% 11.02% 7.79% 2.82% -0.36% 2.07%

2010 10.16% 11.19% 10.74% 9.14% 1.31% 2.17% 14.32%

2009 9.89% 11.80% 11.29% 8.23% -0.99% 0.41% 27.11%

2008 8.99% 10.04% 11.04% 8.43% -1.47% -2.31% -37.22%

2007 10.55% 11.00% 13.01% 11.84% 5.87% 12.78% 5.46%

2006 11.01% 11.39% 12.50% 11.86% 8.41% 6.10% 15.74

2005 10.31% 11.35% 12.77% 12.01% 9.08% 0.45% 4.79%

2004 10.50% 11.32% 13.82% 13.32% 12.12% -2.37% 10.82

2003 10.64% 10.71% 12.25% 13.07% 11.11% -0.62% 28.72%

2002 10.52% 10.24% 10.71% 12.82% 9.39% -0.62% -22.27%

2001 10.95% 11.73% 12.29% 15.35% 13.01% 10.76% -11.98%

2000 12.00% 11.79% 13.28% 15.78% 17.59% 18.44% -9.11%

INVESTING IN THE STOCK MARKET - SINCE 1914ie,. Buying the 500 largest U.S. companies (S&P 500)

Amount Invested Per Month

Ended 40 Years/Mo 100 250 500 40 YearBest 1989 12.56% 1,418,343 3,545,857 7,091,714 Best

Worst 1968 8.83% 448,739 1,121,847 2,243,695 WorstMED 10.77% 807,797 2,019,493 4,038,986 MEDBank 3.00% 92,837 232,094 464,187 Bank

Ended 30 Years/Mo 100 250 500 30 YearBest 2004 13.82% 533,105 1,332,763 2,665,527 Best

Worst 1946 7.50% 135,670 339,174 678,349 WorstMED 10.76% 268,310 670,774 1,341,548 MEDBank 3.00% 58,419 146,048 292,097 Bank

Ended 20 Years/Mo 100 250 500 20 YearBest 1999 17.99% 234,001 585,003 1,170,007 Best

Worst 1948 3.09% 33,226 83,066 166,132 WorstMED 10.93% 86,524 216,311 432,622 MEDBank 3.00% 32,912 82,281 164,561 Bank

Ended 10 Years/Mo 100 250 500 10 YearBest 1958 20.07% 38,409 96,023 192,046 Best

Worst 2008 -1.47% 11,154 27,886 55,772 WorstMED 9.95% 20,594 51,486 102,972 MEDBank 3.00% 14,009 35,023 70,045 Bank

10.27% is the CAGR since 1914 (99 years)

Compounded Annual Growth Rate


What is $200 per Month Worth

ANNUAL RATE OF RETURN ON INVESTMENTSYRS 3.00% 6.00% 8.00% 10.00% 12.00% 16.00%

5 12,962 14,024 14,793 7,808 16,497 18,450 10 28,018 32,940 36,833 41,310 46,468 59,294 15 45,508 58,455 69,669 83,585 100,915 149,716 20 65,825 92,870 118,589 153,139 199,830 349,892 25 89,425 139,292 191,473 267,578 379,527 793,044

30116,83

9 201,908 300,059 455,865 705,983 1,774,095

35148,68

4 286,367 461,835 765,655 1,299,05

4 3,945,954

40185,67

5 400,290 702,856 1,275,35

6 2,376,48

4 8,754,030

45228,64

5 553,955 1,061,94

1 2,113,97

1 4,333,84

8 19,398,181

If you are 25 years of age and wait 5 more years before you startto save( at 10%), by age 65 you will have (1,275,356 - 765,655) = $509,710 less accumulated wealth.

Not saving $12,000 (2400 x 5) during the next 5 years (age 25 - 30)

You are giving up $509,710 at retirement.

WHAT ARE YOUR QUESTIONS ?



How to Really Be a Millionaire


The Millionaire Game1. Most millionaires are college graduates.

True: 4 of 5 millionaires are college graduates.

2. A majority of millionaires work fewer than 40 hours a week.

False: About 2/3 of millionaires work 45 to 55 hours a week.

3. More than half of all millionaires never received money from a trust fund or estate.

True: Only 19 % of millionaires received any income or wealth of any kind from a trust fund or an estate.


The Millionaire Game

• 4. Most millionaires work in glamorous jobs such as sports, entertainment, or high tech.

• False: A majority of millionaires are in ordinary industries and

jobs.

5. Most millionaires work for big Fortune 500 companies. False: About 3 out of 4 millionaires are self employed and consider themselves to be

entrepreneurs. Most of the others are professionals, such as doctors, accountants and lawyers.



6. Many poor people become millionaires by winning the lottery.

False: Very few people get rich the easy way. If you play the lottery, the chances of winning are about 1 in 12 million. The average person who plays the lottery every day would have to live about 33,000 years to win once.

You have a 1 in 66,000 chance of being struck by lightning IN FLORIDA

A pregnant woman has a 1 in 705, 000 chance of have quadruplets

THE MILLIONAIRE GAME

7. College graduates earn about 65% more than high school graduates. True: recently the average college grad earned 66% more than the average high school grad. Folks with professional degrees earned 150% more than the HS grad..




8. If you want to be a millionaire avoid the risky stock market. False: Long term, the S&P 500 index has increased at more than 10 % annually which exceeds any other investment.


The Millionaire Game9. Single people are more often millionaires

than married people. False: Most millionaires are married and stay married. Financially speaking, divorce is something you want to avoid.


Rules for Improving Your Financial Life

• Get a good education

• Work long, hard, and smart

• Learn money-management skills

• Live below your means

• Buy a home (you can afford)

•Save early and oftenSave early and often•Invest in commonInvest in common stocks for thestocks for the long term long term (diversify) (diversify)

•Gather information Gather information before making before making decisionsdecisions•Get married and stayGet married and stay marriedmarried

WHAT ARE YOUR QUESTIONS ?



The Basics

Stock-An ownership share, or shares of ownership, in a corporation.


Can You Buy Stock in

or


The Different Markets

New York Stock Exchange The oldest stock exchange in the

United States, founded in 1792 and stocks are still traded on the floor. Traditionally for large corporations with large volumes of shares.


NASDAQ An electronic marketplace enabling

buyers and sellers to get together via computer to trade stocks. Traditionally high-tech firms that are very active. Created in 1971.


American Stock Exchange (AMEX)

Located in New York, handles about 10% of all securities exchange. Has mostly small-cap stocks, exchange-traded funds and derivatives.


National Rules

• $100,000 to Invest for 10 Weeks– NYSE– AMEX– NASDAQ

• Must Purchase Minimum of 100 Shares• Minimum Share Price of $5• 4 pm Closing Price (not real-time)


Georgia 3x3x3 Rules• Purchase a stock before end of third

week• Must purchase at least three stocks• Must hold three stocks for 3 weeks


National Rules

Hardest thing to do?Get teams to spend the $100,000!• .75% Interest Earned on Unspent Cash• 1% Transaction Fee (all transactions)• 7% Interest Charged on Margin Loans


Teaching “Stuff”

Student- “What stock should I buy?”

Me- “If I knew the answer to that I would not be in this classroom with you. I would be living here and paying someone to count my money.”



• $7.00 per team fee• No fee if you are a Title 1 school • No fee for any school in Atlanta City,

Decatur City, Fulton County, DeKalb County

• Teams of 3-5 students (suggested)



• Teams of 3-5 (recommend friends)• Do not liquidate portfolio on the last day• Rankings posted weekly• Grading activities, not profit/loss• Awards by region and state – luncheon

for all winners in May


National Rules

Hardest thing to do?Get teams to spend the $100,000!• .75% Interest Earned on Unspent Cash• 1% Transaction Fee (all transactions)• 7% Interest Charged on Margin Loans


Winning Team• Highest Portfolio Value (total Equity)

• Regional Winners – school districts– Carroll Co. - Carrollton City –

Independent – Students get T-Shirts – Go to Atlanta (underground) winners

lunch

State Winner Team Trophy

Teacher gets week in NYC


• October 7 to December 13

• Real World never invest for just 10 weeks

• Strategy to win the game– Buy low cost & highly volatile stocks– Not a strategy for retirement or LT

investing

Invest for 10 Weeks


How to Win• Select stock kids are

familiar with; NIKE• Buy at $100/share• 1000 shares with

$100,000• Price rises to

$102/share• Account increases

by $2,000

• Select stock with a lot of volatility; XYZ

• Buy at $10/share• 10,000 shares with

with 100,000• Price rises to

$12/share• Account increases

by $20,000


SMG

• Buy ↑ Sell

[Long position]

• Short Sell ↓ Short Cover

[Short position]


Your friend loans you this-


You immediately turn around and sell the thing for $200.00.

(the $200.00 goes in your pocket)


What do you owe your friend at this point?


You expect leather briefcases to be on clearance sale at

Macy’s for $150.00


When they go on sale, you buy your friend a new briefcase for $150.00. She gets her

briefcase back and you just made $50.00!


Your broker loans you this-


You immediately turn around and sell it for $40.00/shr x 100 shrs or $4,000

(the $4,000 goes in your pocket)


What do you owe your broker at this point?


You expect the CDC to announce that Coke causes cancer…

…so you wait.


Instead, the CDC announces that Coke cures cancer!

What happens to the price of Coke stock?

Maybe goes up to $200/shr


The Risk of Short Selling?

If the price of the stock goes up before you return the stock

to your broker, you will loose money.

(must buy back at $200/shrTherefore lose $160/shr

(For 100sh that’s a $16,000 loss)


Buy on Margin• Initial Margin is 50%

Margin = Portfolio Value (PV) – Loan (L) Margin/PV = margin as a % of PV = 50%

• Eg 200,000 pv PV – L >= .50 100,000 loan PV 100,000 margin L <= .50 PV

PV = Stock + Cash


Margin Call• If your collateral (portfolio value) decreases your

broker (lender) may want more collateral (will make you sell stock)

• Game Maintenance Margin (MMR) is 30% ie., Margin = (PV – L) > = .30 PV or

LOAN<=.70PV

This requires a minimum PV > 1.43 (Loan)

If you fall be low the MMR you get a Margin Call

Must then (within 3 weeks) sell stock


What are Your Questions?


How to Play-www.gcee.orgwww.gcee.org


Teacher RegistrationPage


SIA_14_A9

••••••


Add number of classes

Add number of teams within classes


For Teachers (gcsee.org)

• Teacher Support Center• FAQ – need 1 computer in room• View Teacher Classroom Experience• Grading Tip - Photo of each Team -

- rank on wall by P.V.• If Something Goes Wrong

Call Barbara Futrell 404-651-3280 or

1-877-752-9764 [email protected]

How to Find Good Stocks

• Screening For Stocks• 1. http://finance.yahoo.com/q/hl?s=BRUSX • This site lists the largest 10 holdings of an untra small cap mutual fund that has had an average return of 26 % per year for 5 years ending in Feb. 2014

• 2. http://www.thestreet.com/markets/gainers.html • This site lists the top % price gainers from the day• before. Also, in the left column you can also select the • top % price loosers from the day before. A good list to• find potential 100 % gainers over the next ten weeks• • 3. http://screen.finance.yahoo.com/stocks.html• This site allows you to set criteria for stock you want• Price, P/E, Max Market Cap, etc


www.finance.yahoo.com

www.finance.google.com

magicformulainvesting.com

westga.edu/~lvg/SMGPP.ppt


Questions?

georgia council on economic education w w w. g c e e. o r g leland gustafson center for economic...

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