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Lesson Plan02 - Seven Steps to Smart Investing

National Cosumer & Financial Literacy

Framework

• Identify and explain strategies to manage personal finances • Explain how, as financially active citizens, they fit into the broader economy and society through investing • Analyse relevant information to make informed choices when purchasing goods and services and/or to resolve consumer choices

ACT

24.LA.4• [Understand and learn about] income (e.g. income is derived from employment, investments, government payments and gifts) and wealth (e.g. wealth creation through business ventures and investment; relationship between risk and return on investment) 24.LA.12• [Learn to] recognise opportunities to generate income and wealth, and the risk management of those opportunities [e.g. assess the advantages and disadvantages of financial ventures, develop personal financial plans that show initiative and manage risk

24.LA.4• [Understand and learn about] income (e.g. income is derived from employment, investments, government payments and gifts) and wealth (e.g. wealth creation through business ventures and investment; relationship between risk and return on investment) 24.LA.12• [Learn to] recognise opportunities to generate income and wealth, and the risk management of those opportunities [e.g. assess the advantages and disadvantages of financial ventures, develop personal financial plans that show initiative and manage risk

Essential Maths (Calculations, percentages and rates) • Solve practical problems requiring basic number operations (ACMEM001) Essential Maths (Probabilities and relative frequencies) • Interpret commonly used probability statements, including‚ possible‚ probable, likely‚ certain (ACMEM148)

Curriculum Points Year 9 Year 10 Year 11



NSW

Mathematics Stage 5.1 (Number and algebra) • Solve financial problems involving earning, spending and investing money (MA5.1-4NA) • Solve problems involving simple interest (ACMNA211) Commerce • Evaluates options for solving commercial and legal problems and issues (5.5) • Analyse reasons for saving and investing and for postponing consumption for future gain • Recognise the relationship between risk and return by investigating investment options

Commerce • Evaluates options for solving commercial and legal problems and issues (5.5) • Analyse reasons for saving and investing and for postponing consumption for future gain • Recognise the relationship between risk and return by investigating investment options

Essential Maths (Calculations, percentages and rates) • Solve practical problems requiring basic number operations (ACMEM001) Essential Maths (Probabilities and relative frequencies) • Interpret commonly used probability statements, including‚ possible‚ probable, likely‚ certain (ACMEM148)

NTStudies of Society & Environment (Enterprise: Financial Literacy) • Apply a range of strategies in personal financial management(ENT 4.1)

Studies of Society & Environment (Enterprise: Financial Literacy) • Apply a range of strategies in personal financial management(ENT 4.1)

N/A

QLD N/ABusiness (Enterprise and Ventures) • Entrepreneurial behaviour, skills and activities can impact positively and negatively on a variety of stakeholders

N/A



SA N/A N/A

Economics (Unit 1AECO: Personal financial planning) • Explain the concepts of risk and return • Explain the risk/return trade-off relating to different types of personal investment • Describe the methods that could be used to evaluate personal investment decisions • Examine typical pitfalls associated with personal financial investment e.g. psychological factors such as regret theory, using the past as a guide to the future

TAS

Mathematics (Number and algebra) • Solve problems involving simple interest (ACMNA211) Society & History (Interconnections between systems; Standard 5: Stage 13) • Understand the interdependence between quality of life and access to goods and services

Society & History (Interconnections between systems; Standard 5: Stage 13) • Understand the interdependence between quality of life and access to goods and services

Essential Maths (Calculations, percentages and rates) • Solve practical problems requiring basic number operations (ACMEM001) Essential Maths (Probabilities and relative frequencies) • Interpret commonly used probability statements, including‚ possible‚ probable, likely‚ certain (ACMEM148) Financial Literacy • Set personal financial goals • Financially, what do I want from life?



VIC

Mathematics (Number and algebra) • Solve problems involving simple interest (ACMNA211) Economics (Learning focus: Level 9) • Students extend their personal financial literacy skills and understanding about the role of savings and investment

Economics (Learning focus: Level 10) • Students extend their personal financial literacy skills and understanding about the role of savings and investment

Essential Maths (Calculations, percentages and rates) • Solve practical problems requiring basic number operations (ACMEM001) Essential Maths (Probabilities and relative frequencies) • Interpret commonly used probability statements, including‚ possible‚ probable, likely‚ certain (ACMEM148) Economics (Choices and consequences) • The nature and distinctive features of the Australian economy, including the ownership, allocation and distribution of resources and the role of households, businesses, government and other relevant groups

WA N/ASociety & Environment (Resources) • To use critical thinking and problem-solving skills to make informed consumer and financial decisions

N/A

1

Lesson PlanSeven Steps to Smart Investing

Suggested Introduction1. Begin the lesson by asking students about the different types

of investments they know of or have heard of, and record their suggestions on the board. They are likely to have heard of shares, real estate and cash savings accounts. Follow these popular suggestions with other, less well known, investments such as art, collectables, film productions, and commodities like metals, oil, coffee and wheat.

2. Get students to consider the huge variety of things people can invest in. Ask them which investment they think is best. This is a trick question: the answer won’t be found on the board.

3. Emphasise that the best investment is a smart investment, one that is well researched, carefully considered, and correctly managed. There is no ‘right’ answer as to which investment is best; there are, however, good and bad investments.

4. Follow that up with: although the world of investing, with so much choice and so many things to consider, can be daunting, all it takes is Seven Steps to making a smart investment, whatever form that investment may take.

5. Summarise by saying that this lesson will introduce students to these Seven Steps, which take the form of questions they should ask so that they can begin thinking about how, why and when investing might fit into their lives.

Lesson Objectives

✔ Students will be introduced to the wide variety of ways to invest, why people do it and, most importantly, how to make well-informed decisions.

TimeAllowance

✔ Two 45-minute lessons.

Materials and Preparation

✔ Copies of the Seven Steps to Smart Investing Summary Sheet (one per student).

✔ Copies of the Seven Steps to Smart Investing Worksheet (one per student).

✔ Computers with internet access for independent investigation.

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Introducing the Seven Steps to Smart Investing Hand out the Seven Steps to Smart Investing Summary Sheet. Walk the class through each step as follows.

Step 1: MotivationAsk students why people put their money in investments. Follow by asking who they think invests. Capture these perceptions on the board. This activity is intended to capture misconceptions about investing: that it is done purely to make money and is done only by rich people and risk takers. People invest for a huge range of different reasons. The following are a few anecdotes and examples to help students think beyond wealth creation:

1. Make Money: Use the example of Apple stocks over the last decade as an example of wealth growth. Use the chart at: http://wikinvest.com/stock/Apple_(AAPL)/WikiChart to set the scenario that if, when the students were in Year 1, they had bought just $100 worth of Apple shares, today those shares would be worth around 65 times as much. (Approximately $10 per share in 2003, more than $650 a share as of September 2012.) However, mention that not all shares are guaranteed to make you money, even if the company is popular. For another relatable example, use Facebook. Using http:/wikinvest.com/stock/Facebook_(FB)/WikiChart point out that if you had bought the first stocks in Facebook you’d have lost half your money by now.

2. Support Values: Mention that people often invest in order to support certain businesses, ideas or values. Money isn’t always in the front of mind. Get students to think about someone investing in the production of a documentary. Documentaries don’t often make much money but they can say important things about the world and change people’s attitudes and behaviours. Introduce the idea of ethical investing. Using http://wikinvest.com/stock/Philip_Morris_International_(PM)/WikiChart, tell students about a stock that has doubled over the last three years. Ask the students whether they think this is a ‘good’ investment. Follow by mentioning that the company is the biggest producer of cigarettes in the world. Revisit the question again to see whether the answer has changed.

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3. Ownership: Investment is often about owning something physical (like property or art) or a part of something (a share being a small part of a company). Mention that ownership can be its own reward. Ask students what investments they might like to own even if, at the end of the day, it earned them no money at all. For example: a classic car, a family home you grew up in, or a first-edition copy of a famous book.

4. Control: A perk of investing is that you assume some degree of control over that business, property or commodity. What you do with that control might matter more than financial return. Use the example of print media companies. Although their share prices are falling, why might people be interested in buying lots of shares? That is because major shareholders are often given positions on the company board and contribute to decisions like hiring and firing and editorial control.

5. Enjoyment: Some people invest in something because it makes them happy, or is something they are passionate about. That could be an interest in an industry, a love for objects like arcade machines, or a passion for an art form such as books or sculptures. Ask the class who their favourite band or musician is? Do they like owning the albums, merchandise or posters of that band? Mention that, a long time ago, there was a little band called The Beatles and that some people liked their music so much that they bought all their albums on the day each was released. Ask students what they think matters the most to those people now: that their collection could be worth thousands of dollars? Or that they own some of the greatest music ever made?

Conclude by defining an investment as: something you exchange your money for in the hope you will get something additional in return later on. Emphasise that this return isn’t always financial; it can be many things based on what your goals are.

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Step 2: GoalNow that students have thought broadly about why they might invest it’s important to consider what they hope the return could be from their investment. What is the goal? Frame some suggestions that match the motivations for investing above. These may include:

1. Make Money? To add additional income? To save money for a future purchase or investment? To have money accumulate for when you retire?

2. Support Values? To support a start-up business? To help a friend or relative realise a great idea? To only invest in ethical companies?

3. Ownership? To become a shareholder in a company? To have a house to live in? To own a desirable object of clothing, technology or an antique?

4. Control? To gain some power of control over a company? To design a house however you please? To have a say in who stars in a film?

5. Enjoyment? To have a complete collection of something that matters to you? To populate your home with beautiful art? To have a library of old and interesting books?

Remind students that a good goal is one that is SMART: Specific, Measurable, Attainable, Realistic and Timely.

Step 3: MoneyObviously, to start investing you first have to have money. Many people assume that only rich people with huge amounts of expendable income make investments. This is untrue. Anyone with some savings can invest. Make the topic relevant to students by stating that every smart investor starts small.

This step is about determining the amount of money available to invest. Here, smart investors ask themselves: how much can I afford to do without? Again, with the mentality that a small start is a good start, get students to realise that investing can help you save for other, bigger investments. Follow by stating that at this age students would obviously be smart to invest first in cash savings accounts, but as their savings grow their options for investing will also grow.

Step 4: TimeThe other resource investors must have is time. Investments take time to grow. They also take patience. At this step a smart investor will think about when to invest, how long they can afford to have the investment, and how soon they expect their desired return.

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Again, address student attitudes and mention that investing isn’t just for when you have a comfortable income. Remind students that investments require two things: time and money. Although they might not have much money, they have plenty of time left in life to let investments grow. Mention that it is smart to start small and start early.

Step 5: RiskAsk students whether investments always return a profit. Sometimes investments can turn a loss, and over time you may actually lose the money you invested. Each type of investment has different levels of risk based on the probability that the investment may lead to a loss of money. At this stage a smart investor will know what level of risk they are comfortable with.

Ask students why people might want to risk losing their money. It might be because they believe they stand to gain something. This leads neatly to the concept of risk and return: the idea that investments with high returns are often very risky, and that safe investments often lead to low returns. Cash accounts are considered low risk: there’s little chance you can lose your money but the growth in interest (the return) is often no larger than 5%. Shares are considered high risk: prices bounce around so depending on when you sell you may make money or lose it. However, shares give a higher return on average (around 10%) but the likelihood you may lose some, or all, of your money too is a reality.

At this point, emphasise that a smart investor chooses a level of risk not based on their personal attitudes but based on the decisions made at the earlier steps: their goals, their invested money and the amount of time they have. If at this point those goals force them into a level of risk they might not be comfortable with, a smart investor should readjust those earlier steps.

Step 6: ResearchAt this step a smart investor must do their research about the investment that is best suited to the steps completed above. Here they will seek out the people and resources that will give them the best information about their proposed investment. Who should they talk to? What should they read? What are the conditions of buying or selling the investment? Are there any hidden costs or charges? How will they track their investment? Emphasise that the important thing at this step is to be thorough and not to rush.

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Step 7: EvaluateThis final step before diving into investing is a chance to evaluate the decisions being made at each previous step. A smart investor must ask:

1. Motivation: Is this really why I want to invest?

2. Goal: Is my goal SMART?

3. Money: Is this amount realistic?

4. Time: Is this timeframe realistic? And is now the right time to invest?

5. Risk: Am I comfortable with this level of risk? And what can I do to manage or reduce this risk?

6. Research: Do I have the best information from trusted sources?

Only after following these Seven Steps should a smart investor begin to take action.

Teaching Points1. Hand out the Seven Steps To Smart Investing Worksheet.

Inform students that they will take these steps to identify an investment they may be interested in at some time in the future.

2. Highlight that in this activity a few steps have already been decided; this is for the purpose of making the activity relevant and easy to implement. Already outlined on the worksheet is that the motivation is to make money, the goal is to save for a future purchase, and the amount of money you can afford is a starting investment of $1,000.

3. Through independent or group research the students will use the suggested resources on the worksheet to address the rest of the Seven Steps. They will set a hypothetical savings goal, propose a period of time, identify the risks and research an investment that suits these parameters.

4. After this period of investigation get students to break into pairs. One student should present their choices and the other should help evaluate the decisions being made.

5. Finish with a discussion about whether the students would realistically make the investment they chose, or go back and reconsider their choices.

Seven Steps to Smart Investing Summary Sheet

MotivationWhy are you investing?

1. Make money2. Support values3. Ownership

4. Control5. Enjoyment

1

MoneyHow much money will you invest?

1. What can you afford to do without?2. What is your cost of living?3. Have you considered emergencies?4. Are you taking on debt?

3

TimeFor how long, and when, will you invest?

1. When do you want/need to reach your goal?2. Is now the right time to start?3. Can you afford more time if need be?4. Will your cost of living, or income, have changed in that time?

4

RiskWhat are the risks?

1. Could you afford to lose all your money?2. What do you prefer: High Returns or Security?

You can’t have both.3. What level of risk are you comfortable with:

Low, Medium or High?4. Do my goals, and available time and money,

match that level of risk?

5

ResearchWhat is the right investment for me?

1. Have you researched the types of investments that suit you?2. Have you consulted a range of resources to get a variety

of opinions?3. Can you trust these sources?4. What’s in it for them?

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EvaluateHave I made the right decisions?

1. Are you doing this for the right reasons?2. Are your goals, and available time and money, realistic?3. Can you manage or reduce the risk?4. Have you done the best research?5. Are you comfortable and confident about this decision?

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GoalWhat do you hope to get in return?

1. Specific2. Measurable3. Attainable

24. Realistic6. Timely

Seven Steps to Smart Investing Worksheet

Motivation To make money.

1

Money $1,000

3

Goal2

To save money for a future purchase or investment.

Go to: http://www.commbank.com.au/personal/accounts/savings-accounts/savings-goals/ and select a goal that suits you:

Specific: What is your goal? _______________________________________________________________________

Measurable:How much does it cost? ___________________________________________________________________

Attainable: What is your desired return? (cost - $1,000) __________________________________________________

Time4

Before choosing one fill out the following.

2 years

Rate of return needed for 2 years:

(Desired Return ÷ 2)

_________________

5 years



_________________

10 years



_________________


Research6

What type of investment is best for you: _________________________

Use: http://www.commbank.com.au/personal/financial-planning/investment-basics/types-of-investments/

https://www.moneysmart.gov.au/investing/investing-basics/choose-your-investments

Or other websites: ______________________________________________________________________________________________________________________________________________________________________ _____________________________________________________________

Pick and investment of that type and give details below:

Try to find a type of investment that fits with the time period and risk level you’ve selected.

Once you’ve found a good type of investment pick a specific one you might invest in (this could be a specific bank account, shares in a company listed on the ASX, or a particular type of commodity).

Use your resources and web search to investigate details, for example:• How has it performed in the past?• Are there any hidden costs?• Are there any conditions or penalties?• What are the potential risks? How likely are they?• Can you access your money or sell your investment easily?

_________________________________________________________________________________________ ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ _________________________________________________________________________________________

Risk5

Use the following to define your risk: ____________________________

HighIf Rate of Return is

> $100 a yearChoose High

MediumIf Rate of Return is$50 - $100 a yearChoose Medium

LowIf Rate of Return is

< $50 a yearChoose Low


Evaluate7

Are you doing this for the right reasons?: ________________________

Are your goals, and available time and money, realistic?: ______________________________________

Can you manage or reduce the risk?: _______________________________________________________

Have you done the best research?: _________________________________________________________

Are you comfortable and confident about this decision?: ______________________________________

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