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AOF Principles of Finance

Lesson 9Financial Markets

In this lesson, students are introduced to the concept of risk as it applies to different investment approaches. They become aware of the different types of financial risks, such as inflation risk, interest rate risk, business failure risk, and market risk. Next, students are introduced to various investment instruments and their purposes, and they become aware of the crucial role that markets play in the financial health of individuals, the community, the government, and the global economy. Students demonstrate their understanding of investments by recording a series of short vlog posts that define and explain key investment terms and concepts for an audience of teenagers and young adults.

Advance Preparation Prior to Class Period 2, make sure you have an up-to-date video player such as Windows Media

Player or Apple’s QuickTime Player to show a video to the class. These players are included free with the system software and can also be downloaded for free. If you have difficulty using the video player, contact your site administrator.If your school does not allow access to YouTube, you may wish to download the video to your computer in advance using KeepVid (see keepvid.com) or a similar program.

Prior to Class Period 3, review the assessment product for this lesson, Student Resource 9.5, Assignment: The Young Investor’s Vlog. Determine how you will assign topics to students, how many topics each student will write about (between one and three are recommended), and how long you want each vlog post to be.

In Class Period 4, students will need computers with Internet access for research, and in Class Periods 5 and 6, they will need computers with Microsoft Word or similar word processing software (one student per computer) as well as video recording equipment.

This lesson is expected to take 6 class periods.

Lesson FrameworkLearning ObjectivesEach student will:

Describe the key risks and returns associated with investing* Identify the major financial markets

Copyright © 2009-2016 NAF. All rights reserved.

http://www.keepvid.com/

AOF Principles of FinanceLesson 9 Financial Markets

Describe common investment instruments* Explain common investment concepts

*This is one of the 16 key learning objectives assessed by the NAFTrack Certification end-of-course exam for this course.

Academic StandardsThe relevant Common Core State Standards are too extensive to list here but are an important basis for this lesson. For details, please refer to the separate document “Correlations to the Common Core Standards” (available in the Course Planning Tools section of the course materials).

Students will know that shorter-term investments will likely have lower rates of return than longer-term investments (National Standards for Financial Literacy 2013, Standard V, Grade 12, Benchmark 6)

Students will learn that diversification by investing in different types of financial assets can lower investment risk (National Standards for Financial Literacy 2013, Standard V, Grade 12, Benchmark 7)

Students will know that people vary in their willingness to take risks and that the willingness to take risks depends on factors such as personality, income, and family situation (National Standards for Financial Literacy 2013, Standard V, Grade 12, Benchmark 11)

Evaluate savings and investment options to meet short- and long-term goals (NBEA National Standards for Business Education 2013, Personal Finance IV, Saving and Investing)

AssessmentAssessment Product Means of Assessment

Brief vlog posts about one to three key investing terms (Student Resource 9.5)

Assessment Criteria: Vlog Posts (Teacher Resource 9.4)

Prerequisites General familiarity with the basic concepts of finance (budgeting, spending, saving, loans,

insurance, risk, and investing) General knowledge of some common financial institutions and their services such as banks, credit

unions, insurance companies, and investment banks

Instructional Materials Teacher Resources

Teacher Resource 9.1, Topics: Risk Tolerance Teacher Resource 9.2, Presentation and Notes: Investment Instruments (includes separate

PowerPoint file) Teacher Resource 9.3, Topic List: Vlog Posts Teacher Resource 9.4, Assessment Criteria: Vlog Posts

Copyright © 2009-2016 NAF. All rights reserved. 2


Teacher Resource 9.5, Prompts: Learning Objective Reflection (separate PowerPoint slide) Teacher Resource 9.6 Key Vocabulary: Financial Markets Teacher Resource 9.7, Bibliography: Financial Markets

Student Resources Student Resource 9.1, Reading: Investment Risk Factors Student Resource 9.2, Chart: Investment Risk Factors Student Resource 9.3, K-W-L Chart: Investment Instruments Student Resource 9.4, Reading: Investment Instruments Student Resource 9.5, Assignment: The Young Investor’s Vlog Student Resource 9.6, Reading: Planning a Vlog

Equipment and Supplies Blackboard, whiteboard, or chart paper LCD projector and computer for PowerPoint presentation and video Chart paper (at least eight sheets) Sticky notes (at least four or five per student) Computers with Internet access and Microsoft Word or similar word processing software (one

student per computer) Video recording equipment

Lesson StepsStep Min. Activity

CLASS PERIOD 1

1 20 Silent Discussion: Risk ToleranceIn this activity students are introduced to the concept of risk. This activity focuses on the following college and career skill:

Demonstrating the ability to write effectively

Prepare for the activity by using Teacher Resource 9.1, Topics: Risk Tolerance, and precut each of the statements, making sure that there is one for each student. Explain to the class that every student is going to receive a piece of paper that has a statement,



Step Min. Activity

quote, question, or statistic about risk.

Place students into groups of four or five and give each student in the group a different risk statement. (It’s okay for students that are in different groups to have the same one.) Instruct students to copy the statement that was given to them on the top of a piece of binder paper and then to write a two- to three-sentence response under it. Explain that their response should be appropriate for the type of statement that they received. In other words, if their statement was in the form of a question, an appropriate response would be to answer the question. If their statement was a quote, an appropriate response would be their thoughts about the particular quote. You may want to model an example for students to hear. For instance, let’s say that you received the following quote by Warren Buffett:

“The risk in investment is not knowing what you are doing.”

An excellent student response could go something like this:

“I think that Warren Buffett’s statement about risk falls a bit short. Although it is very helpful and important to do your research before you invest your money, I think that the concept of risk is much more complicated than this. Even the most educated and informed people are subject to some form of risk. Investing in general can be risky.”

Note: Point out to students that it’s okay if they are unsure about a concept or an idea that is presented in their chosen statement and, if they are, they should express this uncertainty in their writing.

Once students have addressed their topic (don’t give students more than two to three minutes to respond), instruct them to pass their piece of paper with their topic and response to another group member who must silently read it and then counter-respond in writing to what the previous student wrote. Clarify that each student will write on the same piece of paper (that was passed to them) so that a discussion of thoughts is started. Discourage students from writing just blanket “I agree” statements, emphasizing that they should actually discuss the issues in writing.

After students have had a chance to respond to three or four of the topics, ask a few students to read aloud some of the written dialogue to the class. If time permits, spend a few minutes to take the silent discussion into the verbal realm by picking one of the more controversial statements and having the class informally arguing their opposing opinions.

Emphasize that risk is a fundamental issue to consider when planning an investment strategy. For some, risk is all about the amount of assets or money that they have to spare; for others, age and time may be a factor. But for many it may come down to just basic personality types. Explain to the class that this concept of risk will be explored in greater detail throughout the lesson and the course.

2 30 Reading: Components of RiskIn this reading, students are exposed to the different types of financial risks that are involved when investing.

Explain to the class that they are going to read about some of the most common forms of risk. Refer students to Student Resource 9.1, Reading: Investment Risk Factors, and Student Resource 9.2, Chart: Investment Risk Factors. Explain that they will be using



Step Min. Activity

these resources together. Before students begin, review Student Resource 9.2 with the class. Tell them that they must individually describe the cause of each risk as well as one thing that it most affects. For example, economic risk can be caused by war, inflation, political changes, and recessions and can affect the entire market.

Give students some time to complete the reading and the chart. When they are finished, have them work with a partner to check their answers for accuracy and completeness. After students have shared their answers with a partner, call on pairs to share their responses with the class. You may want to gauge student understanding by assessing this assignment on a credit/no-credit basis.

Before students are dismissed, point out that risk is a fundamental issue to consider when investing. Being knowledgeable about the risks posed by certain types of investments and being aware of your own risk tolerance level can help you make smart investment decisions that you are comfortable with.

CLASS PERIOD 2

3 15 Video: 14-Year-Old InvestorStudents view a video about a 14-year-old investor who has been very successful. This provides students with some context for their later learning about investment instruments, and may increase students’ desire to learn about these instruments.

Begin class by asking students:

If someone gave you $1,000 right now, would you invest it in the stock market? Why or why not?

Student responses will vary but are likely to include comments that they do not know enough about investing or the belief that stock market investing is for adults. Ask students to keep their responses in mind as they view the video.

Show students the video “14 Year Old Makes Over $50,000 in the Stock Market” at https://www.youtube.com/watch?v=dNF-R5BC6vo. If your school does not allow access to YouTube, you may wish to download the video to your computer in advance using KeepVid (see keepvid.com) or a similar program.

After viewing the video, ask students to discuss the following questions:

What are the risks and rewards of Damon’s approach? Why is it so rare for a 14-year-old to make money in the stock market?A class or small group discussion could be facilitated by using online resources such as Padlet (https://padlet.com/).

Let students know that in the next activity they will learn more about investing. Even if they aren’t ready to invest like Damon, understanding more about how to invest will be an important tool as students plan their financial futures.

4 35 Presentation: Investment InstrumentsThis activity gives students an in-depth look at a variety of investment options and their


https://padlet.com/

http://www.keepvid.com/

https://www.youtube.com/watch?v=dNF-R5BC6vo


Step Min. Activity

purposes.

To prepare, make notes to guide class discussion using Teacher Resource 9.2, Presentation Notes: Investment Instruments. Have Teacher Resource 9.2, Presentation: Investment Instruments (separate PowerPoint file), ready to show as a full-screen slideshow using an LCD projector.

Point out that students already know a few things about investing, but there are many more things they would need to learn before they could be successful investors. Ask students to look over Student Resource 9.3, K-W-L Chart: Investment Instruments. Explain that the chart lists several different types of investments in the Topic column. Ask students to write down what they currently know about each topic in the Know column and what they want to know in the Want to Know column. Instruct them to complete the Learned column as they view the presentation.

Present the slideshow. Use the notes you prepared previously and pause whenever appropriate to encourage class discussion.

This presentation is duplicated as Student Resource 9.4, Reading: Investment Instruments. Students can read the presentation, answer the discussion questions in their notebook, and then discuss their answers as a class. This student resource is also useful for review.

After the presentation, divide the class into pairs or groups of three and have them compare their notes from the Learned column of their K-W-L chart for completeness and accuracy. If time permits, invite each pair or group to share one thing they learned from the presentation.

Finally, explain to the class that they have learned a lot about investing. In the next class, students will have a chance to review what they have learned and get answers to any questions they still have.

CLASS PERIOD 3

5 30 Sticky Note Review: Risk and InvestmentIn this activity, students review what they have learned so far in this lesson. This lays the groundwork for their assignment, which they will begin later in this class period.

Before class begins, post at least eight sheets of paper around the room. Label each sheet of paper with one of the following topics, which students have studied during this lesson:

Risk Factors Risk Tolerance and Minimizing Risk Stocks Bonds Mutual Funds Options, Futures, and Annuities Hedge Funds, Real Estate, Private Equity Investments Stock Markets



Step Min. Activity

Note: If you have a large class, you may want to post two sheets of paper with each topic to reduce traffic-flow issues.

Also prepare stacks of sticky notes, approximately 16‒20 sticky notes for every three or four students.

When class begins, split students up into groups of three or four and give each group a stack of sticky notes. Explain that students need to think back to what they learned in the previous class periods. Point out that the sheets hanging around the room. Remind students that these are the key topics they have learned about so far in this lesson. Tell students that each group needs to contribute at least two sticky notes to each topic, something they learned and something they don’t remember/know as follows:

An important fact or detail they remember about that topic A question about that topic

Instruct students to write their sticky notes without looking back at their materials from the lesson. If a group cannot contribute their two notes per topic without looking at their materials, determine whether you would rather have them look at the materials or contribute fewer sticky notes to that topic.

Allow 5‒10 minutes for the groups to write and post all their notes. Then review each sheet with the class. Eliminate duplicate notes and use this opportunity to answer questions or clear up misunderstandings. Also add important details that students did not include in their notes. Let students know that the next activity will require them to feel confident about the basics of investing, so it is important that they get their questions answered now.

6 20 Introduction to the Assessment: The Young Investor’s VlogStudents are introduced to their assignment, recording vlog posts to explain basic investment terms and concepts.

Before beginning this activity, make sure you have reviewed Student Resource 9.5, Assignment: The Young Investor’s Vlog, and made decisions about how many terms you will ask students to define and how long each definition/explanation should be.

Remind students of the 14-year-old investor whom they saw in the video earlier in the lesson. Point out that one of the reasons more young people don’t invest is that they don’t understand how investing works. Based on what they have done so far in this lesson, the students have some of the knowledge they need to invest; now it’s their turn to share that knowledge with others.

Review Student Resource 9.5, Assignment: The Young Investor’s Vlog. Ask students if they know what a vlog is or if they watch vlogs. Students may be familiar with vlogs that are recorded by individuals; they may not be aware that vlogs are often maintained by companies or organizations as an effort to educate the public about specific topics. Make sure students understand that their assignment is to write and record educational vlog posts on specific financial topics. They will be giving brief explanations that will make sense to teenagers and young adults.

Let students know they will be assigned their topics during the next class period. Explain that they will need to do research on their topics before they begin writing scripts for their posts. Even if their topic is something they learned about in class, they will need to find additional information to make sure they provide a thorough



Step Min. Activity

explanation in their vlog post.

Take time to go over the assessment criteria with students and answer any questions. Remind students that they will begin their research in the next class period.

CLASS PERIOD 4

7 50 Research: The Young Investor’s VlogStudents are assigned their topics and then begin research before recording their vlog posts. This activity also focuses on the following college and career skills:

Effectively using technology relevant to a profession Locating, evaluating, and applying information

Before this class begins, use Teacher Resource 9.3, Topic List: Vlog Posts, to decide how you will assign topics to students. Ideally, students will choose topics out of a hat or in some other way that allows them to be assigned topics randomly.

Also, look at the list of recommended sources on Student Resource 9.5 and determine if you have any other sources you would suggest to students.

At the start of class, use whatever method you have decided to randomly assign topics to students. Instruct students to write their topic(s) in the space provided on Student Resource 9.5, Assignment: The Young Investor’s Vlog.

Tell students that this is their only in-class opportunity to do research on their topics, so they need to use their time wisely. Review the recommended sources and the research organizer provided in Student Resource 9.5. Set students up with computers, and then give them time to do their research.

Circulate through the room to answer questions and keep students on task. When the class period is approximately half over, ask students to demonstrate by a show of hands how many of them have found the information they need for one of their topics. Two topics? Remind them this is their only opportunity to do research in class.

If you notice a student is stuck on finding information on a particular topic, you may wish to pair that student up with another student who is working on the same topic. However, make sure the students do not work so closely together that their vlog posts end up being identical!

As the class period comes to an end, tell students that they will begin writing scripts for and recording their vlog posts during the next class period. If students have not completed their research, ask them to do so for homework.

CLASS PERIOD 5

8 20 Discussion: Planning a VlogIn this activity, students consider the specific requirements of writing for publication on the Internet.



Step Min. Activity

Begin class by calling students’ attention to Student Resource 9.6, Reading: Planning a Vlog. Point out that writing a script for a vlog is a specific skill and it requires a different approach from writing an essay for class.

Ask students to read Student Resource 9.6. Tell them to underline, circle, or otherwise mark any tips they think are particularly important for their vlog posts.

Give students a few minutes to read. Then invite volunteers to share one thing they marked in the reading.

Let students know that they are now ready to begin writing their scripts and then recording their vlog posts on investment topics. Encourage them to keep these tips in mind as they write.

9 30 Assessment: The Young Investor’s VlogIn this activity, students begin writing their scripts and recording their vlog posts. It also focuses on the following college and career skills:

Demonstrating precision and accuracy in communications Demonstrating the ability to write effectively Utilizing time efficiently when managing complex tasks

Briefly take time to review the assessment criteria on Student Resource 9.5, Assignment: The Young Investor’s Vlog. Remind students to use the assessment criteria, as well as the tips from Student Resource 9.6, to help them as they write.

Give students the rest of the class period to work on writing their scripts and recording their vlog posts. Circulate through the room as needed to answer questions and keep students on task. If there are students who have not completed their research, meet with them individually to determine how best to help them complete the assignment.

When approximately five minutes remain in class, ask students to save their work and consider how much more they need to do. Let them know they will have some time during the next class period to work on their vlog posts. However, if they have a lot of work left to do, students should plan to work on their vlog posts for homework as well.

CLASS PERIOD 6

10 35 Assessment: The Young Investor’s Vlog (Continued)In this activity, students finish their vlog posts.

Let students know that this is their last chance to finish their vlog posts before they are collected and assessed. Remind students to use the assessment criteria on Student Resource 9.5 and the tips on Student Resource 9.6 for guidance.

Give students time to work. Meet with any students who are having major difficulties finishing their posts.

When approximately 20 minutes remain in the class period, ask students to save their work. Collect the vlog posts and assess using Teacher Resource 9.4, Assessment



Step Min. Activity

Criteria: Vlog Posts.

If the technology is available, have students actually post their vlog entries online on your class or school website. You may also wish to have students find images to support their entries, identify suggested links, comment on one another's entries, and so on.

11 15 Reflection: Key Learning ObjectiveStudents reflect on whether they met a specific learning objective for this lesson.

Prior to class, prepare to project Teacher Resource 9.5, Prompts: Learning Objective Reflection (separate PowerPoint slide), during this activity.

Note: If your students need more practice and guidance with reflection, return to Teacher Resource 3.5, Guide: Teaching Reflection, in Lesson 3.

Write the following learning objective on the board:

Evaluate common financial securities and their purposes.

Project Teacher Resource 9.5, Prompts: Learning Objective Reflection. Tell students to choose one of the prompts and think about it in connection with the learning objective on the board. They should then write their reflection in their notebook.

Give students a few minutes to write down their thoughts. Ask for a show of hands to see who chose the first prompt. Place these students in pairs or triads to compare their reflections. Do the same for each of the other prompts. Their task is to choose the reflection that is most complete, on topic, and thoughtful.

Ask a member of each group to share the reflection that the group feels best fits these criteria. Generate a brief class discussion to help students develop their metacognitive skills. Complete this activity by reminding students that this type of practice will help them when they have to complete professional self-evaluations in their internships or jobs. If your students are participating in NAFTrack Certification, it also prepares them for the reflection component of the culminating project.

Let students know that in the next lesson they will begin working on their culminating project for the course, which will also involve explaining complex financial information so that the average person can understand what it means.

ExtensionsContent Enrichment

Have students write a biography on John Bogle (pioneer of index investing), Charles Dow (one of the founders of the Dow Jones & Company and the Wall Street Journal), or Warren Buffett (one of the world’s most successful investors) and share their findings with the class.

In terms of the risk involved when investing, instruct students to investigate the Bernard Madoff scandal. Have them write a response to the investment scandal. Students should explain what a Ponzi scheme is and how it could have been avoided.



There are many negative stories surrounding financial markets. Have students research the Enron scandal, the Barings Bank scandal, and/or Black Wednesday and present their findings.

Instruct students to view the political cartoon that can be viewed online http://www.pritchettcartoons.com/broker.htm. Have students research the impact that technology is having on financial markets. Students should write an opinion paper on which type of market they think is best for the consumer, virtual (NASDAQ) or full-service brokerage (NYSE).

Have students research the company Long-Term Capital Management (one of the world’s largest hedge funds at the time) and its failure. Students should discuss it as an example of the risks involved in the hedge fund market. Have students describe its effect on the US economy.

Have students analyze the statement, “The riskiest thing you can do is not invest your money at all.” Instruct students to write a position paper stating whether they agree or disagree with the statement. (Encourage students to include research on inflation’s impact on investments.)

Tell students to research futures and options and create a Venn diagram comparing and contrasting the two investment options.

Give each student a virtual $25,000 to invest in a portfolio of stocks. Have students research the companies that they would like to invest in (using a search tool such as Yahoo! Finance or another financial website). Set limits on the percentage of the portfolio that can be invested in any one segment of the market (no more than 20% and can’t invest everything in tech, for example). Have students track their stocks daily for two weeks by summarizing the information in an Excel spreadsheet, and then write a summary of their experience. Did the portfolio rise or fall in comparison with the Standard & Poor’s 500 index? Did different segments of the market behave differently? Did any economic or political event have an impact on the market? Why did they choose these particular companies? Do any of their companies normally pay dividends? If their portfolios were real, what changes would they make?

STEM Integration Math: Give students this scenario: “You have $15,000 to invest, and you want to get the most

return for your money during the next two years’ time. Analysts estimate that the interest rate, currently 3.25%, may rise to 3.85% in six months and to 4.55% nine months after that. They also predict that inflation will be 1.7% during both years. Make a pie chart showing how much money and what percent of your investment you would put in each of these types of investment: bonds, a CD or savings, stocks in promising new companies, stocks in historically stable companies, antiques or jewelry. Explain your choices based on your desire to minimize your risk.” When students have finished, pair them up and have them review their decisions. Then hold a class discussion. At the end, ask for volunteers to describe how they might change their decisions based on what they heard from their classmates, and why.

Science: Explain to students that many industries within the stock market are influenced or driven by science. Divide students into groups of four and assign each group one of these industries: life sciences tools, oil and gas, alternative energy, metals and mining, chemicals, agriculture, biotechnology. Then tell each group to research current advances and trends in their sector. They can start by searching for “trends in metals and mining,” for example, which will lead them to documents from that industry and from investment houses. Tell them to focus on trends that relate to the science of the industry, such as ecological impacts, how a product works, and new scientific advances and technologies. Each group should put together a report or poster that describes one or two science-related trends and how they predict those trends will affect the industry in the near future. You can have students present their findings to the class or hold a gallery walk.

Technology: Have students view these videos on how stock investing works: o https://www.tdameritrade.com/education/videos.page o http://www.wimp.com/stockexchange/


http://www.wimp.com/stockexchange/

https://www.tdameritrade.com/education/videos.page

http://www.pritchettcartoons.com/broker.htm


Discuss the videos afterwards. One is from an American company and one is European―could students tell which was which? Do the two videos reflect similar or different attitudes about stock investing? Do they explain different information? Why is that?

Technology: Consider showing one or more of the seven videos on investing found on the Hands on Banking Teens website http://www.handsonbanking.com/htdocs/en/t/#/en/t/si/index.html. Have a class discussion on the videos afterwards.

Technology: Have students play one of the many stock market simulation games found online. One example is found on Investopedia at http://www.investopedia.com/simulator/. The game is free, but students will need to create an account. After they have had the opportunity to play the game for a while, ask students to share what they discovered. Did they lose money, gain money, or keep the same amount they started with? Did they find it harder or easier than they expected? Would they have bought and sold the stocks any differently if they actually had been trading with real money?

Additional Cross-Curricular Ideas Social Studies: Have students research the 2008–2009 Russian financial crisis. Students should

discuss the course of events that led to the crisis as well as its effects on other countries. Have students share their findings with the class.

English Language Arts: Ask students to create their own short story or fable illustrating one of the key concepts of investing, such as compounding interest, diversifying investments, or saving for the long term. Students can look to Aesop’s fables for inspiration.


http://www.investopedia.com/simulator/

http://www.handsonbanking.com/htdocs/en/t/#/en/t/si/index.html

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