Stock Market for Kids – A Simple Explanation That Everyone Understands
August 1, 2021
The stock market is where investors buy and sell company shares – simple, right? However, explaining how trades happen, who’s able to make trades, which companies are allowed to sell their company shares, and what you do with this information, most people aren’t able to explain it.
For the most part, the stock market is like the economy: people know what it is, but how the economy works is a different story. Yet even when you aren’t interested in finance investing, having an understanding of the stock market is crucial.
This is because the stock market affects thousands of everyday activities, like what products we can purchase, which job market grows, and which houses we’re able to buy.
Despite its complexity, the stock market can prove to be a good learning tool for children of all ages. Why?
Because understanding the stock market requires learning concepts such as assessing reward vs. risk, supply and demand, and the similarities and differences between investing and saving.
It doesn’t matter if you’re a teacher searching for ways to provide a real-world perspective to a lesson on finances or a parent wanting to teach their kids how to be financially savvy early in life; the stock market is a good starting point.
So, let’s talk about how to explain the stock market for kids.
The Stock Market: What is It?
The stock market is where an assortment of shares from various companies can be sold and bought and is often an indicator of its health. Today the stock market is designed for people to profit from and contribute to companies while lowering individual risk.
There are three main exchanges in the United States: the American Stock Exchange (AMEX), the National Association of Securities Dealers Automated Quotations (NASDAQ), and the New York Stock Exchange (NYSE).
All three of these exchanges are very different from the indexes such as Dow Jones and S&P, which are created to be on average one segment of the entire market.
Indexes provide a more comprehensive picture of the market and are the things that are most often referenced when talking about the economy’s health.
The stock market relies on brokers and investors, stock exchanges, and handling stocks.
Stock Market for Kids
The stock market can be described as a forest full of trees. The forest is full of trees that depend on large numbers to survive, yet the entire forest’s overall survival rate doesn’t depend on the success of a single tree species.
Activities and Concepts for Kids:
When you explain how the stock market shares risk among the many investors and owners, this is the perfect time to look at the idea of rewards and risks with your kids.
Explain that great risk often reaps bigger rewards. However, to come out on top, you need to feel assured that the risk you’re taking is worth it. If it’s not, then don’t risk anything.
Give your kids five pieces of small candy and inform them that they can earn more if they roll a 1-4 on the die. If they roll a 5 or 6, they have to get rid of all of their candy. Let them decide if they want to roll the die or not.
Adjust the odds as you play and help them decide when they should and shouldn’t roll.
Stock: What is It?
Stock is more than just a part of a company. While the stock is often said to be small ownership of a company, the stocks don’t usually translate to much power. However, owning enough stock can let you vote on issues in the company, such as electing board members.
There are two stock types: preferred and common. Preferred stockholders don’t have voting power, but they do get a predetermined dividend amount, making their dividend payments more stable. Because of this, they’re often the least risky investment option, though the opportunity for rewards is fewer.
Common stock is what we generally think about when we think of trading stock. Those who have common stock are allowed to vote on company issues, and common stockholders also get periodic dividend payments. However, if the company becomes bankrupt, they are the last people to get paid.
Stock Market for Kids
Owning stock is similar to owning a couple of trees in a forest. You’re able to buy or sell as you see fit.
If orange trees start showing a more promising yield or become more popular than the other types of trees, they might be in high demand, and the price of the tree will become higher.
If the orange trees are thriving, they’ll grow more over time, making them worth more. Then, a couple of times a year, they’ll produce very valuable fruit.
Concepts and Activities for Kids:
For young children, talking about a stock can be an excellent time to talk about the idea of teamwork and sharing. With the stock market, several parts need to come together to create something even bigger. You can take this time to talk about how dividing work makes dividing the reward worth the process.
Use your kid’s favorite building toy as a kind of stock market game. Build a construction or building together, explaining how so many different pieces may come together to form a whole structure. For extra fun, race to see who can build a building faster – have more people on one team than the other.
There is so much to learn about stocks, especially when you’re talking about the stock market for kids. You can teach your kid valuable lessons and improve their financial literacy.
You can achieve this by talking about the stock market and money in simpler terms, such as trees in a forest, and then making fun activities to teach them the lesson.
You can even follow along with Disney stock or another company they are interested in to see how it does. Then watch as they start to save money in their piggy bank to start a savings account or for trading stocks in the future.