Archive for Monday, September 9, 2002

Tips for teaching children about the stock market

September 9, 2002

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With a turbulent market and a struggling economy, financial advisers say this is a prime time for teaching children about investing and the stock market.

"People are kind of pulling in their horns at the wrong time. When the market is running high, that's the worst time to invest," said Glen Bayless, senior vice president of RBC Dain Rauscher in Duluth, Minn. "The basic premise for investing is buy low and sell high."

Matching a child's contribution to an investment or savings account is a good form of encouragement, said Greg Connor, an Edward Jones investment representative in Duluth.

"If the child is saving, you save, too," he said.

To begin teaching a child about the stock market, Connor suggests parents buy some stock even just one or two shares from a company the child knows, such as McDonald's, Disney or Toys 'R' Us.

When the child eats a Happy Meal, explain that he or she owns part of this company and is helping the company make money by buying its product.

Bayless, who has been teaching basic investment concepts in area middle and high schools for 11 years, tries to impress some core concepts on students.

Here are two examples he uses:

l What's the difference between stocks and bonds?

Owning stock is the equivalent to part-ownership of a company. A bond, which can be issued by the government or a company, is like an IOU.

l Why does the stock market go up and down?

Imagine this: You want to sell your bicycle. Three people are willing to buy your bicycle. Bill will pay $100, Jane will pay $150 and Joe will pay $200. The price you can sell your bike for goes up as more people want to buy it. Now, imagine only Bill wants to buy your bike for $100. Because nobody else wants to buy your bike, there is less demand, which means you cannot ask a higher price because Bill is your only interested buyer.

The same idea works with the stock market. If nobody wants to buy a company's stock, the price of the stock will drop until somebody is willing to buy it. If many people want to buy the same stock, which has a limited supply because a company only sells a certain number of shares, then the price will increase.

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