What is Diversification?

Have you ever heard some say “don’t put all of your eggs in one basket”? What does that mean? Well, if you put all of your eggs in one basket and that basket drops, you run the risk that all of your eggs will be broken and lost. But if you put a few eggs in two or more baskets and only one basket falls breaking only its eggs, you still have some good eggs in your other baskets that didn’t fall and break.

That is diversification: putting your money in several different places or buying some stocks from several different companies. For example, if you use all of your money to buy stock in only one company and the value of that stock drops then you could lose all of your money. But if you diversify, maybe you buy stock in several different companies and put some money in the bank for saving and keep some money at home in your piggy bank. Then if the value of stock in one company goes down, you only lose the money you invested in that stock but should still have money in your other locations.

By the way: what’s the most you can ever lose in stocks? The amount you invested. What’s the most you can gain? Unlimited – anything can happen.

How Much Do Stocks Cost?

When you think about buying stock, you should remember that there is risk that goes along with it, but there is also opportunity. So if someone asks the question “what are the best companies to invest in,” the answer must take into consideration the amount of risk that investor is willing to take. If the investor says, I don’t want to lose this money to make a fortune, but I really think it’s a great company - there are lots of companies that look promising. Many of them you’ve never heard of, but they believe they’ve got the next newest idea.

Have you ever heard the expression “Time heals all wounds”? When you get older, you’ll have typical grown-up experiences – like with boyfriends and girlfriends. You’ll break up and think the world is coming to an end. But over time, you’ll get over it and your life will get back to normal and things will be OK. Well it’s similar with stocks. If you invest in enough stocks and diversify – buying some companies that are less risky and some with medium risk and some that are real risky – over time it should all be ok. However it's important to remember that diversification doesn't guarantee you will make money and it is still possible to lose money in your investments.

Bankers nationwide are celebrating National Teach Children to Save Day on Tuesday, April 21. Founded by the American Bankers’ Association Education Foundation, the day is dedicated to educating youth about the importance of saving.

Parents, Here are Five Tips for Teaching Financial Responsibility

1. Value of Saving – Teach children why you save and why they should save by using everyday examples like buying groceries. Illustrate how savings can grow by collecting money in a jar or container.
2. Needs vs. Wants – Explain the differences between needs and wants and how to prioritize spending. Use examples like toothpaste vs. another video game.
3. Allowance – Consider an allowance to teach how money is earned. Provide an allowance in a way that children can save part of it and spend part of it (for example, if an allowance is $5, give five one dollar bills so some can be saved and some spent).
4. Set a Goal – Setting a goal for savings or to buy a desired item will help teach a child to be responsible for him/herself and reinforce the feeling of accomplishment when the goal is reached.
5. Open a Savings Account – Establish regular saving habits that will last a lifetime by opening a savings account with your child.

CHECK OUT THE LINKS on our sidebar for lots of fun resources to help your children save!

What Causes the Stock Market To Go Up and Down?

Have you ever heard of supply and demand? When there is a lot of something – a large supply – the price goes down. When there is a small supply of something, the price goes up.

Let’s say when it’s time to eat, there’s only one sandwich and everyone wants it. The price would go up. The person with the most money will be able to buy it. But when there are lots of sandwiches the price goes down. It’s the same with stock. If a lot of people want a certain stock – and there are a limited number of shares, the price goes up. If a lot of people want to sell a stock, and not too many who want to buy it, the price goes down, because the supply will be greater. When everyone wants to buy a stock, the price goes up.

The other thing that affects the price of stock is emotion. When people are very excited about the market and they want to make a more than anyone else and they are willing o do anything – that’s when the price of stock goes really high. That’s called greed. When people are greedy they’re willing to do anything they can. But when people are scared, what do they do? They hide. When people are scared and they sell their stock and put their money in the bank, they are sort of hiding. What’s happening in our markets today? People are scared. There’s a lot of money sitting in the bank.

What’s the Difference between Stocks and Bonds?

Stocks are ownership. When you own stock, you own part of a company. Bonds are “loanership”. You’re loaning money to a business or the government. In other words, a bond is debt.

So, when you buy a bond, you are lending money to a company. When you own a share of stock, you own a part of a company.

Let’s say you own a share of stock in a company that operates an amusement park. The company sells stock because they want to grow the company and they need to get capital, which is the money they can use to invest in growing the company. Now, if you own some of that stock, you own part of the company.

COACH'S BOOK RECOMMENDATIONS

Kids Ages 6 - 11

Money Savvy Pig

By Susan Beacham

This is a small plastic pig that resembles a traditional piggy bank with a twist -- instead of one slot, there are four marked "save," "spend," "donate" and "invest."

You can also purchase a workbook with the Money Savvy Pig that allows children to color the pages while they learn important concepts such as interest on savings, goal-setting, smart spending, long-term investing and entrepreneurship.

The Money Savvy Pig is the perfect introduction to personal finance.

The Kids Allowance Book

By Amy Nathan and Debbie Palen

This charming book tells children how to get an allowance and how to save and spend it wisely. The book includes responses of 166 kids to questions about the pros and cons of allowances.

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Tweens and Teens
Personal Management

By Brent Neiser

Educators too often overlook personal finance basics when teaching life lessons to preteens and teens. As a result of the absence of financial education in our schools, young people with little or no income wind up in debt. Personal Management, is an antidote to this oversight.

This booklet has been used for many years to help Boy Scouts earn their "personal management" merit badge. However, you don't have to be a Boy Scout to benefit from the practical wisdom found here.

The booklet helps young people learn about saving, spending and investing as well as how to create a budget, use credit and track their spending.

Cash Cache

By Susan Beacham

This personal finance organizer is intended to help teens learn the basics of personal finance: saving, investing, credit cards, earning money, paying taxes, spending and donating. It also includes basic information on the stock market, setting goals, budgeting and bank accounts.

Teens can learn basic personal finance lingo by using the glossary of financial terms.

The Money Book for the Young, Fabulous & Broke

By Suze Orman

People in their 20s and 30s often have big expenses and enormous debt. As a result, they have little leftover for savings. Orman's book tailors advice to this generation's situation by focusing on credit cards, college loans, income and opportunities for saving.

Teens who recently graduated from college and read this book liked the tone and thought it made sense. They said they were particularly impressed with discussions about how easy it is to fall into debt and the dangers of owning too many credit cards.

Saving for Retirement Without Living Like a Pauper or Winning the Lottery

By Gail MarksJarvis

This book emphasizes the importance of starting to save early. Author MarksJarvis focuses on using retirement plans to defer taxes, collect employer contributions and accumulate greater levels of retirement wealth.

Other themes in this book include the importance of managing costs and the long-term benefits of asset allocation.

An award-winning writer, Gail MarksJarvis is a long-timer personal-finance columnist, currently writing for the Chicago Tribune.

When A Company Needs Money, How Do They Get It?

When a business needs money, they can get it one of two ways. They can sell part of it – or they can borrow. Whey they sell stock, they sell part of the company. But a company may not want to give away ownership of all of the company. They may prefer for you to invest in their company as a bondholder. A bond is a promise to pay off the loan. So if they need money, they may want to borrow it – so they sell bonds – and promise to pay back the loan.

Now, let’s say the company does really well, and the value of the company increases. Does the value of your bond increase? No – because it’s just a promise to repay the loan. But if you own stock in a company, and the value of the company goes up, then your stock is worth more.