FA 5.1 Why Should I Invest? Lesson Guide PDF

5.1 Why Should I Invest? Lesson Guide UNIT: INTRO TO INVESTING & EXPONENTIAL FUNCTIONS...

5.1 Why Should I Invest? Lesson Guide UNIT: INTRO TO INVESTING & EXPONENTIAL FUNCTIONS OBJECTIVES & STANDARDS Math Objectives ✓ Compare the exponential growth of investments and savings accounts with different rates of return Common Core Math Standards Link to all CCSS Math CCSS.PRACTICE.MP1 CCSS.PRACTICE.MP2 CCSS.HSF.LE.B.5 Personal Finance Objectives ✓ Define investing and distinguish it from saving ✓ Identify reasons for investing, including outpacing inflation and building wealth ✓ Analyze how compounding builds wealth over time ✓ Reflect on how investing relates to wealth inequality National Standards for Personal Investing Financial Education 4a: Describe the impact of inflation on prices over time 8-5a: Explain the benefit of compound interest as compared with simple interest. 8-5b: Demonstrate how annual interest earned increases over time when both the original principal and earned interest are left in a savings account. DISTRIBUTION & PLANNING Distribute to students ✓ Student Activity Packet Plan your unit Unit Plan: Intro to Investing & Exponential Functions Financial Algebra course page Personal Finance Investing page Customizable Parent Newsletter: Intro to Investing & Exponential Functions INTRO QUESTION OF THE DAY: If you invested $1,000 in Netflix stock ten years ago, what would it be worth now? Write your answer to the question below. Then, compare your answer to the answer on the second slide. 1. If you invested $1,000 in Netflix stock ten years ago, what would it be worth now? Over $70,000 LEARN IT INFOGRAPHIC: A Simple Introduction to Investing What is investing? Study this infographic, stopping at “What to Invest In”, and answer the questions. 1. Identify whether each of the following statements describes saving (S) or investing (I). Circle or highlight your answers.  Statement Saving or Investing? a. It is meant for short-term goals S I b. It involves assets like stocks and bonds S I c. It harnesses compound interest and higher average returns to grow your wealth faster. S I d. It involves very little risk S I e. Your account balance will be impacted by the market S I 2. Why is investing a more powerful tool to build long-term wealth than saving? Investing uses the power of compound interest to provide higher long term returns on investment EDPUZZLE: Understanding Inflation One reason you might invest is to “beat inflation,” so your money doesn’t lose purchasing power over time. Watch this video to learn more about how inflation can impact the value of your money. Then, answer the questions either in EdPuzzle or below. TEACHER TIP: EdPuzzle videos shuffle answer choices and do not always match the order provided in the lesson here 1. When price levels increase, purchasing power __decreases__. 2. In addition to the price of goods and services, what else is impacted by inflation? (choose all correct answers) a. Wages b. Savings c. Debts d. Interest 3. If you put money in a savings account earning a rate of return of 1% and inflation is currently at a rate of 2%, will your money be worth a. More in the future b. Less in the future c. Exactly the same ACTIVITY: MOVE: Inflation Over Time Let’s dive in to learn more about inflation and investing. Follow your teacher’s instructions to complete this activity. Then, answer the reflection question. Click the link to access the activity and its answer key. 1. Considering the impact of inflation, why is investing important? Inflation causes your money to lose value over time. Its purchasing power decreases as prices increase. Investing can help you “beat” inflation because your investments can grow at a faster rate than inflation. That way, your money won’t lose value over time Investing is especially important for long-term goals since the effects of inflation will be significant due to compounding. VIDEO: Investing Basics: The Power of Compounding As you’ve learned, investing can help you mitigate the impacts of inflation and build your wealth. Compounding is the key to growing your money. Watch this video to explore how compounding works and can benefit you. Then, answer the questions. 1. How can compound interest increase your investment’s growth? By reinvesting the interest (your earnings), you can earn additional returns on that interest. 2. According to the video, what are three ways you can harness the power of compounding? Invest early, reinvest your earnings, avoid taking excessive risks 3. This graph represents the first hypothetical described in the video. Imagine someone invests $10,000 with 7% returns compounding each year for 30 years.  a. Approximately how much does their investment grow in the first 15 years? It grows by about $17,000 b. Approximately how much does their investment grow between year 15 and 30? It grows by about $50,000 c. This investor started with $10,000 and ended up with $74,500 after 30 years, just from the growth of that initial investment. Now, imagine they tried to use savings to reach that same 30-year goal. If they start with $10,000, how much would they need to save each year to have $74,500 after 30 years? Assume they don’t earn interest on savings. 74500 = 10000 + 30x 64500/30 = 2150 They would have needed to save an additional $2150 each year. 4. What is the advantage of starting to invest early? By investing early, you are giving your money more time to earn interest and more opportunities to reinvest that interest and take advantage of compounding ACTIVITY: ANALYZE: Inequalities in Investing As you’ve learned, investing is a critical tool for building wealth. Unfortunately, not everyone has the same opportunities to take advantage of that. So, who currently benefits from investing? Follow the directions on the worksheet to complete this activity. TEACHER TIPS: You could shorten the activity by having students only analyze one graph You could complete this activity as a jigsaw, gallery walk, or chalk talk. Click the link to access the activity and its answer key. VIDEO: Wealth Distribution in the US You’ve learned how investments can compound to build wealth. Now, let’s examine how that wealth is distributed within the US. Watch this video and answer the questions. 1. What percentage of wealth is owned by the top 10% of families (those with more than $1.22 million)? 76% 2. What percentage of wealth is owned by the bottom 50% of families (those with less than $122,000)? 1% 3. Were you surprised by the wealth distribution in the United States? Why or why not? [Answers may vary] 4. Do you think the wealth distribution is fair? Why or why not? [Answers may vary]  5. How do you think investing relates to wealth inequality? [Answers may vary] Families who are able to invest and are able to grow their wealth may be able to pass down their wealth to the next generation (aka generational wealth) Children in families where investing is common (typically the wealthier families) might also start to invest at an earlier age, while those in families where investing is not a common practice may not feel comfortable doing so for a long time or at all. Income inequality means some people can afford to invest much more than others. As those investments grow, they build wealth while others do not. Wealth inequality compounds over time. MATH CONNECTION - EXPONENTIAL GROWTH DESMOS: Growth of Savings vs Investments We can use exponential functions to explore how money will grow over time. In this activity, you will compare the growth of a savings account and investment account over 30 years. Follow your teacher’s instructions to complete this Desmos activity. TEACHER TIP: Find the teacher-guided Desmos activity here. If this is your first time using a Desmos activity, watch this video to set up your classroom. EXIT TICKET TEACHERS: Here is the Exit Ticket available as Google Doc or Google Form 1. All of the following are reasons to invest, EXCEPT… a. To minimize the impact on inflation, which causes you to lose purchasing power b. To earn a consistent rate of return with lower risk than typical savings accounts c. To build wealth by reinvesting your returns and allowing them to compound d. To earn higher average rates of return than you would in a typical savings account 2. Sandra has $500 in a savings account that earns 1% annual interest. She leaves that money in the account for 5 years. If inflation averaged 2% per year, what happened to the purchasing power of her savings? a. It increased b. It decreased c. It stayed the same d. It matched inflation 3. What is the benefit of starting to invest early, even with a small amount? a. Your investments are likely to grow more since compounding means returns get larger over time b. You are guaranteed higher returns since compounding reduces the risks of investing c. You can use your investments to meet short-term financial goals since you don’t need to hold them as long d. You can take advantage of brokerage discounts for long-term investors WE VALUE YOUR FEEDBACK! After you have completed this lesson, we would appreciate one minute of your time to provide feedback about this lesson’s relevance and ease of implementation in your classroom. Last updated: 12/2/21