Children often understand the simple side of money, such as buying and selling things, pretty early on. However, the more complicated parts of our financial world are a little more difficult to grasp. Help them get a handle on the stock market, and you’ll give them insight into how investing works.
The stock market is a place where people buy and sell shares, or little parts of companies. Companies offer these shares for sale so they can get money to improve their businesses.
Investing in shares can be a good way to make money. Shares can go up in value, so when they’re sold again, you get more money back than you spent. Just by owning shares, you sometimes receive a payment too; this is called a dividend.
What are stocks and what are shares?
Why does the price of a share change?
The price of a share can vary; the main thing that affects it is whether it’s popular or not. If lots of buyers want a certain company’s shares because the company is doing well, or they think it will do well in the future, the price goes up. If buyers don’t want a certain company’s shares, maybe because lots of people think the company is doing badly, or will do badly, the share price will go down.
Who buys and sells shares?
Stockbrokers are the people who buy and sell stocks, and advise other people on how to manage their stocks in the best way to make more money. Their basic advice is:
Where does this all happen?
The world’s biggest stock exchange is The New York Stock Exchange, which is in New York City. Other big stock exchanges are based in Shanghai, Tokyo, Hong Kong, Amsterdam and London. However, buying and selling stocks can take place almost anywhere in the world, because a lot of activity takes place online.
Are stocks for kids?
Well, back in 2012, the Californian teenager John Wang Clow became the world’s youngest licenced stockbroker, when he gained his Financial Regulatory Authority licence, aged just 17 and 77 days.
We love a good chat at RoosterMoney, so here are some ideas to kick start conversations about the stock market with your child.
People who look at the stock market like to pick out certain trends, and give them names. When prices are rising, it’s called a bull market; when prices are falling, it’s called a bear market. Can you think of why these two animals might have been used to describe these trends?
Some people don’t just want stocks that make money, they also want stocks in companies that do good things, such as companies that help the environment. They also don’t want shares in companies that do harm, such as tobacco firms. Can you think of some companies you wouldn’t want shares in, and some companies that you would like to own?
The price of shares can go down and up. When lots of shares prices go down all at once, we say the market has crashed. This has happened a few times in the past, such as in 1929, with the Wall Street Crash, and on Monday 19 October 1987, with a stock market crash called Black Monday. In both cases the stock market crash was bad for the wider economy, and meant lots of people who had nothing to do with the stock market lost their jobs. Can you think of why that might be?
A firm in the Netherlands called The Dutch East India Company was the first company to offer shares. It did this back in the early 1660s. The money raised by the sale of those shares helped the Dutch East India Company import goods such as silk and spices. By some estimates, it became the largest company the world has ever seen.
Playing is a great way to aid the understanding of the stock market for kids. Why not try some of these learning games?
Pick a company you like – maybe Disney, SpaceX, or Apple. Check to see if the share price goes up or down. Imagine you invested £5 a month ago. How much would it be worth today? How much money would you have lost or made?
When a new company decides to offer shares to stockbrokers, it produces something called a prospectus, explaining to buyers why its shares are a really good investment. Do you have a business idea? If so, do you think you could make a prospectus, explaining why your shares are so great?
A few decades ago, stock brokers used to wear colourful, distinctive jackets to set themselves apart in the trading venue. They looked a bit like school blazers, but much more colourful. Today, most trading is done via computers, but that doesn’t mean you can’t have a go at making your own jacket. It can be striped, or with a crazy print, or even feature your favourite characters. You can put the name of your company on the back too.
Today, really clever people create special instructions for computers to trade shares. These are called algorithms. They’re usually pretty complicated, but you could try to think up a simple one? How about, if it’s sunny, buy shares in lemonade companies? Or if there’s another lockdown, buy shares in video games and TV streaming companies? Can you think of any others?
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