Printer Friendly

The stock market: the people who buy and sell stocks have a direct influence on your life. Find out how. (Money and You).

If you turn on the evening news, a financial reporter will tell you whether the stock market went up or down. Up sounds good, and down sounds bad. But how the stock market works, and why it matters so much, may seem like a mystery.

You don't need to be a millionaire to figure out the stock market, or to invest in it. In fact, more than half of all Americans own stock.

Even if you or your parents do not own stock, the stock market can have a big impact on your life. It raises money that creates businesses, jobs, and products.

To learn more about the stock market, read the questions and answers below.

Q: What is stock?

A: Most companies cannot make all the money they need just by selling their products or services. They often need extra capital (money) to produce new goods and create jobs. So they sell stock--investments that give people part ownership in the company. For instance, the Walt Disney Company now has about 2 billion shares (single units) of publicly traded stock.

Buying even one share of stock makes you a part owner in that company. The more shares you buy, the more influence you can have over that company's policies.

Q: What is the stock market?

A: The stock market is made up of several stock exchanges. A stock exchange is a place where buyers and sellers hold daily auctions for thousands of different stocks. There are 7 exchanges in the U.S. and more than 140 worldwide.

The biggest and best-known stock exchange in the U.S. is the New York Stock Exchange (NYSE). Stocks sold on the NYSE include most of the biggest companies in the U.S., such as General Motors, Coca-Cola, and McDonald's.

Q: Why do stock prices change?

A: Shares of stock do not have any fixed value. Their price goes up or down, depending upon the supply of the stock and the demand for it on the stock market. In theory, the stock price of a company that is making profits will rise, while a troubled company's stock price will drop.

But stock prices can also fluctuate (change) from day to day because of news about

* the company's financial health;

* the industry's financial health;

* economic trends;

* world and national events.

For instance, in June 2002, it was revealed that WorldCom, a telecommunications company, inflated its financial health by almost $4 billion. The company's stock price crashed almost immediately, and WorldCom went bankrupt soon after.

Q: How do people make money by buying and selling stocks?

A: Stockbrokers (people licensed to buy and sell stocks for others) have all sorts of trading strategies that help them make money. But for ordinary investors, there are two basic ways to earn money in stocks.

The first is dividends, small amounts of money that some companies pay to each shareholder. How does this work? Let's say that a company pays a dividend of 10 cents a share, and you own 100 shares. That means you will get a check for $10 each quarter (three-month period).

Not all stocks pay dividends. But all stocks can make money the second way: by changes in price. Let's say that you buy 100 shares of stock at $10 a share. Then you get lucky--the price shoots up to $20 a share. If you quickly sell those shares, you will make a profit of $1,000. Unfortunately, you can also lose money if the price of your stock falls after you buy it.

Q: Is the stock market a form of gambling?

A: In a way, the stock market does resemble gambling. Like gamblers, stock investors risk money. Also, short-term investors, who buy and sell stocks quickly, take big risks.

But for the most part, the stock market is not like gambling. Most stock investors are individuals or companies that want steady, long-term gains. Gambling cannot give that.

Of course, you can lose a lot of money investing in stocks. But history shows that a share of stock bought today is likely to be worth more money in 10 or 20 years.

RELATED ARTICLE: The New York Stock Exchange began in 1792, with 24 merchants trading under a buttonwood tree. Today, it is a high-tech maze where thousands of people work.

OBJECTIVES

Students should understand:

* How the stock market helps businesses to raise money, and the risks and rewards of owning various stocks.

TEACHING STRATEGY

Ask students if they have ever participated in a school fund-raising event, such as a raffle or bake sale. Ask them why the money was needed; and how they or the school benefited from the extra funds. Now ask students the following questions: "Why would a large company need to raise money? How could it get the funds it needs?"

BACKGROUND

The first stock exchange was established in Belgium in 1531, and the first stocks sold were likely to have been shares in the Dutch East India Company. The first stock exchange in the U.S. opened in New York City in 1792, and its brokers initially met under a tree on Wall Street. Today, most major cities around the world have stock exchanges.

THINKING SKILLS

COMPREHENSION: Why do companies sell stocks to the public? (Most companies cannot make all the money they need just by selling their products or services. So they sell stock to raise extra money to produce new goods and create jobs.)

CAUSE AND EFFECT: What are some factors that can influence the price of a stock? (Stock prices are influenced by the financial health of the company, global economic trends, world and national events, and other factors.)

ACTIVITY

PLAY THE MARKET: Ask students to select a company and keep track of its stock for a given period of time. Students should also research the history of their chosen company, its products or services, and its current financial health. Ask your students to present the companies to the class, including the performance of each stock during recent trading.

STANDARDS

SOCIAL STUDIES, GRADES 5-8

* Production, distribution, and consumption: How companies sell shares of ownership to raise capital and increase their economic potential, and how investors buy these shares to increase their personal wealth.

RESOURCES

PRINT

* Kohut, Kathy, Stock Market Simulations (Teacher Created Materials, 2000). Grades 5-8.

* Modu, Emmanuel, Teenvestor: The Practical In vestment Guide for Teens and Their Parents (Berkeley, 2002). Grades 7-8.

WEB SITES

* New York Stock Exchange www.nyse.com

* Stock Market Game www.prongo.com/stock
COPYRIGHT 2002 Scholastic, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2002, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Author:Price, Sean
Publication:Junior Scholastic
Date:Nov 1, 2002
Words:1083
Previous Article:The Constitution today: the Constitution has withstood the challenges of a civil war, economic depressions, and great social change. (Civics).
Next Article:Land and water: earth's physical features are incredibly varied. (Geoskills).
Topics:


Related Articles
The stock analysts; the Wall Streeters who tell you when and what to buy and sell.
Stocks 'R' us: teaching your kids about the stock market gives them a jump-start on investing.
Should You Buy Stocks?
WHAT'S UP WHEN STOCKS ARE DOWN?
When Confidence Failed.
TEACH CHILD ROLE OF STOCKS, GOODS.
Losing stock.
Trading places. (History).
Real estate a real IRA option: for those afraid of the stock market or unhappy with rates of return on savings accounts, real estate is a...

Terms of use | Copyright © 2017 Farlex, Inc. | Feedback | For webmasters