Session 6: Insurance and Investing

Insurance

- Insurance is a way to minimize some of the risks in life.

- You pay a small amount every month, and should something happen, the cost will be covered. For example: let’s say you pay $50 every month into a car insurance plan, and if you get into a car accident. If it costs $10,000 to fix your car, the insurance company will pay it for you. Of course, you might drive a car your whole life and never get into an accident, but insurance ensures that IF you do – the bill is covered.

- Different types: house, health, car, cell phone, renter’s, disability, life, pet

- Price you pay for insurance can vary depending on your history. If you have had a lot of car accidents, instead of $50 a month they may charge you $80 a month because you have a higher risk of getting into another one.

Investing

- What is investing? A way to make your money grow.

- Why should you invest? To make money, to stay ahead of inflation (inflation causes the increase of prices) to achieve your financial goals.

-Risk vs. Reward: explain the concept of low risk can mean low reward; high risk can mean high reward.

- Diversification means you shouldn’t put all your eggs in one basket. Because if the basket breaks and all your eggs are in it…they will all crack and break. Some financial instruments are more risky than others.

- Stock Market: Everyday term we use to talk about a place where stocks and bonds are "traded".

- Stocks: units of ownership in a company. We played a stock market game that I made up. Each of the two teams had to and choose one company (from a choice of three) in six categories. All the choices were companies they had heard of (Apple, Google, Tiffany’s, Disney, Netflix, Target etc) I revealed how their choices had fared over the last 12 months. We discussed how sales for some companies might be low in one season, but high in another season (e.g. an ice cream company will have high sales in the summer, but low sales in the winter because it’s cold outside) and that was sometimes the reason for fluctuation during the year.

- The goal is to buy the stock at a low price, hold it for a time, and then sell the stock for more than you paid for it. Aka, buy low, sell high.

- Article: Skip the Toys: The Case for Giving Kids Stock

Discussion questions:

1. What is stock?

2. Why does the writer encourage giving stock to children as a gift instead of toys?

3. What are some advantages of a custodial account?

4. If you could buy stock in one company, which would you choose and why?