- Define diversification and asset allocation
- Understand how diversification and asset allocation relate to saving and spending
- If students don’t already have copies of the Money Confident Kids Student Magazine printable, make a class set.
- Make a class set of page one of the Investment Decision Time Worksheet, available for download from T.Rowe Price.
- Print a copy of the Investment Decision Time answer key (page two of the worksheet) for use in class.
Set a Purpose
Step 1: Tell students that the “Making Money Work” article on page 5 of the Money Confident Kids Student Magazine printable will explain the ways in which people can put their money to work. Tell them that after reading the article they will be asked how savings accounts, stocks, bonds, and inflation are related. Write this purpose on the board.
Step 2: Have students read the “Making Money Work” article with a partner.
Step 3: Discuss the reading to reinforce student understanding. Ask students to compare the average interest rate on a savings account (.17%) with a 3% inflation rate. Why would it be a problem to save money only in a savings account over 10-plus years? (The balance in the account will end up being lower than the ultimate price of the item and you won’t have enough money to buy it.)
Activity Option A: Star Banks Adventure
Each student (or group) will need access to a computer for this activity.
In the Star Banks Adventure Game, students will make financial choices in order to unlock new levels. As they progress, they will use their knowledge of inflation and investments to make choices that allow them to reach longer term goals. In addition, they will be asked to answer questions to assess their understanding of key concepts.
Step 1: To get started, have students open the Star Banks Adventure Game.
Step 2: Have students play Levels 1 and 2 on both the Budget and Deluxe levels. Before playing each level, students should record their savings goal ($1,000 and $2,000). Encourage students to click on the question mark to review vocabulary terms. Be available to discuss any questions students might have about the game.
Step 3: Look at Level 3 as a class. Read the introduction together and ask: How is the Yellow Star Bank related to the idea of interest? (Saving in a Yellow Star Bank means you won’t lose any coins, but you can only earn a small amount of additional coins.) If you were saving for a long-term goal with a cost that would rise over time, do you predict that savings in the Yellow Star Bank would keep ahead of the rate of inflation?
Step 4: Continue playing as time allows and watch for the inflation challenges on Level 14!
Activity Option B: Simulation
Step 1: Share the following situation with students: Imagine that you decide to buy stock in all of your favorite video game companies. What happens if everyone suddenly starts playing online games instead? (The value of your stocks would drop and you could lose all your money.)
Step 2: Write the word “diversification” on the board. Ask students to guess the meaning of this word by breaking it into its parts. Explain that if (in the example above) you had invested some of your savings in video game companies and some in food, clothing, and toy companies you would have diversified your investments. Diversification provides some protection so if the video game companies go out of business, your other investments might still earn money.
Step 3: Give students a copy of the Investment Decision Time Worksheet from T. Rowe Price. Together, review the directions and point out the time horizon (length of time to reach the goal) for the kitten, car, and college tuition.
Step 4: Ask students to work in small groups to decide how they would allocate their assets to reach their goal.
Step 5: Compare students’ responses to the Investment Decision Time answer key.
Supporting All Learners
Complete the reading and activity as a class instead of in pairs or small groups. Simplify the vocabulary terms.
Have students create a worksheet similar to the Investment Decision Time worksheet containing three goals, time horizons, and asset allocation strategies. Later, have them trade pages to challenge their classmates.
Did students demonstrate an understanding of why it is important to consider time when planning to reach a financial goal?
Lexile Score: 1090L
Common Core Key Standards: N/A