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➤ Stock market investing for kids
The stock market might seem like a labyrinth of complexity, especially when riddled with terms like “margin” and “volume.” For a teenager, these terms might just sound like a recipe for boredom.
However, unraveling this seemingly intricate world is crucial for their financial journey. Beyond the jargon lies a fascinating realm where money-making possibilities thrive.
Imagine the stock market as an online supermarket, but instead of groceries, you’re buying stakes in companies. Prices dance up and down throughout the day, giving you opportunities to sell or buy.
People often mention the stock market while referring to an index—a slice of the marketplace for stocks. This market comprises two main sections: the primary and secondary markets.
Surprisingly, you can venture into the stock market through your computer or phone with just a few clicks.
Although, if you’re under 18, setting up your own account might not be possible. Yet fear not, as an adult can set it up on your behalf, opening doors to the world of investing.
Exploring the stock market isn’t about complex terminologies—it’s about understanding the basics and embracing the potential it holds for your financial future.
➤ What is the stock market?
The stock market is like a bustling marketplace where bits of ownership in companies, known as shares, are bought and sold.
Picture it as an online store, but instead of groceries or household goods, you’re acquiring stakes in companies.
Here’s what makes it unique:
- You’re investing in companies, not consumer products
- Prices fluctuate throughout the trading day
- You can both buy and sell shares
Operating during the workweek, this marketplace acts as a matchmaker, connecting buyers and sellers. It’s the place where interests align and deals are struck.
Understanding indices
Ever wondered what’s meant by “the stock market is up or down”? That often refers to a segment of the market for stocks known as an index.
An index is like sections in a supermarket, grouping stocks that share similarities. This could be based on the products they sell, their location, or simply that they’re shares.
Here are some well-known indexes:
- S&P 500: Comprising the 500 largest U.S. companies
- Dow Jones Industrial Average: Thirty prominent U.S. companies considered industry leaders
- Nikkei 225: Japan’s top 225 listed companies
- FTSE 100: The United Kingdom’s largest 100 public companies
- Euro Stoxx 50: The 50 biggest public companies in continental Europe
These indexes aren’t just indicators for their respective countries—they often serve as benchmarks for global business conditions.
➤ How does the stock market work?
The stock market operates through two primary segments: the primary market and the secondary market.
Primary market
Companies often raise funds by offering shares. They can either gather funds privately from known circles or seek money from the public in exchange for ownership stakes.
Initial Public Offerings (IPOs) mark the first issuance of shares by a company. A specific number of shares are available at a set price, attracting buyers who hope for their value to rise.
Secondary market
Post-IPO, these shares freely trade hands among investors without the company’s direct involvement. Individual investors buy and sell these shares among themselves, often acquiring shares from other investors rather than directly from companies.
Stock exchanges
Companies initiate their public share offerings on specific stock exchanges. These exchanges—almost present in every country—are where shares of various companies are bought and sold.
In the United States, prominent exchanges like the New York Stock Exchange (NYSE) host companies such as Home Depot, Visa, and Berkshire Hathaway.
Similarly, Nasdaq sees shares of tech giants like Apple, Amazon, and Microsoft.
Companies select the stock exchange where they’ll offer their shares. These exchanges collectively form the stock market.
Fun Fact: The world witnessed the birth of its first stock exchange in 1602.
➤ How to invest in the stock market
Buying and selling stocks directly through a stock exchange isn’t feasible. You’ll need a stockbroker—a middleman—to make these transactions, whether that’s a person or an online platform.
Thanks to the internet, investing has become incredibly convenient. No more calls to brokers or negotiations; now, you can sign up with online brokers, deposit money, and start trading at your fingertips using your phone, tablet, or computer.
Once you have funds in your account, you can purchase shares from companies worldwide with just a few clicks.
Important to note, you must be at least 18 years old to invest in stocks. Younger individuals will need an adult to facilitate the process for them.
Unlike regular shops where prices often stay consistent, the stock market operates differently. Each share is assigned a value that changes throughout the day. Buyers and sellers negotiate prices based on new information and demand.
You can either accept the quoted price or set a specific price for buying or selling. However, there’s no assurance that your desired price will match the market’s fluctuating rates.
➤ How stock prices move
Stock prices of individual companies rise and fall based on investors’ expectations about future profits.
For the entire market to shift, significant events impacting multiple companies’ profits are required—such as new regulations, pandemics, unexpected economic data, and the government’s reactions to these situations.
Not all companies respond the same way to events. For instance, a pandemic like COVID-19 might benefit pharmaceutical firms but harm retailers and restaurants.
Similarly, during economic downturns, some businesses, especially those selling nonessential items like luxury goods, face more challenges than others.
The stock market serves as a vital means for companies, the backbone of the economy, to raise funds.
These businesses provide essential goods and services, employing a large portion of the population. If the stock market’s support were to dwindle, it would impact the entire economy.
Moreover, the stock market affects people’s savings and retirement funds.
If these investments don’t grow as expected, consumer spending might decline, governments might need to allocate more resources to support citizens, leading to widespread consequences.
➤ Basic stock market terms
Understanding stock market jargon can be confusing. Here’s a brief guide:
- Ask price: The lowest price a seller will accept for shares
- Bid price: The highest price a buyer offers to buy shares
- Bearish: Expectations of falling stock market prices
- Bullish: Expectations of rising stock market prices
- Dividend: Portion of company earnings distributed to investors
- Earnings: Profits generated by a business after expenses
- Liquidity: Ability to convert shares into cash without affecting their price
- Margin: Borrowed money from a broker to buy an investment
- Securities: Tradable financial assets
- Ticker symbol: Abbreviation identifying a company’s shares
- Volatility: Unpredictable price movements in the market or stocks
- Yield: Investment return over a specified period
➤ Useful tools for kids
Learning about the stock market can be exciting and accessible with the right resources. Making this topic relatable and engaging is key, especially for teenagers.
Exploring companies matching their interests beyond just profits could spark their curiosity.
Stock market games
Games turn the complexities of the market into enjoyable experiences:
Investing books
Encourage teenagers to explore stock market books tailored for their age group. Books offer simplified insights:
Investment classes
Free and accessible investment classes abound online, providing valuable learning experiences. Platforms like:
These tools offer engaging avenues for teenagers to understand the stock market beyond the numbers, making learning about investments fun and relatable.
➤ Stock market investing for kids FAQ
Can kids invest in the stock market?
Typically, you need to be at least 18 to directly engage in stock market investments. However, there are alternatives.
Adults can open a custodial account on behalf of a child, allowing them to invest in the market. Once the child reaches adulthood, the account and its funds automatically transition to their control.
What’s the minimum age for kids to invest?
Most brokers require individuals to be 18 or older to open an account for stock market investment. If you’re younger, a parent or guardian can open an account on your behalf, which transfers to your control when you reach the required age.
What’s the best investment for kids?
The ideal investment varies based on personal interests and goals. Investing in something that intrigues the child, like a company producing products they love, can maintain their interest.
However, the choice also hinges on risk tolerance and financial objectives. If funds are needed in the near term, investing in the stock market might not be suitable.
➤ Final Thoughts
The stock market operates like an online supermarket where you can buy and sell parts of companies at different prices throughout the day.
Once you grasp the basics, it’s pretty intriguing. Teenagers might find it exciting to discover ways to earn extra money without diving deep into understanding how their favorite companies work.
Finding the right approach to spark their interest can lead to their appreciation later on.
The stock market, despite its initial complexity, can be an engaging and rewarding learning experience for teenagers.
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