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July 21, 1999

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Subject: Investing with Peanuts
Author: KellyFord

As a substitute teacher, I've encountered a few dry times when not enough has been planned for me, so I've thrown out this activity to get kids thinking about the rewards of investing. Most of the time, I sub in elementary and primary schools, but I use this whenever I'm in middle or high school. On a couple of occasions, the timing happened to be good enough that they were studying exponents, anyway:

I have two variations on how I present this. If I have more time, I divide the kids into groups at first. But with a short schedule, like 10 or 15 extra minutes at the end of class, I'll just work with the whole group.

As my set, I do a quick survey of the kids to see what they know about the stock market and investing. This is very helpful, because there is a good chance several of them have been introduced to it already and I can adjust my language appropriately. I tell the kids that if they understand the main idea of the activity, it could make the difference of thousands of dollars and hundreds of headaches in the future. (One student piped up on one occasion, "Wow! Something we're actually going to use!") I end the introduction by pointing out that while a few minutes doesn't give the issue justice, we can at least operate under the basic knowledge that historically the stock market has an average gain of 10% annually. I also tell them that there are many ways to invest, but for our purposes we are going to use a thing called a Roth IRA, where you can contribute up to $200[0] a year and gains will not be taxed.

Moving on to the main body of the lesson, I then read about four different characters and their investment strategies. If I have them in small groups, I give them about three minutes after each scenario is read to come up with a group answer to my question at the end. If I am teaching to the whole class, I will just ask for three volunteers with estimates. I do not give out the answers until all four are done. Here are the four characters and their stories:

Charlie Brown decides to save and invest for his retirement. He opens a Roth IRA at age 55 and invests $2000 a year. Charlie Brown is a smart investor and earns a 10% annual return on his investment. How much money does he have in his Roth IRA at age 65?

Peppermint Patty decides to save and invest for her retirement. She opens a Roth IRA at age 45 and invests $2000 a year, but she stops after 10 years at age 55. Peppermint Patty is an intelligent investor and earns a 10% annual return on her investment. How much money does she have in her Roth IRA at age 65?

Woodstock decides to save and invest for his retirement. He opens a Roth IRA at age 35 and invests $2000 a year, but he stops after 10 years at age 45. Woodstock is a wise investor and earns a 10% annual return on his investment. How much money does he have in his Roth IRA at age 65?

Snoopy decides to save and invest for his retirement. He opens a Roth IRA at age 25 and invests $2000 a year, but he stops after 10 years at age 35. Snoopy is a shrewd investor and earns a 10% annual return on his investment. How much money does he have in his Roth IRA at age 65?

The answers (rounded to the nearest thousand) are Charlie Brown $32K; Peppermint Patty $81K; Woodstock $212K; and Snoopy $555K.

The students are usually quite shocked at these results and have guessed much lower numbers. At this point lesson takes a turn based upon the students' questions and level of mathematical knowledge. At some point I may also introduce the following questions:

What if Snoopy had not stopped at age 35 but had contributed $2000 to his IRA all the way until age 65? How much would he have then? (Answer: $880K)

What if Snoopy had a spouse named Snoopette (an old sweetheart from the Daisy Hill Puppy Farm) and she did the same with her Roth IRA? How much would the two Beagles have together? (Answer: $1.7 million)

If time allows, I also like to ask students to analyse the model I have used and see where it is inaccurate. (What about inflation? Will the market get 10% returns every year? Will we always have IRA's? Will they always be limited to $2000? etc.)

I don't know if this does any good other than filling up time, but I think if I can make a connection with at least one student on this one, it is a valuable use of a few spare minutes.

I would appreciate any comments or suggestions on improving this lesson.

Kelly