Georgia Council on Economic Education w w w. g c e e. o r g LELAND GUSTAFSON CENTER FOR ECONOMIC EDUCATION UNIVERSITY OF WEST GEORGIA Investor Education Financial Fitness for Life and

Economic and Financial Literacy is Important Citizens must understand basic economics to: –Fully participate in our nation’s market economy. –Understand policy issues and cast informed votes in federal and state elections. Citizens must understand personal finance to: –Plan for retirement. –Make saving and investing choices. –Purchase insurance. –Buy a home.

Georgia Council on Economic Education w w w. g e e e. o r g Why is K-12 financial education so important? More than ever there is a need for our citizens to have at least a basic knowledge of economics and financial management. If people cannot make well-informed and sound personal finance decisions, how are they to make well-informed and sound public policy decisions?

Georgia Council on Economic Education w w w. g c e e. o r g Why is K-12 financial education so important? Americans have approximately $1 trillion in revolving credit card debt. - half make the minimum monthly payment. Nationally, those under 25 are the fastest- growing age group filing for personal bankruptcy.

Georgia Council on Economic Education w w w. g c e e. o r g Overall levels of economic understanding are low – 57% of questions answered correctly 2000 – 52 % of questions answered correctly 2002 – 50% of questions answered correctly 2004 – 52% of questions answered correctly 2006 – 53% of questions answered correctly 2008 – 48% of questions answered correctly Jump$tart Coalition Survey Jump$tart Coalition Test of High School Students

Georgia Council on Economic Education w w w. g c e e. o r g Source: Federal Reserve Bank, St. Louis Credit Card Usage by Family Income Income Level LowestMiddleHighest Percentage of families with a credit card

Georgia Council on Economic Education w w w. g c e e. o r g Source: Federal Reserve Bank, St. Louis Credit Card Balance by Family Income Income Level LowestMiddleHighest Mean credit card balance 1970$1,038$950$ ,5023, ,5964,7856, ,9386,07714,713

College students report having an average of 4.6 credit cards. Half have four or more. Seniors graduate with more than $4,100 in credit card debt, up from $2,900 in Only 17% said they regularly paid off all the cards each month. The remaining 83% carried balances and incurred finance charges each month. 84% said they need more education on financial management topics. College Students and Credit Cards (Sallie Mae, 2009)

30% of college students with loans drop out without a degree Members of the class of 2011 graduated with an average of $26,600 in student loan debt One-third of parents are more comfortable talking with their kids about smoking, drugs, and bullying than about money Bankrate.com, 2014 College Students and Loan Debt

But when students have personal finance instruction they are… More likely to display positive financial behaviors and dispositions More likely to save Less likely to max out their credit cards More likely to pay off credit cards in full each month Less likely to make late credit card payments Less likely to be compulsive buyers Bankrate.com, 2014

Georgia Council on Economic Education w w w. g c e e. o r g The Problem of Economic and Financial Literacy…

Do You Need a Reason to Save for Retirement Georgia Council on Economic Education w w w. g c e e. o r g

Georgia Council on Economic Education w w w. g c e e. o r g Saving is a very fine thing. Especially when your parents do it for you. --Sir Winston Churchill

Georgia Council on Economic Education w w w. g c e e. o r g About 8 of 10 Americans are comfortable with the level of financial planning they are currently doing. Source: Federal Reserve Bank, St. Louis

Georgia Council on Economic Education w w w. g c e e. o r g 34% have not begun to prepare for retirement. 23% save nothing for long term goals. 25% do not know how much they are saving.

Georgia Council on Economic Education w w w. g c e e. o r g On average, Americans expect to retire at age 61 and live to 83.

Georgia Council on Economic Education w w w. g c e e. o r g Source: Federal Reserve Bank, St. Louis Personal Bankruptcies

Why Invest? Time is on your side. –Stock prices rise over time. Beat inflation. –Overtime, investments in stock have good returns.

Why Invest? You can earn income. –Owning stock is like a job. Rewards last a lifetime. –Investing provides good assets –Stocks, bonds, mutual funds

But, It’s Scary Out There

S&P 500 Annual Returns, (includes reinvestment of dividends) % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % % %

STOCK MARKET RETURNS - S&P 5 00 Compounded Annual Growth Rate STOCK MARKET RETURN WHEN INVESTING IN THE S&P 500 FOR 1 TO 40 YEARS ENDING IN THE YEARS 2000 TO 2014 Number of Years Investing Ending %11.85%11.38%9.84%7.60%15.30%13.80% %11.98%11.11%9.18%7.29%17.82%32.10% %11.29%10.85%8.19%7.01%1.53%15.88% %10.57%11.02%7.79%2.82%-0.36%2.07% %11.19%10.74%9.14%1.31%2.17%14.32% %11.80%11.29%8.23%-0.99%0.41%27.11% %10.04%11.04%8.43%-1.47%-2.31%-37.22% %11.00%13.01%11.84%5.87%12.78%5.46% %11.39%12.50%11.86%8.41%6.10% %11.35%12.77%12.01%9.08%0.45%4.79% %11.32%13.82%13.32%12.12%-2.37% %10.71%12.25%13.07%11.11%-0.62%28.72% %10.24%10.71%12.82%9.39%-0.62%-22.27% %11.73%12.29%15.35%13.01%10.76%-11.98% %11.79%13.28%15.78%17.59%18.44%-9.11%

INVESTING IN THE STOCK MARKET - SINCE 1914 i e,. Buying the 500 largest U.S. companies (S&P 500) Amount Invested Per Month Ended 40 Years/Mo Year Best % 1,418,3433,545,8577,091,714 Best Worst % 448,7391,121,8472,243,695 Worst MED10.77% 807,7972,019,4934,038,986 MED Bank3.00% 92,837232,094464,187 Bank Ended 30 Years/Mo Year Best % 533,1051,332,7632,665,527 Best Worst % 135,670339,174678,349 Worst MED10.76% 268,310670,7741,341,548 MED Bank3.00% 58,419146,048292,097 Bank Ended 20 Years/Mo Year Best % 234,001585,0031,170,007 Best Worst % 33,22683,066166,132 Worst MED10.93% 86,524216,311432,622 MED Bank3.00% 32,91282,281164,561 Bank Ended 10 Years/Mo Year Best % 38,40996,023192,046 Best Worst % 11,15427,88655,772 Worst MED9.95% 20,59451,486102,972 MED Bank3.00% 14,00935,02370,045 Bank 10.27% is the CAGR since 1914 (99 years) C ompounded A nnual G rowth R ate

Georgia Council on Economic Education w w w. g c e e. o r g What is $200 per Month Worth ANNUAL RATE OF RETURN ON INVESTMENTS YRS3.00%6.00%8.00%10.00%12.00%16.00% 512,96214,02414,7937,80816,49718, ,01832,94036,83341,31046,46859, ,50858,45569,66983,585100,915149, ,82592,870118,589153,139199,830349, ,425139,292191,473267,578379,527793, ,839201,908300,059455,865705,9831,774, ,684286,367461,835765,6551,299,0543,945, ,675400,290702,8561,275,3562,376,4848,754, ,645553,9551,061,9412,113,9714,333,84819,398,181 If you are 25 years of age and wait 5 more years before you start to save( at 10%), by age 65 you will have (1,275, ,655) = $509,710 less accumulated wealth. Not saving $12,000 (2400 x 5) during the next 5 years (age ) You are giving up $509,710 at retirement.

WHAT ARE YOUR QUESTIONS ? Georgia Council on Economic Education w w w. g c e e. o r g

Georgia Council on Economic Education w w w. g c e e. o r g How to Really Be a Millionaire

Georgia Council on Economic Education w w w. g c e e. o r g The Millionaire Game 1.Most millionaires are college graduates. True: 4 of 5 millionaires are college graduates. 2. A majority of millionaires work fewer than 40 hours a week. False: About 2/3 of millionaires work 45 to 55 hours a week. 3. More than half of all millionaires never received money from a trust fund or estate. True: Only 19 % of millionaires received any income or wealth of any kind from a trust fund or an estate.

Georgia Council on Economic Education w w w. g c e e. o r g The Millionaire Game 4. Most millionaires work in glamorous jobs such as sports, entertainment, or high tech. False: A majority of millionaires are in ordinary industries and jobs. 5. Most millionaires work for big Fortune 500 companies. False: About 3 out of 4 millionaires are self employed and consider themselves to be entrepreneurs. Most of the others are professionals, such as doctors, accountants and lawyers.

Georgia Council on Economic Education w w w. g c e e. o r g The Millionaire Game 6. Many poor people become millionaires by winning the lottery. False: Very few people get rich the easy way. If you play the lottery, the chances of winning are about 1 in 12 million. The average person who plays the lottery every day would have to live about 33,000 years to win once. You have a 1 in 66,000 chance of being struck by lightning IN FLORIDA A pregnant woman has a 1 in 705, 000 chance of have quadruplets

THE MILLIONAIRE GAME 7. College graduates earn about 65% more than high school graduates. True: recently the average college grad earned 66% more than the average high school grad. Folks with professional degrees earned 150% more than the HS grad.. Georgia Council on Economic Education w w w. g c e e. o r g

Georgia Council on Economic Education w w w. g c e e. o r g The Millionaire Game 8. If you want to be a millionaire avoid the risky stock market. False: Long term, the S&P 500 index has increased at more than 10 % annually which exceeds any other investment.

Georgia Council on Economic Education w w w. g c e e. o r g The Millionaire Game 9. Single people are more often millionaires than married people. False: Most millionaires are married and stay married. Financially speaking, divorce is something you want to avoid.

Georgia Council on Economic Education w w w. g c e e. o r g Rules for Improving Your Financial Life Get a good education Work long, hard, and smart Learn money- management skills Live below your means Buy a home (you can afford) Save early and oftenSave early and often Invest in commonInvest in common stocks for the stocks for the long term (diversify) long term (diversify) Gather informationGather information before making before making decisions decisions Get married and stayGet married and stay married married

WHAT ARE YOUR QUESTIONS ? Georgia Council on Economic Education w w w. g c e e. o r g

Georgia Council on Economic Education w w w. g c e e. o r g

Georgia Council on Economic Education w w w. g c e e. o r g The Basics Stock- An ownership share, or shares of ownership, in a corporation.

Georgia Council on Economic Education w w w. g c e e. o r g Can You Buy Stock in or

Georgia Council on Economic Education w w w. g c e e. o r g The Different Markets New York Stock Exchange The oldest stock exchange in the United States, founded in 1792 and stocks are still traded on the floor. Traditionally for large corporations with large volumes of shares.

Georgia Council on Economic Education w w w. g c e e. o r g NASDAQ An electronic marketplace enabling buyers and sellers to get together via computer to trade stocks. Traditionally high-tech firms that are very active. Created in 1971.

Georgia Council on Economic Education w w w. g c e e. o r g American Stock Exchange (AMEX) Located in New York, handles about 10% of all securities exchange. Has mostly small-cap stocks, exchange-traded funds and derivatives.

Georgia Council on Economic Education w w w. g c e e. o r g National Rules $100,000 to Invest for 10 Weeks –NYSE –AMEX –NASDAQ Must Purchase Minimum of 100 Shares Minimum Share Price of $5 4 pm Closing Price (not real-time)

Georgia Council on Economic Education w w w. g c e e. o r g Georgia 3x3x3 Rules Purchase a stock before end of third week Must purchase at least three stocks Must hold three stocks for 3 weeks

Georgia Council on Economic Education w w w. g c e e. o r g National Rules Hardest thing to do? Get teams to spend the $100,000!.75% Interest Earned on Unspent Cash 1% Transaction Fee (all transactions) 7% Interest Charged on Margin Loans

Georgia Council on Economic Education w w w. g c e e. o r g Teaching “Stuff” Student- “What stock should I buy?” Me- “If I knew the answer to that I would not be in this classroom with you. I would be living here and paying someone to count my money.”

Georgia Council on Economic Education w w w. g c e e. o r g

Georgia Council on Economic Education w w w. g c e e. o r g Teaching “Stuff” $7.00 per team fee No fee if you are a Title 1 school No fee for any school in Atlanta City, Decatur City, Fulton County, DeKalb County Teams of 3-5 students (suggested)

Georgia Council on Economic Education w w w. g c e e. o r g Teaching “Stuff” Teams of 3-5 (recommend friends) Do not liquidate portfolio on the last day Rankings posted weekly Grading activities, not profit/loss Awards by region and state – luncheon for all winners in May

Georgia Council on Economic Education w w w. g c e e. o r g National Rules Hardest thing to do? Get teams to spend the $100,000!.75% Interest Earned on Unspent Cash 1% Transaction Fee (all transactions) 7% Interest Charged on Margin Loans

Georgia Council on Economic Education w w w. g c e e. o r g Winning Team Highest Portfolio Value (total Equity) Regional Winners – school districts –Carroll Co. - Carrollton City – Independent –Students get T-Shirts –Go to Atlanta (underground) winners lunch State Winner Team Trophy Teacher gets week in NYC

Georgia Council on Economic Education w w w. g c e e. o r g October 7 to December 13 Real World never invest for just 10 weeks Strategy to win the game –Buy low cost & highly volatile stocks –Not a strategy for retirement or LT investing Invest for 10 Weeks

Georgia Council on Economic Education w w w. g c e e. o r g How to Win Select stock kids are familiar with; NIKE Buy at $100/share 1000 shares with $100,000 Price rises to $102/share Account increases by $2,000 Select stock with a lot of volatility; XYZ Buy at $10/share 10,000 shares with with 100,000 Price rises to $12/share Account increases by $20,000

Georgia Council on Economic Education w w w. g c e e. o r g SMG Buy ↑ Sell [Long position] Short Sell ↓ Short Cover [Short position]

Georgia Council on Economic Education w w w. g c e e. o r g Your friend loans you this-

Georgia Council on Economic Education w w w. g c e e. o r g You immediately turn around and sell the thing for $ (the $ goes in your pocket)

Georgia Council on Economic Education w w w. g c e e. o r g What do you owe your friend at this point?

Georgia Council on Economic Education w w w. g c e e. o r g

Georgia Council on Economic Education w w w. g c e e. o r g You expect leather briefcases to be on clearance sale at Macy’s for $150.00

Georgia Council on Economic Education w w w. g c e e. o r g When they go on sale, you buy your friend a new briefcase for $ She gets her briefcase back and you just made $50.00!

Georgia Council on Economic Education w w w. g c e e. o r g Your broker loans you this-

Georgia Council on Economic Education w w w. g c e e. o r g You immediately turn around and sell it for $40.00/shr x 100 shrs or $4,000 (the $4,000 goes in your pocket)

Georgia Council on Economic Education w w w. g c e e. o r g What do you owe your broker at this point?

Georgia Council on Economic Education w w w. g c e e. o r g

Georgia Council on Economic Education w w w. g c e e. o r g You expect the CDC to announce that Coke causes cancer… …so you wait.

Georgia Council on Economic Education w w w. g c e e. o r g Instead, the CDC announces that Coke cures cancer! What happens to the price of Coke stock? Maybe goes up to $200/shr

Georgia Council on Economic Education w w w. g c e e. o r g The Risk of Short Selling? If the price of the stock goes up before you return the stock to your broker, you will loose money. (must buy back at $200/shr Therefore lose $160/shr (For 100sh that’s a $16,000 loss)

Georgia Council on Economic Education w w w. g c e e. o r g Buy on Margin Initial Margin is 50% Margin = Portfolio Value (PV) – Loan (L) Margin/PV = margin as a % of PV = 50% Eg 200,000 pv PV – L >= ,000 loan PV 100,000 margin L <=.50 PV PV = Stock + Cash

Georgia Council on Economic Education w w w. g c e e. o r g Margin Call If your collateral (portfolio value) decreases your broker (lender) may want more collateral (will make you sell stock) Game Maintenance Margin (MMR) is 30% ie., Margin = (PV – L) > =.30 PV or LOAN<=.70PV This requires a minimum PV > 1.43 (Loan) If you fall be low the MMR you get a Margin Call Must then (within 3 weeks) sell stock

Georgia Council on Economic Education w w w. g c e e. o r g What are Your Questions?

Georgia Council on Economic Education w w w. g c e e. o r g How to Play-

Georgia Council on Economic Education w w w. g c e e. o r g

Georgia Council on Economic Education w w w. g c e e. o r g Teacher Registration Page

Georgia Council on Economic Education w w w. g c e e. o r g SIA_14_A9

Georgia Council on Economic Education w w w. g c e e. o r g

Georgia Council on Economic Education w w w. g c e e. o r g

Georgia Council on Economic Education w w w. g c e e. o r g

Georgia Council on Economic Education w w w. g c e e. o r g Add number of classes Add number of teams within classes

Georgia Council on Economic Education w w w. g c e e. o r g For Teachers (gcsee.org) Teacher Support Center FAQ – need 1 computer in room View Teacher Classroom Experience Grading Tip - Photo of each Team - - rank on wall by P.V. If Something Goes Wrong Call Barbara Futrell or

How to Find Good Stocks Screening For Stocks This site lists the largest 10 holdings of an untra small cap mutual fund that has had an average return of 26 % per year for 5 years ending in Feb This site lists the top % price gainers from the day before. Also, in the left column you can also select the top % price loosers from the day before. A good list to find potential 100 % gainers over the next ten weeks This site allows you to set criteria for stock you want Price, P/E, Max Market Cap, etc

Georgia Council on Economic Education w w w. g c e e. o r g magicformulainvesting.com westga.edu/~lvg/SMGPP.ppt

Georgia Council on Economic Education w w w. g c e e. o r g Questions?