Has your child come home from school asking, “What are stocks?” Maybe they’ve seen references to the stock market on social media and have questions. Kids get curious about money and how the world works, but heavy topics like stocks and the economy can be challenging to explain. Be open to answering their questions, but get help from outside sources where needed.
What are stocks?
A stock represents a piece of a company that you can buy and sell. You own stock when you purchase pieces of a company, called shares, and hold them in your investment account. Buying stock makes you a partial owner of a specific company, meaning you own a percentage of its worth and future profits. If a company succeeds, its stock value goes up. If a company makes poor business decisions and loses money, its value can go down.
How do stocks work?
As companies grow and make more money, their stock value increases. If they continue to grow over time, you can sell your stock for a much higher price than you paid for it. You can hold stocks over long periods of time to build wealth. Many stocks pay out regular dividends, or a piece of the company’s profit, to their shareholders just for owning their stock. You can also buy stocks to sell in a shorter amount of time if you think their value will go up quickly. The more volatile the stock price, the more risk you’ll take as an investor in that company.
What is the stock market?
The stock market is a public marketplace where you can buy and sell stocks. The stock market is made up of different exchanges, like the New York Stock Exchange and the Nasdaq, where companies can list shares of their stock for people to buy. When you explain the stock market to kids, you can bring up examples of their favorite stores like Disney or McDonald’s. Teach kids that they can buy a piece of their favorite company or any public company they’d like.
What are the different types of stocks?
There are two main types of stocks: common stock and preferred stock. They each give shareholders certain rights to earn dividends and a say in shareholder meetings. There are thousands of different stocks to choose from across various companies. You can invest in technology, toys, clothing, fast food chains, cars, and just about any other market you like. You can show your kids from an early age that they have the power to invest in companies they believe in and things that interest them.
Read more articles on investing here.