Kelly MayKentucky Department of Financial Institutions

Why Teach About Investing?Give your students knowledge they will need in life.Company pensions are becoming a thing of the past. Social Security doesnt cover all needs.Your students will be future investors.

The Basics meets:High school graduation requirements in Kentuckys Program of StudiesRequirements in the Practical Living/Career Studies Program Review

Why Focus on Fraud?Financial swindles cost Americans $40 billion a year.The best defense is a smarter investor.Securities fraud takes many forms:Fraudulent product/offeringUnsuitable investments for investorUnlicensed adviser/brokerUnregistered productTheft/misappropriation of funds

My Favorite Question:What is the difference between saving and investing?

Unit 1, Page 14 Saving and Investment Products

The Basics http://www.investorprotection.org/teach/?fa=basics Unit 1 Getting StartedUnit 2 Introduction to Financial MarketsUnit 3 Making a Financial PlanUnit 4 Investment Fraud

Time Value of MoneyWho do you think earns more on their investment by age 65?Someone who invests $20,000 between ages 25 and 34 and then stops.Someone who invests $62,000 between ages 35 and 65.

Time Value of MoneyThe first investor, who started early, earns more than $525,000.The second investor, who waited until age 35 earns less than $300,000.

Time is your friend! Starting early takes advantage of compound interest.

Unit 1, Page 22-23 Time Value of Money

Five Keys (a Unit 1 Lesson)Key Concepts of Saving and Investing1. Pay yourself first2. Set goals that inspire success (short, medium and long term)3. Dont take unnecessary risks4. Put time to work for you5. Diversify!

Unit 1, Page 6-10 Key Concepts of Saving and Investing

Key #5: DiversifyRevise your asset allocation as you near retirement.Source: Five Keys to Investing Success, Investor Protection Trust and the editors of Kiplingers Personal Finance magazine.

Investment Product OverviewPyramid of Investment RiskUnit 1, Page 18-19Product descriptionsUnit 2, Pages 6-13

More Great Lessons How Financial Markets Work Lesson OutlinesUnit 2, Pages 18-22Reading Stock TablesUnit 2, Page 23Financial/Investment Planning: Myth vs. RealityUnit 3, Page 12Major Types of Investment FraudUnit 4, Pages 3-6How Regulators Help to Protect Investors Add DFI! http://kfi.ky.gov Unit 4, Page 9Charles Ponzi, Unit 4, Page 4

Fraud Scene Investigatorhttp://www.nasaa.org/2059/fsi/

MoneyTrack Videoshttp://moneytrack.org/videos-2/top-stories/

Other ResourcesTwo Dozen Ways to Make Investing Basics Fun for Your StudentsBasics can supplement The Take Stock in Kentucky Stock Market GameStock Market Game/Take Stock in Kentucky www.econ.org/teachers/index.html Savings Tips from FDIC Money Smart

Contact InformationKelly MayDepartment of Financial Institutions800-223-2579kelly.may@ky.gov Information on DFI speaker programs:http://kfi.ky.gov/public/Pages/teacher.aspx

Kelly May - PIO for the Kentucky Department of Financial Institutions, which is Kentuckys state securities regulator. -DFI is the state government agency charged with regulating state-chartered banks, credit unions, lenders, investment advisers and brokers. Part of my job is to perform public outreach to inform consumers of good financial practices.Part of that public outreach is helping investors learn wise practices and avoid fraud.So you may be thinking, what does this have to do with us and our students?

*Your students are future investors, and are likely to need the knowledge and skills to maneuver the various markets.Company pensions are becoming a thing of the past.Social Security is not intended to cover all of the financial needs of retirees. In order to achieve a secure future, todays high school students will be participating in the financial markets through individual investing and/or employer-based retirement programs. Most Americans have to invest, but are unprepared to do so.A 2006 Boston College survey shows: only 20% of Americans are eligible for a pension. 80% must fend for themselves.43% of American will not have enough saved to maintain their standard of living in retirement.So it is important that students learn how the financial markets and the products sold in them work.

Also, teaching the Basics will help your students meet Kentucky high school graduation requirements. The word financial is found in Kentuckys Program of Studies in High School English Language Arts, Social Studies and Vocational Studies. In particular, students are called on to:analyze messages, judge credibility, understand free enterprise systems and market relationships, make responsible financial management decisions, evaluate products and services, use a decision-making process, and manage financial resources.Page 548 goes into great detail about the importance of financial literacy, and it specifically names savings accounts, stocks, bonds, mutual funds, certificates of deposit, IRAs and 401(k)s.

Also Core Content for now it satisfies Kentucky Core Content areas in High School Practical Living/Vocational Studies:PS-HS-3.1.01 ConsumerismPS-HS-3.1.02 Comparing productsPS-HS-3.2.01 Application of financial management practices**My favorite question to ask students: (PRIZE)What is the difference between saving and investing?RISK! (also: guarantee, lose/loss, insurance, etc.)(Savings accounts in banks and credit unions are FDIC-insured and so are guaranteed. There is no guarantee in investing, and Investing means taking risks.)

Investment risk There is a chance that some or all of the money invested can be lost. However, there is potential for investing reward which is what makes the whole process worthwhile.

*The Basics of Saving and Investing: Investor Education 2020.The Basics was written by the Investor Protection Trust to provide objective investor education and promote investor protection.IPT is totally independent. They are not selling anything or promoting any particular company or product.Real teachers had input on creating these guides so they would work in the classroom.The Basics guide includes:Lesson Plans ActivitiesWorksheetsTestsAdditional resources can be found in the Appendix.Print from www.investorprotection.org/teach - as many copies as you would like

UNIT 1 Getting StartedUnit objectives:Discuss why people save and investLearn how to think about financial decisionsUnderstand key concepts of saving and investing (including time value of money)

Among other things, Unit 1 covers how to balance risk and reward, and how to offset the risk by keeping some savings where it is insured and easily accessible.It covers decision making, and the key concepts of investing.

UNIT 2 Introduction to Financial MarketsUnit objectives:Understand the relationship between risk and rewardLearn about U.S. financial markets and investment productsExplore conditions that affect market pricesGrasp the extent and limits of government regulation of financial markets

Unit 2 continues the discussion of risk and return by talking about an individuals risk tolerance and the major types of investment risk. Unit 2 moves on to cover financial markets and how they work, which touches on economics issues such as supply and demand. It describes in clear detail the difference between different types of investment products: savings, stocks, bonds, mutual funds and futures.It also talks about the role of the state regulator, which is our department. Anyone who is investing should take time to research their investment, and that includes researching the person selling it. People can call our office at 1-800-223-3579 to see if the investment or the person selling it is registered and if there have been any complaints.

UNIT 3 Making a Financial PlanUnit objectives:Learn the benefits of financial planningConsider factors that go into financial planning and investment decisionsDesign a personal financial/investment planConsider how to select a stockbroker or investment adviser

Unit 3 brings financial planning home to students, by showing them how to consider factors that go into investment decisions and how to design a personal financial/investment plan. It also discusses how to choose a stockbroker or adviser.Remember that young people today will face decisions while still in their 20s about employer-based retirement savings plans. Knowing what to do and who to turn to when those decisions come up can help a young person make decisions that could benefit them later in life.Unit 3 includes worksheets where the student can record his or her own income and expenses to determine what he or she might begin saving today.

UNIT 4 Investment FraudUnit objectives:Understand how investment fraud worksLearn the warning signs of scamsEngage in a role-playing exercise to experience an actual fraudulent sales pitchUnderstand the duty to report scamsExamine how regulators work to stop investment fraud and help victims

Unit 4 thoroughly covers investment fraud and the warning signs of a scam. It also covers how to report fraud to regulatory offices such as ours.Perpetrators of fraud use the same general methods whether they are selling false investments or any other product. Alerting young people to these tactics before they are presented with such a scenario could help them later in many areas of their lives.State and federal officials estimate that financial swindles cost American consumers $40 billion a year.*Young people who dont begin saving and investing in their early years lose out on potentially substantial investment earnings. Students may think they dont have much money now and plenty of time later to worry about saving and investing.But time is a students advantage. It doesnt take as much money to earn more money in life if the investor starts early.For example, just $5 a week invested at 8% interest beginning at age 18 would grow to $134,000 by the time the student reaches 65.Consider the following question

*HANDOUT is of PAGE 1.22 in Unit 1The chart in Unit 1 on page 1.22 shows the time value of money. It shows that less money invested earlier in life and left to accumulate will actually earn more interest than more money contributed later in life.Investor A invested only $20,000 and yet had total earnings of $525,344.Investor B invested $62,000 and had total earnings of only $290,427. Thats nearly $235,000 less after contributing $42,000 more!(Note that if the contributions were doubled, this person would be a millionaire!)

Youll see in the note that this assumes a 9% fixed rate of return, compounded monthly with interest left in the account to earn more interest.Which brings me to an important point: Investing involves some risk.

*Now I will share with you five KEYS to investing success. Not secrets something everyone should know.Pay Yourself First make investing a habitStart small Make it a habitSelect an interest rate that works for you** Since 1926, the stocks of large companies have produced an average annual return of approximately 9.5% (note that this includes the 1929 crash, the slide following the 2001 terrorist attacks, the internet bubble burst and the recent global recession).Set goals that will inspire success** To quote Yogi Berra, If you dont know where youre going, youll end up someplace else.Set yourself specific goals (car, house, college, family, vacations/travel)Like a map Before you can get to where youre going, you need a starting point (use balance sheets to determine current worth)There are no right or wrong goals everyone is differentShort-term goals (trip to Europe, car) think of when you need it and put this money in accessible placesMedium-term goals (a house in five years) more time = more flexibility in type of investmentLong-term goals (comfortable retirement, college for child) longer time frame gives you more time to take risks, widest range of possibilitiesKnow that goals change. Reassess.Dont take unnecessary risks risk and investing go hand in handKnow you could lose money.But you could make a lot of money.Even no-risk products like savings accounts/CDs run the risk of earning less than the inflation rate.Think of risk as a pyramid built on a broad base of financial security (house, savings accounts). Keep 3-6 months living expenses liquid for emergencies.As you move up pyramid, you will have investments in more risky things. The higher the risk, the less money you might put into it.Put time to work for you time value of moneyMoney invested over time is compounded interest is earned on the principal and on accumulated past interestFuture value is eroded by inflation and lost interest.Opportunity cost the cost of doing one thing and not another. For example, making an extra mortgage payment versus investing that money.AND *AND 5. Diversify Dont put all your eggs in one basketSpread out savings and investments over multiple categories Balance risk by investing in a variety of securities** Dont put all your eggs in one basketMinimizes the danger posed by an up or down market when one thing is down, another tends to be up.Your investment mix should take into account your risk tolerance, age, income and investment goals.Explain to students that the ticker symbols on TV and in newspapers are an average of a particular market. Even when the market is down there are some investments that will be making money. And vice versa. Just like the average grade for their class work might be an A, but maybe they had a couple of papers they got a B or C on.

***FSI is an online, interactive investor education program that teaches students how to detect and stop a million-dollar investment fraud and put the mysterious con man, Mr. X, behind bars.Teaches how to research companies and understand the warning signs of fraudulent sales pitchesFree, non-commercial investor education web siteTeacher resources guide, FAQs, podcasts and a survey available

DEMO: (use the teacher-led scenario)Start them part of the way through Chapter 3 (in the car, after school on Monday)The main character, a teenager named Kim, is going to report her suspicions of fraud to the state securities regulators (which also includes a recap of the events of the game)Have people in the room play the roles and read the balloons out loud (Kim, phone receptionist, Edmund Wright, Mr. X, Grandma)*MoneyTrack is a show that educates and inspires investors to take greater control over their financial lives. DFI has contributed to this award-winning public television series through Investor Protection Trust funds.Co-hosts Pam Krueger and Jack Gallagher introduce real people who are living examples of what works and what doesnt when it comes to investing. Each MoneyTrack episode includes a scam alert designed to help individuals learn how to recognize and avoid investment scams. Unbiased and not selling anythingTo date there have been three seasons that have been watched by nearly 11 million viewers.(in KY, it aired on the PBS station KET 2)

214: Millionaire in the MakingDiscussion Questions:How old is Damon Williams in this video? 14How much money has he accumulated in his portfolio? $50,000How does he choose an investment? Invests in companies he is familiar with; appreciates their products/businessWhat is a stock? Part ownership in a companyWhat is Damons stock market strategy? Hes a buy and hold type of guy (doesnt trade in and out a lot)What kind of indicators does he study? 1. P/E Ratio The price to earnings ratio compares the price per share to the earnings per share. It shows how much an investor is willing to pay for $1 of current earnings per share (EPS). The P/E ratio is calculated by dividing the stocks price by the companys latest 12-month EPS. (Basics page 2.23)2. Dividend Yields Dividends are the distribution of a companys profit or earnings to the companys shareholders or stockholders. (Basics page 2.8 and 2.23) The dividend yield is the financial ratio that shows how much a company pays out in dividends relative to its share price. Its a way to measure bang for your buck from dividends. (annual dividends per share/price per share = dividend yield)3. Growth Rate (over the last five years) The growth rate shows roughly by how much a company is growing each year. (Damon likes to look at a five-year span of time, and he looks for at least 15%.)

TEACHER HANDOUTS: Descriptions of Damons indicators (also resources to use to find out more about investing)P/E ratio: USA Todays Ask Matt Krantz http://www.usatoday.com/money/perfi/columnist/krantz/2010-04-28-price-to-earnings-ratio-p-e_N.htmDividend yield: Investopedia (glossary style) http://www.investopedia.com/terms/d/dividendyield.aspGrowth rate: Motley Fool http://www.fool.com/investing/small-cap/2005/05/18/calculating-growth-rates.aspx?source=isesitlnk0000001&mrr=1.00

305: Lessons from a High School Scam ArtistDiscussion Questions:What is Cole Bartiromo convicted of?Internet fraudHow did Cole get started scamming people?Fraud in selling candy bars and eBay auctionsWhat role did the Internet play in Coles scam?Makes it easier for someone to scam you because you dont really know the seller; faceless; easier to pretend to be something else*Affinity Fraud = A type of investment scamin whicha con artist targets members of anidentifiable group based on things such as race, age, religion, etc. The fraudster either is, or pretends to be, a member of the group. This type of scam leverages and exploits the inherenttrust within the group. How is Internet fraud different than affinity fraud?In affinity fraud, the con artist convinces you to trust him/her because hes LIKE you; affinity fraud is in-person and personalWhat were the red flags in Coles Invest Better 2001 Web site?Guaranteed returnHigh rate (2500%)Risk freeSafe betsHow is financial fraud (which is a type of white collar crime) different from other kinds of crimes?The victim actually has to participate in order to become a victim(example, you dont choose to get robbed probably dont even know its happening to become a victim of investment fraud you have to choose to invest in the first place)How can you make sure an investment is not a fraud?Watch out for red flagsDo research to check on the company and its managementDo research on how the investment has performed in the pastVerify the investment and the seller with a securities regulator (DFI, 800-223-2579, www.kfi.ky.gov)What do you think of this statement Cole made? If you decide to invest, youre taking a risk youre making a gamble so hopefully you put in your research. If your research is my opinionated message, more power to you. Roll the dice and see what happens.*Basics can also be used to supplement the Take Stock in Kentucky Stock Market Game. The handout I provided lists what pages in the Basics align with what pages in the Take Stock in Kentucky Stock Market Game.The other handout is a list of ways to make investing fun and interesting for students.

Any questions?Has anyone here taught this curriculum before? Do you have any advice for other teachers on how best to present it?*If you know of another educator who would be interested in the curriculum, call me at 800-223-2579 or e-mail kelly.may@ky.gov.These are provided free by OFI through grant funds from the Investor Protection Trust, a nonprofit organization devoted to investor education.

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