LEVEL: Introductory

LENGTH: 45 minutes

What Is an Investment?
Lesson Overview
In this lesson, teachers will introduce students to the concept of investing and
explore why people invest. Students will rely on personal experience to create
a list of potential “investments.” Based on this list, teachers will lead a short
discussion on different investment instruments. Both teachers and students
will provide personal definitions of investing and their argument for why people
invest. Finally, you will compare different types of investments by introducing
students to the concept of risk, return and liquidity.

Background Knowledge for Teachers

INSIDE THE COMPETITION
Investing plays an important role for high school students in
Teachers can use this lesson
the world of financial literacy. Since investing is about growing to help students think more
money over time, the sooner you start, the more money you deeply about the client profile.
could potentially have as an adult. Many financial advisors Why is their client interested in
advocate for starting investing early – in your 20s or even sooner investing his/her money in the
stock market?
if you’re curious. The first reason is that you can take on more
risk when you’re younger because you still have years of earning
ahead. More risk often yields better investment returns. The MATERIALS
second reason is compounding, which is the ability to grow an Provided
investment by reinvesting the earnings. The longer money is put 1. Student Worksheet (page 5)
to work, the more wealth it can generate. 2. Video clips
3. Kahoot game
Not Provided
Learning Objectives Student computer with internet
access, projector, screen, white
At the end of this lesson, students will be able to: board, sharpies

■ Understand the concept of investing

■ Articulate why people invest and the benefit of investing early STUDENT VOICES
What are the different ways we
■ List different types of investment opportunities “invest” for our future? Assign
■ Compare those opportunities in terms of individual risks and the short interview College
rewards Decisions Sometimes Require
Sacrifice, featuring a teen’s
choice for debt-free higher
education. How is college an
investment? Did she make the
right choice?

©2020 The Wharton School, The University of Pennsylvania

 What Is an
Investment 2
Glossary Terms
Watch how Wharton faculty define and use the glossary terms presented in this lesson:
■ Bond
■ Commercial Real Estate
■ Compound Interest
■ Dividend
■ Headline Inflation
■ Inflation
■ Interest Rate
■ Investor
■ Liquidity
■ Residential Real Estate
■ Stock

ADDITIONAL GLOSSARY TERMS DEFINED IN THE LESSON PLAN:

■ Asset Classes: Types of financial instruments where you can put your money.

■ Gold: A precious metal that is also a popular alternative investment to more common asset classes like
stocks and bonds.
■ Investment: Giving up something in the present in order to gain something more in the future.
■ Return: A measure of the gain or loss generated from an investment. It is the difference between the
money that you pay to buy a security and the money that you receive when selling it.
■ Risk: The chance you might lose something of value, in this case money that you are investing.

Lesson Plan
SEQUENCE/TIME DETAILS

1. Ask students to list 3-5 things that they think about when they hear the word “in-
vestment”. Students will usually focus primarily on the stock market (e.g. “stocks,”
“money,” “businesspeople”). Encourage students to think as broadly as possible.
Engage
/5 mins 2. If students are stuck, ask them what it means to “invest in your future.” This will usu-
ally spur thoughts of college or job market readiness. Write five students’ answers on
the board.
3. Show some additional pictures such as real estate, a college degree, or a lottery ticket,
and ask students whether they think it is an investment.

©2020 The Wharton School, The University of Pennsylvania

 What Is an
Investment 3
Based on the discussion above, give students one to two minutes to create their own defi-
nitions of investing (i.e. “What is investing?”). Think about all the features and examples
just discussed.
Definition
/5 mins Ask 4-6 students to share their definitions with the class. A very general definition of
an investment is: giving up something in the present in order to gain something
more in the future. This definition has two key parts: 1) present sacrifice, and 2) future
gain. As students share their individual definitions, try to reinforce these two ideas
as much as possible. For example, if a student says, “An investment is a way to make
money,” encourage the student to tease out this definition (an investment is giving up
money/time in the present in order to make money in the future). For each student who
shares his or her definition, try and repeat/reinforce the idea of present loss and future
gain. Use this conversation to introduce the term “return” as a synonym for future gain.

WHY DO PEOPLE INVEST?

1. Ask students these guiding questions: Why do people invest their money? What
purpose does growing your wealth achieve?
Discussion
2. If they say something like, “to live a better life,” probe that answer and ask what
/5 mins “better” means. Ask them to think about some life events that would cost them extra
money. For example, weddings, medical emergencies, having children, retirement,
funerals, etc.
3. All of these possible answers show the same basis: through investing, you wish to
have more money for life events. Before we delve into the “how and where” of invest-
ing, we need to first understand why investing will possibly bring you more money.
Let’s explore a few important concepts:
a. Inflation: Inflation measures the change in the general level of prices of goods
and services in an economy over time. Simply put, $1 has less purchasing power
in the future than it does today. For example, in 1985, a cup of coffee might only
cost you $0.25 and $1 can get you four cups of coffee, but now one cup costs you
$1.25 so $1 does not get you even one cup of coffee.
Inflation will erode your bank savings if the interest rate banks offer you does
not rise as quickly as the inflation rate. For example, if a bank offers you a 1%
annual interest rate, but the inflation rate for that year is 2%, your money will be
worth less in a year.
Therefore, people might want to invest their money to increase their overall
wealth.
b. Risk. Investing does not guarantee that your money increases. It comes with
risk. Risk in investment, simply put, is the uncertainty of how much you will gain
or lose. We will have a separate lesson on risk later.
After our discussion, ask students: Do you think we should not save money at all and invest
all we have?
Answer: The short answer is no. We obviously need to save for emergencies, but we will
learn later how much to keep and how much to invest.

©2020 The Wharton School, The University of Pennsylvania

 What Is an
Investment 4
SHORT VIDEO ON ASSET CLASSES (0:57)
So, what are the things you can invest in? Let’s watch how Wharton Professor Mauro
Guillén talks about the three main asset classes. Asset classes, by definition, are types of
Guided instruments where you can put your money. Click here to watch the video.
Watching
/ 15 mins After the video, ask three students to define stocks, bonds and real assets as asset classes.
Short video on Return, Risk and Liquidity (2:01)
How do we decide which assets to invest in? How do these asset classes differ from each
other? Let’s continue to watch Professor Guillen explaining return, risk and liquidity as
the main difference among asset classes. Click here to watch the video.
After the video, divide students into small groups and give them five minutes to work on
the worksheet. You can find the answer key here.

WHEN SHOULD YOU START INVESTING?

Ask students: When do you think people should start investing? Why?
Discussion The short answer is as early as possible. Why? Since investing is about growing money
/5 mins over time, the sooner you start, the more money you could potentially have as an adult.
Many financial advisors advocate for starting stock investing early – in your 20s or even
sooner if you’re curious.
The first reason is that you can take on more risk when you’re younger because you still
have years of earning ahead. More risk often yields better investment returns.
The second reason is compounding, which is the ability to grow an investment by rein-
vesting the earnings. The longer money is put to work, the more wealth it can generate
in the future. Let’s dig deeper to understand compounding by hearing how Wharton
Professor Keith Weigelt defines and uses Compound Interest.

KAHOOT GAME
Click here to access the game.
Assess
/2 mins

3. Investing is giving up something in the present in order to gain something more in

the future
4. There are three main asset classes: stocks, bonds and real assets. They differ in re-
Takeaways turn, risk and liquidity. However, your return on investment is not guaranteed.
/3 mins 5. People should invest early because younger people can take on more risk, which
often correlates with higher returns, and because money can compound.

©2020 The Wharton School, The University of Pennsylvania

 What Is an
Investment 5
Extend
1. Why do people invest? Investing 101: The Prospect of Growing Your Money (Link)
2. Investment choices: What Are Your Investment Choices? From Condos to Gold to Plain Cash
(Link)
3. Refresh students’ knowledge on inflation:
• Inflation Article: What It Is, Where It Comes From and How It Can Bite You (Link)
• Inflation Lesson Plan –The Value of Money (Link)
Student Worksheet
DIFFRENTIATE RISK, RETURN AND LIQUIDITY AMONG ASSETS
Risk Return Liquidity
Stock vs. Bond Stock
Bond
Real Estate vs. Stock Real Estate
Stock
Gold vs. Real Estate Gold
Real Estate
Cash/Cash Equiva- Cash
lents (e.g. bank savings Stock
accounts, certificates of
deposits) vs. Stock

©2020 The Wharton School, The University of Pennsylvania