When the stock market comes up in conversation, it is usually accompanied by jargon. The repeated use of technical words such as margin and volume makes the stock market seem super complicated and can put people off learning about it, especially an easily bored or distracted teenager.
For the sake of their financial futures, it’s important that they don’t fall into that trap. The stock market is a great way to make money. And, when explained in simple terms, it’s a really interesting topic.
Key Takeaways
- The stock market is like an online supermarket, only you are buying stakes in companies, prices fluctuate throughout the day, and it’s possible to sell as well as buy.
- When people talk about the stock market, they are often referring to an index:a representative portion of the marketplace for stocks.
- The stock market is made up of two main components: the primary market and the secondary market.
- You can invest in the stock market via your computer or phone with a few clicks of a button.
- Teenagers younger than 18 cannot set up their own account to invest in the stock market, but they can get an adult to do it on their behalf.
What Is the Stock Market?
The stock market is a place where small portions of ownership in companies, called shares, can be bought and sold.Think of it as an online supermarket, only:
- You are buying stakes in companies rather than groceries or home goods
- Prices fluctuate throughout the day
- It’s possible to sell as well as buy
This supermarket is open Monday through Friday during working hours and essentially functions as a matchmaker, pairing interested buyers with sellers and vice versa.
Indexes
At this point, you may be wondering what the media mean when they say the stock market is up or down. When people talk about the stock market in that way, they are referring to a representative portion of the marketplace for stocks, otherwise known as an index.
An index is essentially a list of stocks grouped together because they share something in common—similar to aisles in a supermarket. That could be something really specific, such as selling the same type of product, or much broader things, such as being from the same country or continent or simply being shares.
Here is a list of some of the most well-known indexes. They are viewed as barometers of business conditions in their respective nations and, in many cases, the rest of the world.
- : The 500 biggest companies in the U.S. stock market
- Dow Jones Industrial Average: Thirty big U.S. companies considered to be leaders in their industry
- Nikkei 225: Japan’s 225 largest listed companies
- FTSE 100: The 100 largest public companies in the United Kingdom
- Euro Stoxx 50: The 50 largest public companies in continental Europe
How Does the Stock Market Work?
The stock market is made up of two main components: the primary market and the secondary market.
Primary Market
One of the ways that companies raise money is by issuing shares. Either they put together the necessary funds within the circle of people whom they know and remain a private entity, or they reach out to the general public and ask for money in return for stakes in the business.
The shares are first issued directly from the company as part of an initial public offering (IPO). A particular amount of shares will be made available at a specified price, and those interested will buy them, hoping that they increase in value.
Secondary Market
After the IPO, the shares that were issued are free to change hands repeatedly. This time, the company has no involvement. It’s individual investors buying and selling among themselves.
Rather than buy shares directly from companies, most investors buy them secondhand from other investors.
Stock Exchanges
When companies begin selling slices of ownership to the public, they do so on a specific stock exchange. Almost all countries have at least one venue where it is possible to buy and sell company shares. The United States has several major exchanges, including the New York Stock Exchange (NYSE), which is home to the likes of Home Depot, Visa, and Berkshire Hathaway, and the Nasdaq, which is where shares in Apple, Amazon, and Microsoft trade.
Companies generally choose which stock exchange to sell their shares on. Collectively, these various exchanges constitute the stock market.
1602
The year when the world’s first stock exchange was launched.
How to Invest in the Stock Market
It’s not possible to call up a stock exchange and buy or sell stocks directly. You need a stockbroker to transact and act as a middleman. That could be a real human being or a website.
Fortunately, the internet has made this process really easy. Gone are the days of calling up a broker, negotiating prices, and placing orders over the phone. Now, you can simply set up an account with one of the many online brokers out there, deposit money, then buy and sell as you please on your phone, tablet, or computer.
Once you have cash in your account, shares in companies all around the world can be purchased with a few clicks of a button.
You must be at least 18 years old to invest in the stock market. Anyone younger will need an adult to do it for them.
Fluctuating Prices
When you go to a regular shop, the price you paid on Monday is usually the same the following Friday. The stock market doesn’t work that way, though.
A value is ascribed to each share, and that value fluctuates throughout the day, with buyers and sellers haggling over prices in response to new information and general demand. Either you accept the quoted price, or you place an order to buy or sell when the shares in question reach a specified price of your choice. With the latter option, there are no guarantees that your demands will be met.
What Makes the Stock Market Move?
Individual shares jump up and down in value for a variety of reasons largely linked to investors’ expectations for future profits. To move the whole market, an event capable of impacting the amount of money that numerous companies make needs to occur, such as new regulations, a pandemic, or surprising economic figures and the government’s reaction to them.
Of course, not all companies in the stock market are the same. For example, a pandemic like COVID-19 could benefit pharmaceutical companies and simultaneously hurt retailers and restaurants. Likewise, some companies struggle much more during an economic downturn than others, generally because they are in the business of making or selling nonessential stuff like luxury goods.
The Economy and the Stock Market
The stock market is one of the most effective ways for companies, the backbone of the economy, to raise money. These businesses provide the goods and services that we rely on every day and pay salaries to the majority of the population. If they were to be starved of the cash that the stock market provides, then it wouldn’t be good news for the economy.
The stock market also affects the economy in other ways. For example, many people invest their savings or retirement funds in the stock market and hope for their money to grow. If that weren’t to happen, then consumer spending would fall, governments would have to dedicate more resources to propping up the population, and everyone will suffer the consequences.
Key Terms to Teach Your Students
The stock market, much like cars and computers, has a language of its own that can be confusing to understand for an outsider. Here’s a list of some of the most common terms and what they actually mean.
- Ask price: The lowest price at which a seller will sell shares
- Bid price: The highest price a buyer will pay to buy shares
- Bearish: Expectations that prices in the stock market will fall
- Broker: A person or company that buys and sells shares on your behalf
- Bullish: Expectations that prices in the stock market will rise
- Capital gain: When you sell an investment for more than you initially paid
- Dividend: A portion of company earnings distributed to some or all of its investors
- Earnings: The money generated by a business after accounting for expenses
- Liquidity: Converting shares of a company into ready cash without affecting its market price
- Margin: Money borrowed from a broker to purchase an investment
- Securities: Any financial asset that has value and can be traded
- Ticker symbol: A shorthand way to identify a company’s shares
- Trading volume: The number of shares transacted during a particular time period
- Volatility: When a market or stock experiences periods of unpredictable price movements
- Yield: A return measure for an investment over a set period of time
Tools for Teaching About the Stock Market
There are plenty of resources to boost knowledge and interest in the stock market. Like with any subject matter, the key is to make things as relatable as possible. An angle that might grab a teenager’s attention, other than the prospect of making money, could be discussing specific companies that match their passions.
Specific tools to help educate teenagers about the stock market include:
Online Stock Market Games
Everyone likes a game, and there are a fair few out there devoted to the stock market. They include:
- The Investopedia Stock Market Simulator
- The Stock Market Game
- HowTheMarketWorks
- Fantasy Stock Exchange
- Build Your Stax
Books
If a teenager begins to show some interest in the stock market, consider giving them a book to read on the topic. There are plenty out there that specifically address this demographic. Good examples include:
- I’m a $hareholder Kit: The Basics About Stocks—For Kids and Teens
- How to Turn $100 into $1,000,000: Earn! Invest! Save!
- Growing Money: A Complete Investing Guide for Kids
- Blue Chip Kids: What Every Child (and Parent) Should Know About Money, Investing, and the Stock Market
Investment Classes
There are also tons of investment classes, many of which are free and accessible from anywhere in the world. Examples include Investopedia’s educational content, Morningstar’s Investing Classroom, and Khan Academy’s online learning platform.
Can teens invest in the stock market?
You usually need to be at least 18 years old to participate in the stock market. However, there are some ways around that. Adults can open a custodial account with a brokerage on behalf of a child and then, in the role of custodian, invest in the stock market for them, with or without the teenager’s input.
This is just temporary. As soon as the child is old enough to no longer be considered a minor, the account and the funds in it automatically become theirs to invest as they please.
What is the minimum age to invest?
In most places, brokers won’t let anybody younger than 18 open an account that permits them to invest in the stock market. If you’re younger, you’ll have to get a parent or guardian to open an account on your behalf. As soon as you reach the required age, this account will automatically become yours.
Which investment is best for a child?
That depends on individual circ*mstances. Generally, to keep the child engaged, it would be smart to invest in something that interests them, such as the company behind the products they are into. Beyond that, it really depends on how much risk you are willing to stomach and the financial objective. If the money is needed soon, you may want to avoid investing in the stock market.
The Bottom Line
The stock market really isn’t that complicated. It’s essentially an online supermarket where you can buy or sell slices of ownership in companies throughout the day at varying prices.
Once you get past the jargon, it’s actually a very interesting topic. Most teenagers will be keen to learn how to make some extra money without breaking much sweat on how their favorite companies operate. If you can find the right hook to get them engaged, they’ll likely thank you later.
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