As The Stock Market Game (SMG) program comes to a close for the fall semester, compounding is a great topic to discuss with your students (especially since your students may be receiving gifts of money over the holidays). In order to fully tie the SMG program to the real-world, students need to understand the importance of long-term saving and investing, and that true investing is not just for ten or fifteen weeks.
As an investor, time is your biggest ally. The more time you have to invest, the longer your investment can compound, or grow in value.
Compounding is a financial phenomenon that makes time work in your favor. It's what happens when your investment
earnings are added to your
principal, forming a larger base on which earnings may accumulate. And as your investment base gets larger, it has the potential to grow faster.
The younger you are when you start investing, the more you will benefit from compounding. Let's say you begin investing at age 25, putting $200 a month in a
tax-deferred retirement plan earning 9%. Your friend starts investing in the same plan at age 45, but puts away twice as much money as you -- $400 a month. At age 65, you will both have invested a total of $96,000, but your investment would have grown to $884,000, while your friend's investment would be worth only $268,000. The reason your investment has grown so much more than your friend's -- even though you both invested the same amount of money -- is because of 20 extra years of compounding. So, encourage your students to start saving now!
The Stock Market Game program has a great lesson focused on compounding. Be sure to take a look at the "How Does Money Grow Over Time" lesson in The
Teacher Support Center. This lesson explains compound
growth and demonstrates its ability to magnify the benefits of investing over a long period of time. The lesson clearly demonstrates the benefit of saving sooner rather than later.
Another great activity to implement with your students as the holidays approach is PNC's Christmas Price Index. For the past 23 years, PNC Wealth Management has calculated the total cost of the items included in the popular Christmas tune "The Twelve Days of Christmas" if purchased at current prices. This year, the total prices of the items has hit an all time high of $19,507.19, a 3.1% increase over 2006. The increased cost is due in part to the rising cost of gold as well as the rising cost of the minimum wage (raising the salary for milkmaids). For more information about the Christmas Price Index, check out PNC's interactive Web site,
To help students get the most from the Christmas Price Index, a project has been developed to support your teaching about saving and investing through The Stock Market Game. The PNC Christmas Price Index project is available in the Projects section of the
Teacher Support Center. Currently, there is only a high school version available. To access it, click "Projects" in the "In The Classroom" section. Select "Overarching Projects" as the unit and then "high school" as the grade.
This article was written by a staff member of The Stock Market Game.