Money Basics: Investing

April is National Financial Literacy Month in the United States. This brings attention to the lack of a financial education young people receive in this country, both from their parents and from the education system. I disagree with most people about how to solve this issue. Many call for mandatory high school courses in personal finances, but there are many reasons why this has not been and will not be generally successful.

In the spirit of National Financial Literacy Month, I occasionally take some time to focus on some of the financial basics. This is information I would have liked to have had or to have thought about earlier in my life. It's not necessarily the information that's important, but having a role model - someone to emulate - who is proficient with money, to guide a young individual on a path towards financial independence. I've covered the basics of savings accounts, checking accounts, budgets, and interest previously, and today's I'll attempt to tackle the topic of investing.

Investing is a massive topic. It can get quite complicated when you look at the types of investments available, each having their own quirks, rules, and purpose. Investing means different things to different people: you can invest in stocks, invest in an industry, invest in a business, and invest in your future. You can invest your money, your effort, or your time. All of these concepts can be radically different.

There is a general theme to all investing, however. While the purpose of saving is to have a foundation or short-term financial safety, investing is the choice people make when they want to build long-term financial stability or independence. When you create a plan for investing - and it's better to start with a plan in mind even if you don't really know what you want to do in the future - you think about the future. The expectation when you invest is that your wealth will grow. Compare this to savings, where your expectation is that your wealth is safe.

What do people invest in?

The most common investments are stocks. Stocks are shares of a business. When business owners want to raise money to help their businesses grow, they sell to investors pieces of ownership in that business. Most of the time the pieces are very small. For example, if you invest in one share of a company like Google, you'll become an owner of the business - but you'll own only about 0.0000003 percent of the company. And almost always, when you buy stocks, you don't buy them from the company. Once a company decides to sell shares, the stocks are traded on exchanges like the New York Stock Exchange. When you buy stocks, you're buying them from another investor who happens to be selling.