How to save and invest

Many people get into the habit of saving or investing by following this advice: pay yourself first. Students can do this by dividing their allowance and putting some in the bank for the long term. Once they have a job, they can continue to save a portion of each paycheck.

There are many different ways for the students to save and invest. Some savings products include:

• Savings Accounts. If you have money in a savings account, you receive interest on the account balance, and you can easily get your money whenever you want it. At most banks, your account will be insured by the Federal Deposit Insurance Corporation (FDIC). At most credit unions, your account is insured by the National Credit Union Administration (NCUA).

• Insured Bank Money Market Accounts. These accounts tend to offer higher interest rates than savings accounts and often give you check-writing privileges. As with other bank accounts, many bank money market accounts are insured by the FDIC. Note that bank money market accounts are not the same as money market mutual funds, which are not FDIC-insured.

• Certificates of Deposit. You can earn higher interest if you put your money in a bank certificate of deposit, or CD, which also is federally insured. When you put funds into a CD, you promise that you're going to keep your money in the CD for a certain amount of time. Penalties typically apply to early withdrawals.

Suggested student activities

Have students find current interest rates on savings accounts, bank money market accounts, and certificates of deposit. Students should notice that interest rates are higher the longer the bank or credit union holds their money. Ask them to explain why that is the case. Once people have sufficient savings, they can look to investing. Students need to understand the different types of investments, also called asset classes.

• Stocks. Ask students: have you ever thought that you'd like to own part of a computer company, or the company that makes the shoes on your feet? That's what happens when you buy stock in a company - you become one of the owners. How much you own of the company depends on how many shares of the company's stock you purchase.

• Bonds. Many companies and governments borrow money by selling bonds. When you buy a bond, you're lending your money to the company or government that issued it. The bond issuer promises to pay you interest and to return your money on a date in the future.

• Mutual Funds. A mutual fund is an investment pool run by professional managers who research investment opportunities and select the stocks, bonds, or other investments they think are best suited for the mutual fund. Investors who buy shares of the fund will see their shares rise or fall in value as the value of the investments held by the fund rise or fall. Suggested student activities:

Have students begin learning about companies by listing items they buy or use all the time, such as food, clothing, and games. Ask them to research the parent company that makes those products. (This is called “buy what you know.”) Suggest students use EDGAR, the SEC’s free, online database, to help them with their research, for instance, by reviewing quarterly and annual reports filed by public companies.

• Based on their research, have students decide if these companies would be good investments.

• Once students have selected companies they believe would be a good investment, have them find and follow each company’s stock price and chart if it is going up or down.