REAL WORLD MATH: PERSONAL FINANCE

I:
MAKING YOUR MONEY WORK FOR YOU
 21st
Century
Skills Library

REAL WORLD MATH: PERSONAL FINANCE

Investing:
MAKING YOUR MONEY WORK FOR YOU

Cecilia Minden

Cherry Lake Publishing

A n n A r b o r, M i c h i g a n
Published in the United States of America by Cherry Lake Publishing
Ann Arbor, MI
www.cherrylakepublishing.com

Math Education Adviser: Timothy J. Whiteford, PhD, Associate Professor of Education,

St. Michaels College, Colchester, Vermont

Finance Adviser: Ryan Spaude, CFP, Kitchenmaster Financial Services, LLC, North
Mankato, Minnesota

Photo Credits: Cover and page 1, Brian Leng/Corbis; page 15, James Leynse/Corbis;
page 17, Orjan F. Ellingvag/Dagens Naringsliv/Corbis

Copyright 2008 by Cherry Lake Publishing

All rights reserved. No part of this book may be reproduced or utilized in any
form or by any means without written permission from the publisher.

Library of Congress Cataloging-in-Publication Data

Minden, Cecilia.
Investing : making your money work for you / by Cecilia Minden.
p. cm. (Real world math. Personal finance)
ISBN-13: 978-1-60279-003-2
ISBN-10: 1-60279-003-5
1. InvestmentsJuvenile literature. 2. Saving and investmentJuvenile literature. 3. Stocks
Juvenile literature. 4. ChildrenFinance, PersonalJuvenile literature. I. Title. II. Series.
HG4521.M47 2008
332.6dc22 2007005917

Cherry Lake Publishing would like to acknowledge the work of

The Partnership for 21st Century Skills.
Please visit www.21stcenturyskills.org for more information.
 Table of Contents

C h a p t e r o n e

What Is Investing? 4

C h a p t e r t w o

Savings Options 7

C h a p t e r t h r e e

Do the Math: Making More at the Bank 13

C h a p t e r f o u r

Do the Math: Stocks 17

C h a p t e r f i v e

Keeping Your Balance 23

Real World Math Challenge Answers 29

Glossar y 30

For More Information 31

Index 32

About the Author 32

 Chapter One

What Is Investing?

Money doesnt grow on trees, but if you make smart

investments it will seem like your money is growing.

H ave you heard the expression, Money doesnt grow on trees? Maybe

you heard it the last time you asked your parents for money! Well, money

may not grow on trees, but you can get your money to grow. You do it

 21st Century Skills Library

by investing. Investing means you purchase something of value, with the

expectation that it will make you more money.

To understand investing, you have to understand some terms. Here are

a few terms to get you started. You will learn more terms as you read about

different ways to invest.

Inflation is one reason to invest money. Inflation means that prices go up.

Years ago, farmers brought vegetables to town markets in horse-drawn wagons.

Back then, vegetables cost pennies. Most vegetables today are still sold in markets

in towns. Farmers are still paid, but so are the people who own the markets.

Shipping, storage, and other expenses also raise the cost. Vegetables are still

vegetables, but today they cost hundreds of times more to buy.

The cost of living is the money you need to cover your needs. Everyone needs

a home, food, and clothing. When inflation goes up, so does the cost of living.

Real World Math: Investing: Making Your Money Work for You 
 Financial goals are plans for the future. You
earning
I &
nnovation
Skills
need to plan so that when inflation goes up, you

If you learn good

money habits when have enough money to pay for your living expenses.
you are young, they
will stick with you There are two types of financial goals: short-term
throughout your life.
Saving money is one
goals and long-term goals. Short-term goals pay for
of the most important
habits to develop. Try
to save and invest at things that you will buy in a few weeks or months.
least 10 percent of your
allowance, paychecks,
Short-term goals might include paying for a trip, a
and gifts of money.
If you get in the habit
of saving when you bike, or a computer. Long-term goals pay for things
are young, it will help
you become financially far into the future. These might include college
secure in the future.
What are some other
good money habits you
tuition or starting a business.
should try to develop?
There are several different ways you can invest

your money. Lets see which one works best for you!

 21st Century Skills Library

 Chapter Two

Savings Options

T he best way to have money for the future is to make money today and

save it. Three places you can invest the money you save are in savings

accounts, certificates of deposit, and government bonds.

You are loaning money to the U.S. government

when you buy a savings bond.

Real World Math: Investing: Making Your Money Work for You 
 21Century
st
The most basic form of investment is a savings
Content account. By putting your money in a savings
Banks pay you interest
to take care of your
money, but they also account, your money can earn you more money.
charge you interest
if you borrow money
Banks will pay you money, called interest, to keep
from them. Banks use
the money you put in
your savings account your money with them. Savings accounts allow you
to make loans to other
people. They charge to take money out whenever you need it. Because
a high interest rate on
loans. They pay a low
interest rate on money of this, savings accounts are good places to keep
kept in an account. The
difference between the money for short-term goals. Banks offer only low
two interest amounts is
the profit they make.
Banks will pay you
interest rates on savings accounts.
a higher interest rate
on an account in which Certificates of deposit (CDs) are another way
you promise to leave
the money in the bank
to save. When you buy a CD, you are putting your
for a longer period of
time. The banks can
then count on having money in a special kind of bank account. CDs are
your money. This
allows them to make
sold in fixed amounts such as $500 or $1,000. By
more loans and thus
more profit.

 21st Century Skills Library

purchasing a CD, you agree to leave money in that account for a certain

length of time, such as one year. When the time is up, you can withdraw

your money plus the interest you earned. If you take your money out of

A nearby automated teller machine (ATM) can make it

convenient to deposit money in your savings account.

Real World Math: Investing: Making Your Money Work for You 
 the CD account early, you are charged a penalty. Usually, the penalty is

that you lose a lot of the interest money you earned. Banks offer higher

rates on CDs than on savings accounts because the bank knows it will have

your money for a certain length of time.

REAL WORLD MATH CHALLENGE

Catherine purchases three one-year Cds for $2,000 each. the Cds earn 5.2
percent interest per year. How much interest will Catherine earn on the CDs
in one year?
(Turn to page 29 for the answer)

Government bonds are another place you can invest your money. If

a city government needs to raise money for an expensive project, such as

building a hospital, it might sell bonds. When you purchase government

bonds, you are loaning the government money. The government agrees to

pay you a certain interest rate, called a dividend yield. But you cannot get

10 21st Century SkillS library

 Sometimes bonds are sold to raise money for an
expensive government construction project.

your money out for a specific length of time, often 10 years. Bonds are a

safe investment, but the amount of money you make is usually low.

Savings accounts, CDs, and government bonds are all safe ways to

invest your money. There is almost no chance you will lose money with

these investments. Though the interest is usually not very high, youll

Real World Math: Investing: Making Your Money Work for You 11
 Banks send out statements each month that show how
much interest your money has earned. They also list all
the deposits and withdrawals that you have made.

know exactly how much you will earn. Other types of investments offer

the chance to earn more interest. Which is the right choice for you? Lets

find out!

12 21st Century Skills Library

 Chapter Three

Do the Math:
Making More at the Bank

A good investment plan can help you save money

for a new car or other expensive item.

S amantha has saved $3,000 from her part-time job and money her

grandparents gave her for her birthday. She wants to buy a car in the next year.

Shes hoping to earn as much interest as possible on her savings. Samantha

Real World Math: Investing: Making Your Money Work for You 13
 21Century
st cant buy savings bonds because shes going to need the

Content money in less than a year. She doesnt want to put the

In the 1930s, many

banks went out of money into CDs because she doesnt know exactly when
business. Thousands of
people lost all of their shell find the car of her dreams and need to withdraw
money. The Federal
Deposit Insurance
her money. And her savings account is only getting 1
Corporation (FDIC)
was formed to keep
this from happening percent interest. What should she do with her savings?
again. The FDIC
insures bank accounts
A friend recommends she put it into a money
for amounts worth up
to $100,000. With
the FDIC, even if the market account. Money market accounts usually
bank is robbed or
burns down or goes earn much higher interest than regular savings
out of business, you
will always get your
money back. accounts. You handle a money market account

much like a savings account, but it comes with more

restrictions. Money market accounts usually require

a minimum balance. This means you must keep a

14 21st Century Skills Library

 The Federal Deposit Insurance Company insures the money in your
bank account up to $100,000. It is headquartered in Washington, DC.

certain amount of money in the account. If you go below that balance,

you will have to pay a penalty. And with many money market accounts,

you may be limited to a certain number of withdrawals a month.

Real World Math: Investing: Making Your Money Work for You 15
 REAL WORLD MATH CHALLENGE
Frank worked all summer mowing lawns. by the end of the summer, he had
saved $1,400. he wants to invest his money. Frank wants to keep all his money at
one bank. Which investment will earn him the most interest?
Savings Account: red bank is offering 3.6 percent annual interest on a
minimum deposit of $1,000.
Certificate of Deposit: blue bank is offering 5.1 percent interest on a 1-year
$1,000 Cd.
Money Market Account: White bank is offering 4 percent annual interest on a
money market account. Frank can make three withdrawals on his account without
penalty if he keeps a balance of $1,000.
(Turn to page 29 for the answer)

Like savings accounts, money market accounts are a safe place to invest

your money. Though they usually pay much more interest than savings

accounts, the interest rate is still not high. Would you like your money to

earn you even more money? You may have to take a chance of losing some

money. Is it worth the risk? Lets find out!

1 21st Century SkillS library

 Chapter Four

Do the Math: Stocks

Stock traders work on the floor of the New York Stock Exchange (NYSE).

M oney market accounts, CDs, and government bonds are simple

and safe ways to invest your money. A different type of investment is

purchasing stock in a company. When you buy stock in a company, you

are buying part of the company. You share in the companys profitsand

its losses. Heres how it works.

Real World Math: Investing: Making Your Money Work for You 17
 When you buy stock (or shares) in a company, you become part

owner of the company. You will make or lose money, depending on the

companys success.

There are two ways you can make money with stock. When companies

make profits, you may receive payments called dividends. The more stock

you own, the more money you will get from dividends. A second way people

make money with stocks is by selling stock for more money than they paid

for it.

How much people are willing to pay for a companys stock changes over

time. If the company is making a lot of profit or has a bright future, people

will be willing to pay more for the stock. On the flip side, if a companys

profits are dropping or it has legal problems, people will not pay as much for

its stock. If you sell the stock for less than you paid for it, you lose money.

18 21st Century Skills Library

 Many people hold on to the same stock for
ife
decades. They arent buying and selling the stock, so C &
areer
Skills

Many people use a

they arent making money that they can spend right stockbroker to help
them purchase stocks. A
away. But over the years, if the company does well, stockbroker is someone
who buys and sells
stocks for others.
the value of their stock rises. Perhaps when they
Even though you
take advantage
retire, they sell the stock. By then, it might be worth of a stockbrokers
expert knowledge, it
50 times what they paid for it. The profit helps pay is important to take
responsibility for your
investments. Try to learn
their living expenses. as much as you can
about the companies
Investing in stocks has many advantages. You can your money is invested
in. Make sure that they
are companies that
be a part of something you believe in or like. If you reflect your values.

support environmental issues, you might invest in a

company that researches new fuels. Maybe you like

video games, and theres a company that has a new

Real World Math: Investing: Making Your Money Work for You 19
 game you think will be a big hit. You can buy stock in that company. The

best part is that you are using your money to make more money for your

financial goals.

There are also disadvantages to investing in stocks. The biggest

one, of course, is that you can lose part or all of your money. Its a risk

REAL WORLD MATH CHALLENGE

in January, elena purchased 25 shares of teCheeGaMeS for $32 a share. at
the end of six months, the stock went up to $46 a share.
How much was Elenas investment in the stock worth in January?
How much was her investment worth in June? How much money did
Elena gain?
elena took $350 out of her savings account to purchase more shares of
teCheeGaMeS. How many more shares did Elena buy with her
savings? (hint: you can only buy whole shares.) How many total shares
did she then have?
in august, teCheeGaMeS stock went down to $34 a share. How much was
her investment in the stock worth then? How much more money
would she have had if she had sold all her stock in June?
(Turn to page 29 for the answers)

20 21st Century SkillS library

 21Century
st

Content
Each day, millions of
stocks are bought and
sold on Wall Street in
New York City. The
origin of Wall Street
dates back to the
1600s. Dutch traders
built a wall along a
path to the harbor.
They traded along the
path. By the 1800s,
traders were using
the path as a place
to sell stocks to raise
money for businesses.
The New York Stock
Wall Street is the heart of New Exchange was built on
York Citys financial district. Wall Street in 1922.

because the Federal Deposit Insurance Corporation

(FDIC) does not insure money invested in stocks.

You are investing without any insurance. Another

Real World Math: Investing: Making Your Money Work for You 21
 disadvantage is that if your money is tied up in stocks, you cant use it for

other things.

Investing in the stock market takes research and patience. Read articles

and listen to financial reports relating to that stock. Do not try to time

the market. When you time the market, you are hoping to make a big

profit by buying when stocks are low and selling when stocks are high.

It sounds easy, but not many people can do it successfully. Taking a risk

is part of investing. You may lose money. The important thing is to do

your homework. Knowing everything you can about a company before

investing in it will help limit your losses and increase your profits.

22 21st Century Skills Library

 Chapter Five

Keeping Your Balance

A part-time job in a store or office can provide you

with the money you need to begin investing.

M iguel is 16 years old. He just started working at the bookstore two

afternoons a week and all day on Saturday. It is exciting getting a paycheck

every week, and he wants to make sure he puts his money to good use.

Miguel wants to buy a new computer. Thats a short-term goal. He is also

Real World Math: Investing: Making Your Money Work for You 23
 saving money for college. Thats a long-term goal. He is even hoping to

put a little money away so that eventually he will be able to buy a house.

Miguel has a savings account, and his uncle gave him 20 shares of Wintech

stock when he was born. But now that he has a steady income, he wants to

start investing more.

There are many computer programs that can help

you keep track of your investments.

24 21st Century Skills Library

 Miguel decides to sit down with his parents to talk about his portfolio.

A portfolio is a collection of savings and investments. Miguels parents

discuss three ways he can build his portfolio:

I nvest a steady amount each month to cover short-term and long-

term goals.

Put extra money into long-term investments.

Diversify his portfolio by placing money in different types of

investments.

Like Miguel, if you want to reach your short-term and long-term goals,

you need to make investing a priority. Decide what part of each paycheck

will be set aside for investments. Use part of it for your short-term goals.

These are things you want to buy or do within a few weeks or months.

Place that money where it will earn interest but can be withdrawn without

Real World Math: Investing: Making Your Money Work for You 25
 A good investment strategy can help you save money for college.

penalty. Use the rest of your investment money for long-term goals.

College or retirement seems far away to you now. That day will come,

however, and a long-term investment will help cover your expenses.

Putting money into investments is a little like having a private money

machine. Others are paying you to let them use your money. All you have to

26 21st Century Skills Library

 21Century
do is have patience and wait. Over the long term, that st

money is going to work for you and make a profit.

Content
When you hear
Diversifying your portfolio helps keep your investors say bear
and bull, dont think
investments safe. There are many places you can animals are loose on
Wall Street. A bear
market means that most
invest your money, including stocks, bonds, and
stocks are going down.
A bull market means that
CDs. When your money is spread out over several stocks are going up.

investments, you lower the risk of losing all your

money. Putting money in different investments also

helps you learn more about how different companies

work and allows you to support different causes that

are important to you.

Before you start investing, you need to do

research. Begin by picking a couple of stocks in the

Real World Math: Investing: Making Your Money Work for You 27
 newspaper. Track them

for a month. Keep a chart

of the ups and downs

of the stock price. Also

pay attention to interest

paid at local banks.

You can find information about Talk to people who are

stocks and other investments in the
business section of your newspaper.
already investing. Check

out the books and Web sites listed at the end of this book. Record your

information and use it to help you decide on the best investments for you.

Always remember that the less you spend, the more you save. The more

you save, the more you have to invest. And the more you invest, the more

your money can earn money for you!

28 21st Century Skills Library

 Real World Math Challenge Answers

Chapter Two Chapter Four

Page 20
Page 10 In January, Elenas investment in the stock was worth $800.
By June, the value of her investment in the stock had risen
Catherine will earn $312 in interest in one year.
to $1,150. The value of Elenas investment had increased
$2,000 x 3 = $6,000 $350.
5.2% of $6,000 = 0.052 x $6,000 = $312 25 x $32.00 = $800
25 x $46.00 = $1,150
Chapter Three $1,150 $800 = $350
Page 16
Frank would earn $50.40 with the savings account, $51.00 Elena bought 7 more shares in June. She had 32 total
with the CD, and $56.00 with the money market account. shares.
If he is using only one bank, Frank would make the most
$350 $46.00 = 7.6
interest by investing in the money market account.
25 + 7 = 32
3.6% of $1,400 = 0.036 x $1,400 = $50.40
5.1% of $1,000 = 0.051 x $1,000 = $51.00
In August, the value of Elenas investment in the stock
4% of $1,400 = 0.04 x $1,400 = $56.00
dropped to $1,088. If she had sold it all in June, she would
have made $1,150, or $62.00 more than in August.
Frank would make the most money if he split his money 32 x $34.00 = $1,088
between the CD and the savings account. He could earn
$1,150 $1,088 = $62.00
$51.00 in interest on a $1,000 CD. If he put the remaining
$400 in a savings account, it would earn $14.40 in
interest. He would make a total of $65.40 in interest.
5.1% of $1,000 = 0.051 x $1,000 = $51.00
3.6% of $400 = 0.036 x $400 = $14.40
$51.00 + $14.40 = $65.40

Real World Math: Investing: Making Your Money Work for You 29
 Glossary

balance (BA-lunts) the amount of money in a bank account

diversify (duh-VUR-suh-fie) to place money in several different types of investments

dividends (DIH-vuh-dendz) money paid to shareholders out of a companys profits

inflation (in-FLAY-shun) the rising cost of goods and services

interest (IN-trest) the amount earned on money kept in a bank

penalty (PEH-nul-tee) a fee charged when an agreement is broken

portfolio (port-FOE-lee-oh) a group of investments owned by one person

stock (STOK) a certificate that proves part ownership in a company

30 21st Century Skills Library

 For More Information

Books

Bateman, Katherine Roberta. The Young Investor: Projects and Activities for
Making Your Money Grow. Chicago: Chicago Review Press, 2001.

Condon, Daniel. Playing the Market: Stocks and Bonds.

Chicago: Heinemann Library, 2003.

Karlitz, Gail. Growing Money: A Complete Investing Guide

for Kids. New York: Price Stern Sloan, 2001.

Web Sites

401Kidz: Cool Investments

www.401kidz.com/investment/typesofinv.asp
Information on different kinds of savings accounts for kids

Moneyopolis: Where Money Sense Rules!

www.moneyopolis.org/new/home.asp
Money games and information

Young Investor
www.younginvestor.com/
Information on investing and puzzles and other games

Real World Math: Investing: Making Your Money Work for You 31
 Index

allowances, 6 gifts, 6 portfolios, 25, 27

banks, 8, 10, 28
bear markets, 27
bonds. See savings bonds
bull markets, 27
certificates of deposit (CDs), 7,
910, 1112, 14, 16, 27
college, 6, 24, 26
cost of living, 5
diversification, 25, 27
dividends, 18
Federal Deposit Insurance Cor-
poration (FDIC), 14, 22
financial goals, 6, 8, 23, 24,
25, 26
government, 10
government bonds, 7, 1011,
1112, 14, 27
inflation, 5
interest, 8, 10, 11, 12, 13, 14,
16, 25, 28
loans, 8
long-term goals, 6, 24, 25, 26
minimum balances, 1415
money market accounts, 1416
New York Stock Exchange, 20
patience, 22, 27
paychecks, 6, 23, 25
penalties, 10, 15, 26
profits, 8, 18, 19, 22, 27
research, 19, 22, 2728
retirement, 19, 26
risk, 16, 2122, 27
savings accounts, 7, 8, 1112,
14, 16, 24
short-term goals, 6, 8, 23, 25
stockbrokers, 19
stocks, 1719, 20, 2122, 24,
2728
Wall Street, 20

About the Author

Cecilia Minden, PhD, is a literacy consultant and the
author of many books for children. She is the former
director of the Language and Literacy Program at
Harvard Graduate School of Education in Cambridge,
Massachusetts. She would like to thank fifth-grade math
teacher Beth Rottinghaus for her help with the Real
World Math Challenges. Cecilia lives with her family in
North Carolina.

32 21st Century Skills Library

 21st
Century
Skills Library
Money doesnt grow on trees, but with smart investments you can make your
money grow. Savings accounts, money market funds, stocks, and more can all be
part of your investment plan. Look inside for more information on how to put your
money to work for you!

The Real World Math: Personal Finance books show readers how to use their basic
math skills to begin developing the financial literacy necessary to succeed in the
21st century economy. Other titles in the series include:
Living on a Budget Smart Shopping
Payday! Using Credit Wisely
Saving for the Future

To guide your reading, look for these notes that will help build the understanding
and skills youll need in the 21st century. Look for the following margin notes:

Learning & Innovation Skills

You need to learn about lots of things, but you also need to learn how to
learn. These notes give you hints about how to use what you know in better
and more creative ways.

21 st Centur y Content
You study reading, math, science, and social studies. You also need to
learn about the world of work and your community. These notes tell you
about business and money. They also give you ideas about how you can
help yourself, your community, and the world.

Life & Career Skills

These notes tell you about skills you will use throughout your life. They give
you ideas about how to work well with others, make good decisions, and
achieve your goals in life.

ISBN-13: 978-1-60279-003-2
ISBN-10: 1-60279-003-5

9 781602 790032