Capital markets connect businesses seeking funds with individuals to earn income by investing in stocks and bonds. Capital markets include the stock market and the bond market. In this module, students will learn how capital markets help keep the economy moving and provide opportunities for businesses, entrepreneurs, and investors to achieve their goals.
Content Standard 1: Earning Income
Grade 4 Benchmarks
4. People can earn interest income from letting other people borrow their money.
7. Entrepreneurs are people who start new businesses. Starting a business is risky for entrepreneurs because they do not know if their new businesses will be successful and earn a profit.
Grade 8 Benchmarks
8. Entrepreneurs take the risk of starting a business because they expect to earn profits as their reward, despite the fact that many new businesses can and do fail. Some entrepreneurs gain satisfaction from working for themselves.
9. Interest, dividends, and capital appreciation (gains) are forms of income earned from financial investments.
Content Standard 3: Saving
Grade 4 Benchmarks
3. People can choose to save money in many places—for example, at home in a piggy bank or at a commercial bank, credit union, or savings and loan.
6. When people deposit money into a bank (or other financial institution), the bank may pay them interest. Banks attract savings by paying interest. People also deposit money into banks because banks are safe places to keep their savings.
Grade 8 Benchmarks
2. For the saver, an interest rate is the price a financial institution pays for using a saver’s money and is normally expressed as an annual percentage of the amount saved.
Content Standard 5: Financial Investing
Grade 4 Benchmarks
1. After people have saved some of their income, they must decide how to invest their savings so that it can grow over time.
2. A financial investment is the purchase of a financial asset such as a stock with the expectation of an increase in the value of the asset and/or increase in future income.
Grade 8 Benchmarks
1. Financial assets include a wide variety of financial instruments including bank deposits, stocks, bonds, and mutual funds. Real estate and commodities are also often viewed as financial assets.
2. Interest is received from money deposited in bank accounts. It is also received by owning a corporate or government bond or making a loan.
3. When people buy corporate stock, they are purchasing ownership shares in a business. If the business is profitable, they will expect to receive income in the form of dividends and/or from the increase in the stock’s value. The increase in the value of an asset (like a stock) is called a capital gain. If the business is not profitable, investors could lose the money they have invested.
6. Financial risk means that a financial investment has a range of possible returns, including possibilities of actual losses. Higher-risk investments have a wider range of possible returns.
7. The rate of return earned from investments will vary according to the amount of risk. In general, a trade-off exists between the security of an investment and its expected rate of return.
