Using the Risk Speedometer
Learning Goals/Objectives:
Introduce middle or high school students to a graphic that compares investment products to driving a car (speedometer analogy).
This lesson is designed as an introduction to the wide variety of investments that exist. It is important that students come to realize that there is some level of risk with all investments and the relationship between risk and reward as well as risk and potential loss.
Overview:
Time required: 1 class period, 45-50 minutes
Grade level: 7-12
Grouping of Students:
Entire class discussion, potential for small or large group work
Methods:
Most texts and resource materials have visuals that show the wide variety of investment options that exist. Typically these visuals involve complex graphics or pyramids. Students rarely are engaged with these types of graphics and cannot relate to the pyramid analogy. Most high school students can relate to a car’s speedometer and the concept that the faster you drive, the more risk you take. This lesson uses this visual to form an analogy to investing – The farther you move to the right on the investment speedometer, the more risk you take- you might reach your goal faster or see your portfolio crash and fall short of your goal.
Activities:
Implementation of Lesson:
1. Explain to the students that in a few minutes they will receive a “Risk Speedometer”. The purpose is to evaluate all the different kinds of investment options that exist. Some investments carry more risk than others.
Ask the question: What is risk? What is “risky behavior” when you drive a car?
Risk is the possibility of suffering harm or loss; danger. Risky Driving may include too fast or drinking and driving, or using a cell phone / texting while driving; driving while tired or medicated.
Discuss with students: So, you are about to see a chart that shows some things as investments with greater risk than others. You could make more money quickly or you could loss your money quickly.
2. Distribute a Risk Speedometer to every student.
3. Begin classroom discussion with:
Who sees a term that they have never seen before? (Many students will raise their hands as they have been given a sheet with new terms.)
Why is a Certificate of Deposit shown as having little risk? (Students may answer if they know that CDs are usually insured by FDIC and have fixed terms with guaranteed returns.)
4. Allow to research items and terms that they do not understand.
5. Finish with a discussion of how investing strategies will vary as people’s life changes. Young single people have the benefit of time so they can afford to take greater risks than people approaching retirement or married with children. All investments carry some risk. Discuss diversification and ‘not having all your investing eggs in one basket’.
Materials:
Materials:
- Copy of the Risk Speedometer (available for download)
- A text or access to other resource to research various investment options and vocabulary words.\
Assessment:
Create an assessment to evaluate knowledge of investment options that were discussed. Ask students to define diversification and explain why a speedometer was used to illustrate the risks associated with investing.
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