Introduction to Emerging Markets for Kids and Teens
This video explains the concept of emerging markets in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about emerging markets, or used as a money & personal finance resource by parents and teachers as part of a Financial Literacy course or K-12 curriculum.
Suitable for students from grade levels:
- Elementary School
- Middle School
- High School
The topics covered are:
- What is an emerging market
- What is emerging market investment
- Advantages of emerging market investment
- Disadvantages of emerging market investment
- Should you invest in emerging markets
What is an emerging market?
An emerging market is a developing country that is on its way to becoming a larger part of the global economy.
Emerging markets transition from being a developing economy with a lower standard of living and GDP per capita, to a more modern, industrial economy with a higher standard of living and GDP per capita.
This transition is characterized by very rapid growth and immense volatility.
Some examples of emerging markets include Brazil, India, and Mexico.
What is emerging market investment?
Emerging markets investments mean investing in companies, funds, real estate, etc. that are based in or focused on emerging markets.
There are many ways to invest in emerging markets – including investing in individual companies. However, the best way for most investors to invest in emerging markets is through a mutual fund or ETF that focuses on emerging markets.
ETFs are a great way to get exposure to an entire country or a group of countries. You could also look at ETFs that focus on US blue chip companies that have a global presence, thus giving you exposure to emerging markets with the stability of a developed market.
What are the advantages of emerging market investment?
The main advantage of emerging market investment is the possibility for high growth.
In an emerging market, the GDP growth rate is generally much higher than in developed economies like the United States or Western Europe. This means that there are many opportunities for high capital growth in emerging markets, which is attractive to investors.
Another advantage is diversification. By investing in foreign economies, an economic downturn in your home country can be somewhat offset by the growth in your international investment and vice versa.
What are the disadvantages of emerging market investment?
Just like with any other investment, the possibility of high returns also means high risk. Investing in emerging markets comes with much higher risk because of factors such as political instability, high inflation, currency fluctuations, low liquidity, etc.
Also, a lot of the developing countries depend on foreign investment, and if the foreign investors rebalance their portfolios, there could be a sudden and significant inflow or outflow of capital from the developing country – causing extreme volatility in the emerging markets.
Should I invest in emerging markets?
Emerging markets are where most of the world’s economic growth is expected to occur. So having emerging markets as part of your portfolio is not a bad idea.
The simplest way to do this is by choosing to invest 5-10% of your portfolio in one or two emerging market ETFs or mutual funds for potentially high returns, while achieving diversification.
However, you should not invest too much money into emerging markets because of the high risk.
In addition, if you invest using an ETF or a mutual fund, you should be mindful of the expense ratio as this could be higher than that for domestic funds.