What is S&P 500? A Thorough Explanation for Kids, Teens and Beginners

Introduction to S&P 500 Stock Index for Kids and Teens

This video explains what the S&P 500 stock index is in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about S&P 500, 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:

  • Kindergarten
  • Elementary School
  • Middle School
  • High School

The topics covered are:

What is S and P 500 - A Thorough Explanation for Kids
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What is the S&P 500?

The S&P 500 is one of the most popular stock indexes in the world. It was created in 1957 by the company Standard and Poor’s – or S&P – which is how it got its name.

The S&P 500 is a way to measure the performance of the stock market as a whole by looking at a large group of stocks, instead of individual stocks. The stocks in the S&P 500 make up 80% of the total market value of the entire U.S. equities market. So when S&P 500 goes up or down in value, it’s a good indication of the direction of the overall stock market.

What are the stocks in the S&P 500?

The S&P 500 consists of stocks of 500 large companies listed on NYSE (New York Stock Exchange) or NASDAQ, the 2 major stock exchanges in the United States. These 500 stocks, called the S&P 500’s constituents or the S&P 500’s components, are good representatives of different industries like technology, health care, financials, communications, etc.

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The 5 largest S&P 500 stocks are Apple, Microsoft. Amazon, Facebook and Alphabet – which owns Google.

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What does the S&P 500’s value represent? Is it a dollar amount?

The S&P 500’s value is measured in points. When the S&P 500 was created in 1957, it had 100 points. As of September 2020, the S&P 500 has grown to almost 3,500 points.

The point value of the S&P 500 is calculated using a market capitalization-weighted formula. This means that each stock’s weight in the index is decided by the market capitalization of the company.

For example, if stock A’s company has a market cap of $10 billion dollars, and stock B’s company has a market cap of $20 billion dollars, then stock B would have double the weight – or power to change the value of the S&P 500 – as stock A, because it has double the market cap.

Can the S&P 500’s constituents change?

Standard and Poors - S and P 500 for Kids Financial Literacy
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Or do they stay the same?

The S&P 500 was created to correctly represent the stock market as a whole. So its components do change from time to time depending on the changes in the stock market.

If the S&P 500 goes up or down, does it mean all its stocks have gone up or down in value?

No. The change in the S&P 500’s value is a combined effect of the changes in the market cap of all its stocks.

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What are some other popular stock indexes?

Some other popular stock indexes include the Dow Jones Industrial Average, NASDAQ, and FTSE.

Download Transcript: Ideal for Use by Teachers in their Lesson Plan to Teach Kids and Teens

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