What are Securities? A Simple Explanation for Kids, Teens and Beginners

Securities: The Building Block of All Investments - A Simple Explanation for Kids and Beginners

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Introduction to Securities for Kids and Teens

This video explains the concept of securities in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about securities, 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 are securities
• What are the different types of securities
• How are securities traded
• What securities should you invest in

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What are securities?

Securities is a general term used to refer to different types of financial instruments that have monetary value and can be bought and sold.

Securities can be issued by a company or a government, and have different levels of risk and liquidity.

When it comes to investing, securities are one of the most common avenues to make your money grow. Some examples of securities are stocks, bonds, mutual funds, derivatives, certificate of deposit, Treasury bills, etc.

The original seller of a security is called the issuer, while the buyer is called an investor. Securities are a means for the issuers to raise capital.

What are the different types of securities?

There are three main types of securities: Equity, Debt, and Hybrid.

Equity securities represent ownership stake of the holders – for example, stocks. They are assets and can be sold for a profit, also called capital gain.

Some companies also make periodic payments of a portion of their profits – called dividends – to their shareholders, although it is neither fixed nor guaranteed. They are generally considered higher risk securities with a potential for higher returns.

Bonds are a type of debt security because they represent money borrowed by a company or government, with a guarantee to repay the money to the lender, along with periodic payment called interest.

They are generally lower risk securities with predictable but lower returns than stocks.

Hybrid securities combine aspects of equity and debt. They are somewhere between equity and debt securities, in terms of both risk and returns.

An example would be convertible bonds, that are issued as bonds with an option to convert to equity at a later date.

How are securities traded?

Different securities are traded in different ways.

Publicly traded stocks start with an Initial Public Offering (IPO) when they are first offered to the general public. After the IPO, stocks get listed on a stock exchange and are traded in the stock market.

Unlike stocks, bonds are usually traded over-the-counter in the secondary market after being initially issued.

What securities should I invest in?

Depending on your personal situation and risk appetite, the type of security you invest in would differ.

For instance, if you’re young and can handle risk, you can consider investing in the stock market. Having a longer investment horizon would take care of any short term fluctuations in the stock market and would yield good returns over the long term.

If you are looking at a shorter investment horizon or like predictable returns, you can invest in bonds.

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

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Podcast: What are Securities?