Introduction to a Stock Index for Kids and Teens
This video explains the concept of stock indices in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about stock indexes, 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 a stock index
- How many stocks do stock indices have
- Examples of some of the popular stock indexes
- Changes to the stock index constituents
- Change in stock price and index value
- Price weighted & market capitalization weighted stock index value calculation
What is a stock index?
Its value is calculated from the prices of stocks that make up the index, also called the index’s constituents.
How many stocks are there in a stock index?
It depends on the index – most popular indexes have 30 stocks to 1000s of stocks.
What are some of the popular stock indices?
Some of the popular stock indexes are:
- Other popular indexes
- London’s FTSE 100 or the “Footsie” (100 stocks)
- Hong Kong’s Hang Seng (50 stocks)
Changes to the stock index constituents
Can the constituents of a stock market index change, or they stay the same?
A stock index is created to correctly represent the market or a section of the market, so its constituents can change from time to time depending on the changes in the market.
Change in stock price and index value
If the index goes up or down, does it mean all its stocks have gone up or down in price?
No. The change in an index’s value is a combined effect of the changes in price of all its stocks.
How is the value of the stock index calculated?
There are different ways of calculating the value of an index.
Each stock’s weight in the index is decided by the price of an individual stock.
For example, if stock A is worth $100, and stock B is worth $200, then stock B would have double the weight in the stock index than stock A because it has double the price.
Market Capitalization Weighted
Each stock’s weight in the stock index is decided by the market capitalization of each constituent.
For example, if the company that has stock A has $1 million market capitalization and the company that has stock B has a $3 million market cap, then stock B would have a higher weight in the stock index because its market capitalization is higher.
Download Transcript: Ideal for Use by Teachers in their Lesson Plan to Teach Kids & Teens
Podcast: What is a Stock Index?
Everything you need to know about stock indexes: What is a Stock Index, how many stocks are there in a stock index, what are some of the popular stock indices (like Dow Jones Industrial Average, S&P 500, Nasdaq Composite Index, London’s FTSE 100 or the “Footsie”, Hong Kong’s Hang Seng), can the constituents of a stock market index change or they stay the same, if the index goes up or down does it mean all its stocks have gone up or down in price, how is the value of the stock index calculated (Price weighted and Market capitalization weighted), and more.
Show notes and transcript at: https://easypeasyfinance.com/what-is-a-stock-index/