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:
- Kindergarten
- 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?
A stock index is measurement of the stock market by looking at a group of stocks instead of individual stocks.
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:
- USA
- Dow Jones Industrial Average (30 stocks)
- S&P 500 (500 stocks)
- NASDAQ Composite Index (all stocks on the NASDAQ)
- 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.
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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.
Price Weighted
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?
Fun, informative and concise episodes by a 10-year old, breaking down complex financial concepts in a way that kids and beginners can understand. Episodes cover personal finance topics like saving, investing, banking, credit cards, insurance, real estate, mortgage, retirement planning, 401k, stocks, bonds, income tax, and more, and are in the form of a conversation between a cowboy (a finance novice) and his friend, a stock broker. Making finance your friend, only at Easy Peasy Finance.
A little bit about me: I have been fascinated with the world of personal finance since I was 6! I love to read personal finance books, and keep myself updated on the latest by reading various personal finance magazines. My friends often ask me questions about finance because they find it complex and intimidating. That’s what inspired me to start my YouTube channel called Easy Peasy Finance when I was 8, and this podcast 2 years later.
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/
