The second season of Planet Money Summer School was devoted to investing—perfect for a personal finance class. (Season one was devoted to microeconomics.) Below find a summary of the first three podcasts, each between 35 and 40 minutes long (with ads) along with a few suggested discussion questions. These might make a great lesson for a substitute teacher or a remote assignment.

Session 1: The Stock Market

Summary:

Investing is described in this episode as moving money through time. The relationship between risk and return comes into play when determining what to do with that money to end up with more of it. First up for discussion, the stock market.

Where do stock prices come from? Two theories are presented with some great examples of each.

1) A stock’s price is the average of every individual investor’s guess of the value of a share. This is referred to as the Wisdom of Crowds. Prices send signals about where to invest the limited pool of financial assets in order to allocate it most efficiently.

2) Selecting a stock is not based on what you think about it, but based on what you think everyone else will want. This is referred to as the Keynesian Beauty Contest. Over the long term, the “prettiest” will likely do the best, but in the mean time, there will be second-guessing and noise.

Suggested Discussion Questions

1) Can you explain the “Wisdom of the Crowd” in your own words?

2) Do you get close to the right answer if you have lots of random people guessing at the value of something? Why/how do you think this works? (And why do experts not beat the crowd?)

3) Compare the experiment with Penelope the Cow to the market pricing a share of stock. What are the key differences between the two “values” people are guessing (weight and price)?

4) Why is the Beauty Contest (cute animal contest) example a good description of how the stock market works? What parallels can you draw between the contest example and the stock market?

5) How would you explain how/why both of the theories explained in the podcast could be true?

6) How can you relate these theories to what has been happening with meme stocks like GameStop?

Session 2: Index Funds & The Bet

Summary:

The second episode is devoted to Index Funds—what they are, how they originated, and how well they have performed. After introducing stocks and how they are priced, it makes sense to follow it up with how to pick stocks (or not.) Some big names in the investing world make an appearance: John Bogle, who created the first index fund at Vanguard in 1976, and Warren Buffett one of the richest people in the world. Key investing vocabulary is explained here as well: diversification and the efficient markets hypothesis. The heart of the lesson is the story of a big bet undertaken by Buffet in 2006.

Suggested Discussion Questions

1) Explain how index funds help investors diversify their investments. How does investing in more stocks lower risk while increasing likely returns?

2) Why did it take so long for index funds to become popular? (Think about who was buying stocks 50 years ago, and how they were doing so.)

3) Can you list the pros and cons of investing in an actively managed mutual fund or hedge fund?

4) What lessons can you take away from the story of the “Bet?” Do you think you would get the same result if the “Bet” took place over a different ten-year period?

Session 3: Smooth Spending and the 401(K)

Summary: 

This episode ties the concept of investing as moving money through time, taking risk now in order to have hopefully more money later, to consumption smoothing. For some people with uneven income streams, consumptions smoothing is part of every day living.

The episode begins with a description of both traditional and non-traditional methods of saving and borrowing. It moves on to discuss how, as one goes through life, the circumstances around the decisions to consume, save and borrow will change. This is where the Life-cycle Hypothesis of spending comes in.

Finally, the 401(K) is introduced, including a conversation with Ted Benna, the “father of the 401(K).” All of the benefits are discussed, including compounding, as well as the situations where it might not be your best bet and how it may not work/be available for everyone.  

Suggested Discussion Questions

1) Describe one of the informal “banking” examples explained in the podcast. Would one of these other systems make sense for you/your family? Why or why not?

2) If you had a trusted friend or relative hold onto your cash, how big of an influence might that have on how and where you spent your money? What role does accountability to others play in how you spend money?

3) What role does uncertainty play in saving? Has the pandemic changed your view of the importance of savings?

4) In what way is (borrowing) spending money on education an investment?

5) In what way is (borrowing) spending money to buy a house different from investing in other assets?

6) Give an example of consumption smoothing.

7) What are the benefits of savings through a 401(k)?

About the Author

Beth Tallman

Beth Tallman entered the working world armed with an MBA in finance and thoroughly enjoyed her first career working in manufacturing and telecommunications, including a stint overseas. She took advantage of an involuntary separation to try teaching high school math, something she had always dreamed of doing. When fate stepped in once again, Beth jumped on the opportunity to combine her passion for numbers, money, and education to develop curriculum and teach personal finance at Oberlin College. Beth now spends her time writing on personal finance and financial education, conducts student workshops, and develops finance curricula and educational content. She is also the Treasurer of Ohio Jump$tart Coalition for Personal Financial Literacy.