Last week, we discovered that capitalism is based on the idea that different people can make different amounts of money based on what they can offer society (e.g., skills, knowledge, talent) and how hard they are willing to work (e.g., a person who works 10 hours a day versus 4 hours in the same job). We also learned that to be wealthy, you have to have time on your hands (e.g., doubling a penny for a month). There is a fundamental rule in economics: We work hard for our money, so money should work hard for us. Here is another rule in economics: When we are younger, we use our health to build our wealth and when are a older, we use our wealth to hold onto our health. Therefore, this week we will clarify some basic terms used in economics when talking about money.
Active versus Passive Income
Active Income -> The act of trading time for money. For instance, a person goes to work and gets paid for being there for a certain amount of time (e.g., Bill works at a restaurant as a manager for $30 per hour so he makes $240 in 8 hours. But if he works only 4 hours, he gets $120)
Passive Income -> The act of investing. In passive income, a person gives money to a company or government that will return money over time if that company or government continues to grow (e.g., Bill invests $100 dollars in a burger restaurant. It increased 10% in value. Now, Bill earned 10 dollars)
This week, we will dive into the world of "stocks" (e.g., how to invest in companies or governments to make passive income). Remember that ERISA 1974 (Employee Retirement Income Securities Act) is a law that requires all employees to have retirement plans and retirement plans invest in stocks.
Please follow the steps below to complete this discussion
Step 1
Look at the stock charts of all four companies in alphabetic order: Autozone, Bank of America, Dollar tree, Ford Motor Company
AZO – Autozone (Stock Price -> $26 in year 2000, $2823 in year 2024)
BAC – Bank of America (Stock Price $26 in year 2000, $40 in year 2024)
DLTR – Dollar Tree (Stock Price $9 in year 2000, $106 in year 2024)
F – Ford (Stock Price $16 in year 2000, $13 in year 2024)
Discussion Questions
1. Please pick a person to do a brief interview (Ideally somone over 25 because the stock charts go at least 24 years). If you have know one to ask, you can ask this to yourself as well.
2. List the companies in alphabetical order and ask the person which company would bring the highest profit if we started investing in the year 2000
3. Ask them if they were surprised? Why?
4. What does this little experiment say about out perception of a company and its size and image versus real profit that we can gain from?