Teachers often complain that investing is one of their most challenging topics to teach and surprise, surprise, it is an area that students struggle with understanding too. So much jargon (P/E ratios, dividends, IRRs, oh my), so many choices (thousands of stocks and mutual funds to choose from) and so little experience. It’s no wonder that it can seem so overwhelming. Yet there is another way to think about investing and it has one major difference from the existing way that it is taught in the schools: it is a simpler approach.

What is it? Index (aka Passive) Investing. Thanks to NGPF Fellow, Jill Wilson, for highlighting this Freakonomics podcast (“The Stupidest Thing You Can Do With Your Money”) in a recent email along with an explanation on why she likes it and how she might use it in class: 

The reason the podcast would make a good learning activity is that a teacher could have his/her class listen to its entirety or choose parts of it. Students could follow along with the transcript of the podcast as they listen.As for the content, this conversation between Freakonomics Stephen Dubner and John Bogle is very easy to follow; they use simple language that students would understand with just a little pre-teaching on the subject.

The podcast gives the interesting history of index funds. Bogle is a reliable/credible source of information. They clearly present how passive and active investing works and give examples using actual numbers without making it too complicated.  They also explain the cost of paying an active manager vs. index funds.It would be easy to differentiate an activity using just the first part.

To extend the lesson, the teacher could continue the conversation and go into more details about the fiduciary rule, exchange-traded funds (ETFs) and analyzing the performance difference between active and passive managers.

Here are some questions that could accompany this podcast:

• What is the “stupidest thing you can do with your money?”
• What are the advantages of taking a “passive” approach to investing?
• Who is John Bogle and what role did he play in the formation of index funds?
• Based on the research findings provided in the podcast, what percentage of “active managers” are able to “beat the market?”
• What are the reasons that “active managers” have trouble beating the market?
• What evidence is provided to show that index investing is “winning”?
•  Despite the evidence that investing in index funds is a better approach, it has taken a long time to get a foothold among investors. Why do you think this is the case?
• What are two insights you have about investing after listening to this podcast? How will this impact how YOU invest in the future?

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.