How do you explain what’s going on with the economy to a sixth grader?
In my last post, (new readers, please read that first for context) I posed these nine questions about the economy, based on the front page of Saturday’s New York Times:
1. What is S&P? Who runs it?
2. What is Debt vs Deficit?
3. What is a AAA rating?
As a follow-up, why did S&P lower the US credit rating? What has been going on?
4. What is the “Group of 7″?
5. What does a finance minister do? Does the US have a finance minister?
6. What does 1% growth mean? What is healthy growth?
7. What is Wall Street and how does it work? (this would be a long-term unit that demonstrates the idea that “Math Is Everywhere”)
8. Who measures job growth? How many jobs are there in the US economy?
9. What does 117,000 new jobs mean, in context?
We answered the first two, and I mentioned that it made sense to group the remaining questions, since some are more involved than others. For example, #7, “what is Wall Street and how does it work?” would involve perhaps a month-long unit that we’d work on for an average of 30 minutes per day. We might follow the market and bring in speakers (virtually or in person) from the financial world.
A quick answer to #7 would be this (from Wikipedia’s article about Wall Street)
Wall Street refers to the financial district of New York City, named after and centered on the eight-block-long street running from Broadway to South Street on the East River in lower Manhattan. Over time, the term has become a metonym for the financial markets of the United States as a whole, or signifying New York-based financial interests. It is the home of the New York Stock Exchange, the world’s largest stock exchange by market capitalization of its listed companies. Several other major exchanges have or had headquarters in the Wall Street area, including NASDAQ, theNew York Mercantile Exchange, the New York Board of Trade, and the former American Stock Exchange. Anchored by Wall Street, New York City is one of the world’s principal financial centers.
But that’s a superficial answer — one that requires no student work to obtain. We all know how to use Wikipedia — what do YOU know about the stock market? (Who knows — maybe your mother runs a hedge fund and you have been investing since age 8)
At the school I plan to open in August 2013, we’d want students to understand how complex (and interconnected) the world financial markets are.
A survey of Monday night’s papers shows that this financial crisis is getting pretty serious. Here’s the update from the New York Times:
That front page looks formidable to a sixth grader. To start with, what’s a “Dow”?
But if we take our time and ask some basic questions, we can use this new front page to more fully flesh out our inquiry about just what the heck is going on with the world’s economy:
First, what is the Dow, and is a drop of 600 points in the Dow a big deal?
Second, what is the Nikkei 225?
Third, what is the Kospi?
Fourth, what is inflation?
Now, the first three are basically definitions, but all would relate to that looming question #7 from my last post:
“What is Wall Street and how does it work?”
If we really understood that one, we’d be able to translate that to the Dow Jones and to the other world financial markets.
Because the big news now is that Asian markets are responding to the crisis in the US and are also dropping. Here’s coverage from the Wall Street Journal,
which raises the important question of context — namely, is this crash like the one we saw in 2008 or is it different?
Note that most sixth graders will be unaware of a crash from 2008, so our skilled teachers would have to summarize that crash briefly — and that discussion would likely lead to a need to research the Great Depression for further context. I don’t expect my teachers to know the answer to those economic questions — but I do expect them to be able to model how to research those questions and to work with students to come to a deep understanding of how markets work.
Because as we’re seeing (in real time), the global markets are connected. And we can’t understand what’s going on in the US without referring to what’s up (or, sadly, “what’s down”) in Asia:
This headline raises the question of why gold is so valuable. It also raises the question of “what is a U.S. Treasury” and those are great questions. We should add those vocabulary words to our organically emerging unit on the world’s financial markets.
Once again, the Wikipedia article about gold provides a good launching-off point (though as noted above, a cut-and-paste session with Wikipedia does not add much value and nobody learns much from just doing that):
Gold has been a valuable and highly sought-after precious metal for coinage, jewelry, and other arts since long before the beginning of recorded history. Gold standards have been the most common basis for monetary policies throughout human history, being widely supplanted by fiat currency only in the late 20th century. Gold has also been frequently linked to a wide variety of symbolisms and ideologies. A total of 165,000 tonnes of gold have been mined in human history, as of 2009. This is roughly equivalent to 5.3 billion troy ounces or, in terms of volume, about 8500 m3, or a cube 20.4 m on a side. The world consumption of new gold produced is about 50% in jewelry, 40% in investments, and 10% in industry.
Besides its widespread monetary and symbolic functions, gold has many practical uses indentistry, electronics, and other fields. Its high malleability, ductility, resistance to corrosion and most other chemical reactions, and conductivity of electricity lead to many uses of gold, including electric wiring, colored glass production and even gold leaf eating.
As for US Treasuries, that’s not quite as easy to wrap a sixth grade mind around. Here’s what Wikipedia has to say:
A United States Treasury security is government debt issued by the United States Department of the Treasury through the Bureau of the Public Debt. Treasury securities are the debt financing instruments of the United States Federal government, and they are often referred to simply as Treasuries.
From my experience teaching young people, it’s best to describe a treasury note as an I.O.U. It’s interesting to think about who owns the I.O.U.s that the US government has issued…
But the point here is that at a time of uncertainty when markets are plummeting, people are taking investments out of more risky areas, such as stock markets, and putting them into safer investment options.
As the Washington Post notes, traders (that is, people who trade stocks) are unloading those investments and putting their money into safer investments, such as bonds:
(keep in mind that a typical sixth grader won’t know what a “bond” is and won’t necessarily make the connection between a bond and a treasury note — we’ll have to help students define those terms and unpack all of this financial talk over the course of the unit)
One might think that in such a situation “under the mattress” might be the safest place for money to be stored, but we’d quickly determine that if money is not increasing in value, there’s something called inflation that will make our money worth less tomorrow than it is worth today:
So all of this connects…
It even connects to the world of sports. I read a fun column in the Boston Globe yesterday about how the world’s richest man attended the Red Sox-Yankees game on Sunday night. And no, it’s not Bill Gates; it’s Carlos Slim, a Mexican businessman who, according to Forbes Magazine, was worth $74 billion in March of 2011.
What I found fascinating about the article was that after it talked about how much Mr. Slim knows about baseball and how he’s up on the history of the game and takes an interest in Mexican players, it noted that:
All in all, Slim seemed to be in a spectacular mood for a guy who lost $6.7 billion in last week’s market crash
That loss — $6,700,000,000 — helps me conceptualize what this market crash means. People who are heavily invested have lost nearly 10 percent of their life savings. Now if you have $74 billion invested, losing nearly $7 billion is not the biggest deal in the world (after all, you still have $67 billion left). But what if you had $100,000 invested and you were planning on using that money to pay for a house? Well, your house just got 10% smaller because you lost $10,000.
So now, as an investor, I have a decision to make — do I stop the bleeding and move my investment out of the markets? Or do I leave my money in stocks on the assumption that the stocks will rebound?
Lots of people are making that very calculation right now. It’s 5:30 a.m., East Coast time, as I conclude this blog entry. The markets on Wall Street in New York open at 10 a.m. Lots of people around the world will be watching to see what happens — will the market rebound or will it continue to lose value?
These are the sorts of questions that students would learn a lot from looking at. And these are exactly the sorts of questions students will pursue in thoughtful depth at my school. It will take a while, but our impromptu lesson about the world financial markets will teach us a great deal about math, about history (is this event like the crash of 2008 or like the Great Depression? Why? Why not?), and as we discuss it rationally, we’ll learn about politics (why was the U.S. Congress unable to decide whether to raise the debt ceiling?) and we will practice our listening and speaking skills. It will be time well spent. And we will also find ways to use art to express our feelings about the bottom dropping out. As with all projects we complete at my school, we will integrate the arts whenever it makes sense to do so.
For example, here’s a song that captures that mood from the 1930s quite well (though I hope that people’s dreams today are not as shattered as the dreams of those in the 1930s). This is a song that many sixth graders will not likely have heard before. It’s called “Brother Can You Spare A Dime?” — this is the Al Jolson version:
“Brother, Can You Spare a Dime?“, also sung as “Buddy, Can You Spare a Dime?“, is one of the best-known American songs of theGreat Depression. Written in 1931 by lyricist E. Y. “Yip” Harburg and composer Jay Gorney, “Brother, Can You Spare a Dime?” was part of the 1932 musicalNew Americana; the melody is based on a Russian lullaby Gorney heard as a child. It became best known, however, through recordings by Bing Crosby and Rudy Vallee. Both versions were released right before Franklin Delano Roosevelt‘s election to the presidency and both became number one hits on the charts. The Brunswick Crosby recording became the best-selling record of its period, and came to be viewed as an anthem of the shattered dreams of the era.
If you just read all the way to the end of this post, here’s a bonus link to a very cool five minute video I made about this picture from a desert in Namibia and how Google Earth can bring news events to life and help with global empathy. The school I plan to open in 2013 will make extensive use of Google Earth to help expand students’ world-view.
(Yes that really is a picture, not a painting — watch the video)