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					FACILITATOR’S RESOURCE – SKINT TO MINT

This guide supports learning opportunities embedded in the board game “Skint to Mint”. It is part of a
game package designed to teach students about investments and the role credit ratings play in
signalling risk.


By regularly playing the game students will become increasingly strategic in their approach to
increasing their wealth by building an investment portfolio. It is important to play the game often.


The game can be enjoyed by anyone over the age of 13, and the associated teaching and learning
material has been targeted at the secondary school level.


What’s in this guide?                                                               Page
Introduction                                                                        2
Learning outcomes and links                                                         4
Assessment                                                                          5
Background pre-game playing resource material                                       6
Teaching and learning schedule for teachers                                         8
Suggested supporting resources                                                      11
Appendices
         1         Glossary of terms                                                34
         2         Pre and post test                                                44
Introduction

Why understand risk, return, and credit ratings?
Understanding saving and investing is essential for all ages. In general, the returns on offer, and the
risks taken with money saved and invested, have a large impact on future spending power. Whether
that spending takes place next week, next year, or several decades away, it all contributes to an
individual’s standard of living and the availability of opportunities at different stages of life.


The range of investments is forever changing. However one fundamental concept is that higher
returns are associated with higher risk. For example, investors should expect to get lower returns
from savings or investments with entities that have a high credit rating and higher returns from entities
with lower credit ratings.


All non-bank deposit takers, such as finance companies, building societies, credit unions, have to
obtain and disclose a credit rating from a rating agency approved by the Reserve Bank.


Credit ratings are only effective if they are understood and investors incorporate them into their
investment decisions.


As a result, the Reserve Bank wants to increase public awareness of these credit ratings, how to
understand them and how to make informed investment decisions using them.


Surveys show poor public understanding of credit ratings and therefore generally limited use of them
when making investment decisions. A 2007 Reserve Bank survey found that fewer than one in five of
those surveyed used credit ratings to decide where to put their money.


Another survey, conducted by Young Enterprise Trust for the Institute of Financial Advisers in 2009,
indicated that more than 75% of respondents did not understand the purpose of credit ratings.


What are credit ratings?
Credit ratings are alphabetical indicators of the confidence investors can have in a company’s ability
to pay back (in full and on time) all the money the company has promised.


They help everyday investors compare the financial strength of institutions where they can invest their
savings. A poor credit rating indicates a higher risk that an investor will not get their money back as
promised (this failure to repay investors in full and on time is known as ‘default’). Therefore AAA
indicates an extremely strong company with a 1 in 600 probability of default in five years; CC
indicates a currently highly vulnerable company with a 1 in 2 chance of default in five years.




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The letters used in credit ratings should not be confused with old school grades. While a ‘B’ grade
may look good on a school report, a single ‘B’ credit rating actually indicates a company with a 1 in 5
chance of default over five years.


The ratings are published by credit ratings agencies and are based on detailed research and analysis.


The purpose of “Skint to Mint”


The game aims to:
•       Increase understanding and use of credit ratings.
•       Increase financial capability, especially the ability to understand the risk/reward trade-off.
•       Provide the opportunity to build an investment portfolio.
•       Support recognition of risk, including understanding what it is and how it can be managed.


Board games often involve elements of luck and strategy, both of which are present in the real world
when it comes to risk and returns when investing. Investors make decisions based on information at
hand, but returns on investment are also affected by external influences outside of the control of
investors.




Hint
The first few times the game is played, a player’s decisions, and the subsequent outcomes of those
decisions, may involve a large element of chance.           But over time, players will develop skills to
formulate superior strategies to do better at the game more often.




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Learning outcomes and links

Concepts and understandings
By playing “Skint to Mint” students can explore a range of concepts including that:
•       Wealth creation through investment depends on personal choice.
•       There are different types of investment, all with varying levels of risk and reward.
•       Investment requires long-term thinking.
•       People make trade-offs between saving, investing and borrowing.
•       Investment decisions have consequences today and in the future.
•       Investment risk needs to be identified and managed.
•       Credit ratings can indicate how risky it is to deposit money with a financial institution.


By playing the game students learn about investment risk and reward by identifying, assessing and
prioritising options as they arise in the game. Players also get to practise minimising, monitoring and
controlling the probability and/or impact of unfortunate events.


Risk
Risks come from a variety of sources and can lead to uncertainty in financial markets. Types of risks
include: non-payment, accidents, natural events and disasters.


“Skint to Mint” will help students:
•       Identify, characterise and assess potential threats.
•       Assess the vulnerability of their assets to specific threats.
•       Determine the level of risk (i.e. the expected consequences of a threat).
•       Identify ways to reduce risks.
•       Create strategies to reduce risk.


Students will become familiar with strategies to manage risk which could include:
•       Avoiding the risk.
•       Reducing the negative effects of risk.
•       Accepting some or all of the consequences of a particular risk.
•       Identifying and managing risk by referring to credit ratings.




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Assessment


An assessment component can be built into the game in two ways:


1.      Pre and post-game testing
This test enables students to gauge their own improvement in understanding.


The test can be administered using Survey Monkey and is found on one of the following websites:
•      www.financialeducation.org.nz/ in the Teacher Resources Section (Log on required)
•      www.rbnz.govt.nz/skinttomint


2.      Unit standards
The New Zealand Qualifications Authority’s National Qualifications Framework (NQF) lists a number
of unit standards in the Personal Financial Management domain that can be used for classroom
assessment.


These are:
Level 2
US 25242            4 credits
Demonstrate knowledge of wealth creation through the personal financial planning process.
US 25246            2 credits
Demonstrate an introductory knowledge of risk and return for personal financial management.


Level 3
US 25247            3 credits
Demonstrate knowledge of risk and return, and diversification for personal financial management.




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Background pre-game playing resources


Background knowledge is fundamental to decision-making both in life and playing the “Skint to Mint”
board game. So, first of all, students need to have relevant knowledge to help them make decisions
during the game. This entails a degree of pre-learning about types of investment, their features, risks,
the range of financial institutions and the nature of risk and rewards.


Resources that will help increase knowledge in these areas include:


1.      Glossary of terms (see Appendix One)
The glossary covers many definitions of terms used in the game and financial terms in general.


2.      Financial        Studies   course   manual   (published   by      Young    Enterprise   Trust     –
        www.yetrust.co.nz)
This course includes lessons, teacher background information and worksheets covering topics such
as:
•       What is investment?
•       Types of investment.
•       Yield and capital gain.
•       Managing risk.
•       Gearing.
•       External factors that influence investment decisions.


3.      Reserve Bank of New Zealand (www.rbnz.govt.nz)
Information on this website includes:
       (a) Documents explaining credit ratings.


       “Know your credit ratings” Factsheet March 2010
       www.rbnz.govt.nz/finstab/nbdt/creditratings/3914649.pdf (Under “Financial stability)


        “A user’s guide to credit ratings” Doug Widdowson and Andy Wood
        www.rbnz.govt.nz/research/search/article.asp?id=4070.html         (Under     “Publications      and
        Research”) Article in RBNZ: Bulletin, Vol.71, no.3, September 2008. This article includes the
        standardised rating scale for credit ratings in New Zealand.


        “Explaining credit ratings”
        www.rbnz.govt.nz/nzbanks/3498179.pdf (Under “NZ banks”)




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       (b) Regulation of non-bank deposit takers.


        http://www.rbnz.govt.nz/finstab/nbdt/index.html       (Under “Financial stability”) Includes general
        information.


4.      Information on types of risk
Information on different types of risk is found in many investment books. A good one is Martin Hawes’
“Eight Secrets of Investment Success”.


Information is also available in:
(a)     The Young Enterprise Trust’s Financial Studies course manual.
(b)     Booklets by Mary Holm, available online at www.rbnz.govt.nz/publications/1826841.html (Under
        “Publications and research”)
        •       The Real Story.
        •       Snakes and Ladders – a guide to risk for savers and investors.
(c)     “Different forms of risk” – See Section 5.2 in “Suggested supporting resources for teachers”.
        This covers descriptions of no risk, capital risk, investment risk, credit risk, liquidity risk and the
        concept of diversification.
(d)     Background risk/return information - See Sections 8 and 11 in “Suggested supporting
        resources for teachers”. These sections cover rewards and risks and their relationship and the
        risk/return trade-off, determining risk preference and a hierarchy of assets by risk.


5.      Information on managed funds, dollar cost averaging and mix of investments
(a)     The Young Enterprise Trust’s Financial Studies course manual.
(b)     www.sorted.org.nz/home/sorted-sections/investing/investment-options
(c)     Managed funds - See Section 2.6 in “Suggested supporting resources for teachers”.


6.      Financial Institutions in New Zealand
Lists of financial institutions, with credit ratings where available, can be found on the Reserve Bank
website:
•      Non-bank deposit takers - www.rbnz.govt.nz/finstab/nbdt/creditratings/3905820.html (Under
       “Financial stability”)
•      Banks - www.rbnz.govt.nz/nzbanks/0091622.html (Under “NZ banks”)




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Teaching and learning schedule for teachers

This schedule is a guide to a teaching and learning sequence for use in a classroom environment. It
allows the key learning points to be introduced in a systematic manner and aims to avoid initial
information overload.


Topic                    To cover                    Suggested Resources
1. Introduction to       What is investment?         Starter - Pre/post test.
    investment           Why invest?                 FLP Manual material.
                         What makes a good           Young Enterprise Trust’s Financial Studies Manual
                         investment (relationship    material.
                         between risk and            Compound interest calculator e.g.
                         reward)?                    www.sorted.org.nz/calculators/regular-savings/
                         Credit ratings (brief).     Peter Hensley.CFP “Plan for wealth and reap the
                                                     profits”.
2. Types of              Investment product          Young Enterprise Trust’s Financial Studies Manual
    investments          options (including          material.
                         superannuation) and how     Glossary in Facilitator’s Guide.
                         they work in this game.     Newspapers/internet including:
                                                     www.interest.co.nz
                                                     www.kiwisaver.govt.nz/
                                                     www.sorted.org.nz/home/sorted-
                                                     sections/investing/investment-types
                                                     Game investment cards.
3. Let’s try it out      Game rules and cards.       Game and its components.
                         Play the game.
4. Review of             Calculation of net worth.   Maturity and Superannuation Table.
    personal             Financial planning for      Personal Investment Portfolio Worksheet.
    actions during       future game playing.        My Financial Plan Worksheet.
    play
5. Risk                  What is risk?               www.investopedia.com/terms/r/risk.asp
                         Different forms of risk.    Different forms of risk article included in this package
                         Credit ratings.             www.rbnz.govt.nz/research/search/article.asp?id=40
                                                     70.html and www.rbnz.govt.nz/nzbanks/3498179.pdf.
                                                     “Credit ratings key messages” article (included).
6. Let’s try it out      Play the game.              Game and its components.
    again




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Topic                    To cover                     Suggested Resources
7. Review of             Calculation of net worth.    Maturity and Superannuation Table.
    personal             Financial planning for       Personal Investment Portfolio Worksheet.
    actions during       future game playing.         My Financial Plan Worksheet.
    play                 Personal evaluation of
                         risk tolerance.
8. Rewards and           Returns on investments       Returns on investments table.
    Risks and their      Risk/Reward concept.         “Snakes and Ladders – A guide to risk for Savers
    relationship         Managing risk                and Investors”, Mary Holm.
                         Yield and capital gain.      Young Enterprise Trust’s Financial Studies Manual
                                                      material.
9. Let’s try it out      Play the game.               Game and its components.
    again
10. Review of            Calculation of net worth.    Maturity and Superannuation Table.
    personal             Financial planning for       Personal Investment Portfolio Worksheet.
    actions during       future game playing.         My Financial Plan Worksheet.
    play                 Re-evaluation of risk
                         tolerance.
11. Investment           Investment profiles.         “Investing: Making your money work for you".
    profile or           Levels of investment risk.   Retirement Commission booklet.
    personalities        Asset mix of various         Article on “Investment risk pyramid”.
                         investment funds.            “Snakes and Ladders – A guide to risk for Savers
                         Matching investment          and Investors”, Mary Holm.
                         funds to investor profile.   www.sorted.org.nz/calculators/investing.
                         Determining personal risk    www.myrisktolerance.com/
                         preference.                  Article on “Investor profiles”.
                                                      Article on “Investment fund composition”.
                                                      www.kiwisaver.govt.nz/providers/about
                                                      www.sorted.org.nz/calculators/investment-
                                                      recommender/
12. Let’s try it out     Play the game.               Game and its components.
    again
13. Review of            Calculation of net worth.    Maturity and Superannuation Table.
    personal             Financial planning for       Personal Investment Portfolio Worksheet.
    actions during       future game playing.         My Financial Plan Worksheet.
    play                 Personal evaluation of
                         risk tolerance.




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Topic                    To cover                    Suggested Resources
14. Considerations       Gearing, quality and        The Young Enterprise Trust’s Financial Studies
    for buying           timing.                     Manual material.
    investments          Scams.                      The Young Enterprise Trust’s Financial Literacy
                                                     Programme Manual material.
                                                     www.consumeraffairs.govt.nz/scamwatch/index.html
                                                     www.seccom.govt.nz/invest/scam-alerts.shtml
                                                     www.consumer.org.nz
15. Factors              Life and external events    The Young Enterprise Trust’s Financial Studies
    beyond your          that impact on              Manual material.
    control              investments and investing
                         decisions.
16. Assessment           What have we learnt?        Post test.




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Suggested supporting resources for teachers

This section contains reference and resource lists that teachers can incorporate into lesson plans and
use as handouts to students.


Lesson 1.           Introduction to investment


1.1     What is investment?
Starter Pre/post test
The test is accessible on-line at www.financialeducation.org.nz/ under teacher resources (log on
required) or on the RBNZ website at www.rbnz.govt.nz/skinttomint. It can be used as a pre-test in its
whole form, or split into component sections. Try it out for homework?


What is investment?
Financial Studies Course            Section One “Investment”


Worksheets and information include debatable quotes and sayings, classification activity, a page of
definitions and statements distinguishing savings, investment, speculation, risk and gambling.


1.2     Why invest?
Financial Literacy Programme        Module 9 “Investment”


This module contains a range of statements (Activity 9.1 in particular) which students can debate to
get them thinking about the difference between saving (immediately available funds in a bank
account) and investing (longer term use of funds with an expectation of favourable future returns).


1.3     Doesn’t investment take a lot of money?
Financial Literacy Programme        Module 8 “Saving”


Money for investing is accumulated as a result of a savings plan. Activity 8.4 illustrates the use of the
income triangle – the proportion of income allocated between daily expenses, short-term savings and
long-term savings.


The game works on the basis that every year, each player uses 10% of their income for investing.




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The following table outlines possible allocations according to age:
                                                            Under 35       35 - 50        Over 50
Short-term account (savings)                                10%            10%            10%
Long-term account (investment)                              10%            15%            20%
Living expenses                                             80%            75%            70%
Source: Peter Hensley.CFP “Plan for wealth and reap the profits” p.45


A practical activity to show the benefits of investing over the long term is to use a compound interest
calculator. There are many websites available.
Try www.sorted.org.nz/calculators/regular-savings/


1.4     What makes a good investment? Aren’t all investments safe?
Be aware of the relationship between the risks and the rewards. All investments carry some level of
risk. In general, there is a generic relationship between risks and returns generated by real and
financial assets. But not everyone takes notice of the relationship.




                         “Risk and return relationship of four investment products”


This chart shows that short-term deposits are the least risky, but give the lowest return over time.
Shares are the most risky, but in the long term should give you a higher return.
Source: www.sorted.org.nz/home/sorted-sections/investing/investment-options


1.5     Credit ratings
One way to assess riskiness is to identify the investment’s credit rating. Credit ratings are a measure
of credit risk, and every investment has a risk.




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Credit ratings work on a sliding scale starting with AAA for high quality financial institutions to a CC
rating for very low quality. A D rating means default. (See table on next page)


Credit ratings are an approximate likelihood that an investor will not receive payment on a five year
investment on time and in full.




Lesson 2.           Types of investments


2.1     Investment product options (including superannuation)
Young Enterprise Trust’s Financial Studies manual          Section One “Investment”


Worksheets and information
Activity two in the Investment section deals with types of investments.         There are a number of
information diagrams which show the main types of investments and their sub-groupings. Many of
these are used in the game.


As well, there are three worksheets for activities.


2.2     Definitions
Definitions activities can be created from the list of definitions of investment types. There is a list of
definitions in this document - See Appendix 1.




Facilitator’s Resource                                                                             Page 13
Descriptions are also available at:
www.sorted.org.nz/home/sorted-sections/investing/investment-types


2.3      Main daily and Sunday newspapers
These usually have advertisements and listings of investment products.       There is often a share
market and managed funds listing section as well.


2.4      Website information
www.interest.co.nz is a useful site for encouraging students to view a range of financial institutions
and the investment products and the rewards offered. Many financial institutions are identified by
their credit rating.


2.5      Superannuation
This game focuses on a KiwiSaver modelled superannuation product. The Young Enterprise Trust
has a six lesson resource kit with power points and worksheets. Alternatively there are a number of
websites which provide information on KiwiSaver. Try www.kiwisaver.govt.nz.


2.6      Managed funds
What is a managed investment fund?

The Sorted website – www.sorted.org.nz - says a managed fund is where an investor’s money is
pooled with that of other investors. This money is managed by a professional fund manager who
invests it in a variety of investments.


Managed funds give investors access to markets which would otherwise be difficult to invest in. For
example, they open up investing overseas or in commercial property. They usually involve paying
management and administration fees.

Different types of managed funds include unit trusts, group investment funds, insurance bonds,
superannuation funds and investment companies.

Unit trusts - Individual investors buy "units" in the trust. The price is determined at the time the
investor buys into it with units bought and sold through the fund manager. Where trusts are listed on
the stock exchange, the buying and selling of units is based on the price which buyer and seller
agree.

Group Investment Funds - GIFs are very similar to unit trusts. The significant difference is that the
trustee and the manager are the one and the same.

Insurance bonds – These bonds are single premium life insurance policies which provide the policy
holder with access to a pooled investment fund. They offer limited life cover in the form of a death
benefit. A single premium policy requires one premium payment. Since this large, up-front payment




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begins accumulating cash value immediately, the policy holder will earn more than holders of policies
paid up in instalments.

A popular form of insurance bond gives investors the assurance that the unit price will not fall. These
bonds are usually titled "capital stable". They are designed for very risk averse investors and almost
always concentrate on assets such as cash or fixed interest securities.

Income earned by a fund is added to the policy value rather than distributed to bond holders. This
means they are suitable for investors seeking capital growth rather than income.


Superannuation schemes - Like unit trusts, these schemes are also a popular form of managed
investment. This has been driven by a desire to make provision for future retirement income.
Schemes may be set up for groups such as a work place or, more commonly, people may simply join
a retail scheme offered to the public by a fund manager.

Asset classes of managed funds

There are many different types of assets which managed funds invest in. Some specialise in just one
type of asset, others diversify investments over a range of assets.

The most common asset classes invested in are:

            ASSET CLASSES AT A GLANCE

            TYPE             RETURN                    RISK                  DURATION

            CASH             LOW                       LOW                   SHORT TERM

            FIXED

            INTEREST         MODERATE                  MED                   MED TERM

            MORTGAGE         MODERATE                  LOW                   MED TERM

            PROPERTY         MODERATE                  MOD                   LONG TERM

            EQUITIES         HIGH                      HIGH                  LONG TERM

            These risk return indicators are based on a long term (15-20 year) investment cycle, but
            market conditions can sometimes cause short term variations.




Source: www.isi.org.nz/why_managed_funds_doc.htm




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Lesson 3.           Let’s try it out
Players have now been given both an introduction to investment and learned about different types of
investment products, providing a preliminary knowledge base to get the game underway.

3.1     Game rules and cards
“Skint to Mint” has a “Quick Reference” option which discusses:
(a)     The objective of the game.
(b)     The recommended number of players.
(c)     The set up arrangements, including the player’s kit, what each player needs and equipment.
(d)     How to begin play.
(e)     The order of play for each players’ turn.


There are a number of different cards used in the game.


The Investment product cards are Savings, Shares and Property. There is detailed information on
each card with which students should become familiar before starting to play. Students could prepare
a list of questions about the product cards and in groups, set about answering the questions through
personal knowledge or self-directed research.


There are two other types of cards.
•      “Events” cards which reflect real life. The “life events” apply to the player who picks up the
       card.
•      “External events” cards apply to all players who hold relevant cards. A player will need to check
       whether or not the “external event” applies to investment cards they hold.


3.2     The full version of the game rules
The expanded version of the game rules are available online and can be downloaded from
www.financialeducation.org.nz/teacherresources and from www.rbnz.govt.nz/skinttomint.         Have the
expanded version available for players to refer to.      You should ensure you fully understand the
expanded version of the rules before playing so that you can answer questions not covered in the
“Quick Reference”.


The expanded version discusses:
•         Alternative objectives.
•         What is on the cards.
•         How the game works including how to get the cash for investing, buying and selling
          investments, adjusting the value of investments and superannuation.




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3.3     The player kit


The player kit is a set of personal documents for recording information during game play and following
the end of play. These include:
(a)     A Maturity and Superannuation Table.
(b)     A Personal Investment Portfolio Worksheet.
(c)     My Personal Financial Plan Worksheet.


These documents can be downloaded from www.financialeducation.org.nz/teacherresources and
from www.rbnz.govt.nz/skinttomint. They can be modified for student use. The documents are filled
in during the game and used for the review phase.


Players or the Banker should note the number of player turns on the Maturity and Superannuation
Table so that the total value of superannuation can be recorded on the Personal Investment Portfolio
Worksheet.


An investment price guide is also available online and could be a useful addition to player information.
It can be downloaded from www.financialeducation.org.nz/teacherresources.


Lesson 4.           Review of personal actions during play
4.1     Calculation of net worth
Players should use the Maturity and Superannuation Table and the Personal Investment Portfolio
Worksheet to calculate net worth.

The Personal Investment Portfolio Worksheet allows players to record the investments made and the
card numbers of those investments. Players need to record:

(a)       The total value of their Superannuation to date.

(b)       The total current value of all their investment products.

(c)       The total amount of cash held.

These records allow players to pick up from where they left off at the end of a playing session. The
cards are numbered so that the same cards can be given out to the players at the start of the next
game playing session.

4.2       Financial planning for the future

The My Personal Financial Plan Worksheet should be completed following the completion of the
Personal Investment Portfolio Worksheet and the calculation of net worth.

It will give players an indication of the proportion of the type of investments held. At a later stage this
can be used to evaluate and compare with their investment profile.




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Lesson 5.           Risk
5.1     What is risk?
Technically, risk refers to the chance that the outcome will be different from what is expected – it
could be higher or lower. Generally, risk is referred to in the negative sense i.e. the chance of losing
money and something to be avoided.


Investing always has risk attached to it. When you invest your money, there is no guarantee that you
will receive a return on that investment. In some cases, even the money invested can be lost. Risk
refers to the possibility that an investor will lose money they invest and/or not receive the return they
expected.


5.2     Different forms of risk
Risk comes in many forms, including the six types outlined below. It would be useful for your students
to have this information as accurately evaluating riskiness of each investment product is a key
learning outcome in this game.


Different risks include:
•       Capital risk.
•       Investment risk.
•       Credit risk.
•       Diversification risk.
•       Currency risk.
•       Liquidity risk.
Please note that currency risk (exchange rate risk) is not included in the Skint to Mint game.


No risk
Technically no investment is risk free. Every investment has a degree of risk, though in some cases,
such as government bonds, the risk is very low.


An example of a government bond is Kiwi Bonds. These bonds can be best described as a term
deposit with the government. Application forms are available from most financial advisers or share
brokers. There is an upper limit of $500,000 per issue.


Capital risk
•      The risk that the capital value of an asset when sold may differ from the value expected.
•      The risk of losing all or part of the principal amount invested.




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Investment risk
•      The uncertainties over whether an investment will yield the expected returns.
•      Uncertainty about the future benefits to be realised from an investment.


Credit risk
•      The risk that a borrower will be unable to make payment of interest or principal in a timely
       manner.
•      The risk that an issuer of debt securities or a borrower may default on their obligations or that
       the payment may not be made.
•      The risk of financial loss when one party to the financial contract doesn’t meet their obligations.


Securities such as bonds, debentures, notes, options, shares, and warrants are financial instruments
issued by a company, government, or other institution.             They are bought and sold on financial
markets.


Diversification risk
•      Diversification is about buying a group of assets in which returns on the assets are not directly
       related. For example, an investor would not want to combine large investments in airlines,
       trucking and automobile manufacturing because each industry is significantly affected by oil
       prices and interest rates.
•      Investment diversification is intended to reduce the risk inherent in particular investments. So, a
       portfolio strategy designed to reduce exposure to risk would be to combine a variety of
       investment products such as shares, bonds and real estate, which are unlikely to all move in the
       same direction.
•      The goal of diversification is to reduce the risk in a portfolio as volatility is limited by the fact that
       not all asset classes or industries or individual companies move up and down in value at the
       same time or at the same rate. Diversification reduces both the upside and downside potential
       and allows for more consistent performance under a wide range of economic conditions.
Currency risk (also called exchange rate risk)

•      Currency risk is the risk that an investment's value will be affected by changes in exchange
       rates. If money must be converted into a different currency to make a certain investment,
       changes in the value of the currency relative to the NZ dollar will affect the total loss or gain on
       the investment when the money is converted back.
•      For example, if a New Zealand investor has shares in the US, the return will be affected by both
       the change in the price of the shares and the change of the US dollar against the NZ dollar. A
       realised return in the shares of 15% would be wiped out if the US dollar depreciated 15%
       against the NZ dollar.




Facilitator’s Resource                                                                                   Page 19
Liquidity risk
•      This is the risk that arises from the difficulty of selling an asset. Some assets are highly liquid
       (they can be sold quickly) and have low liquidity risk (such as shares of a public company),
       while other assets are highly illiquid and have high liquidity risk (such as a house).


(Above descriptions sourced from various websites)


5.3       Credit ratings
What are credit ratings?
Ratings represent an opinion from a credit rating agency about:

•      The relative financial strength of a deposit taker, i.e. its ability to pay all promised money
       (principal and interest) in full and on time.
•      The deposit taker’s capacity to meet its financial obligations, as and when they fall due,
       including paying back investors.
•      The opinion is based on analysis of a raft of public and private information.



They are a measure of a credit risk and every investment has a risk associated with it, regardless of
what the credit rating is (i.e. the deposit taker with a high credit rating of AAA still carries with it an
associated risk).



What credit ratings are not:
•       They are not a recommendation (to buy, sell, or hold) nor are they a guarantee of performance.
•       They do not eliminate risk.
•       They are not a measure of equity.
•       They are not audited and are not an audit of the entity.


What the ratings really mean?
•       Credit ratings estimate the likelihood of default i.e. the chance that an investor will not receive
        his/her money including interest back, on time and in full.
•       The different rating agencies have slightly different methodologies. However, it is generally
        accepted that credit ratings fall into bands of similar credit worthiness (refer to table in the
        section 1.5).
•       Credit ratings are about future performance.


How to use them?
•       Ratings play a useful role when making an investment decision and assessing the risk in
        relation to the return offered.
•       Ratings are useful as they condense complicated information into a single alphanumeric rating.




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•       They are a tool, one risk indication among others, which can be used when deciding where to
        invest.
•       It is useful to compare the rating, the return, the period and term of the investment along with
        the compounding period.
•       It is important to only use ratings from the approved ratings agencies (Fitch, Standard and
        Poors and Moody’s).
•       Ratings are a relative ranking, i.e. they are not an absolute ranking.
•       Credit ratings give a basis for comparison among different entities.


For more information


•       “Know your credit ratings” Factsheet March 2010
        www.rbnz.govt.nz/finstab/nbdt/creditratings/3914649.pdf
•       “A user’s guide to credit ratings” Doug Widdowson and Andy Wood
        www.rbnz.govt.nz/research/search/article.asp?id=4070.html         (Under     “Publications      and
        Research”) Article in RBNZ: Bulletin, Vol.71, no.3, September 2008
        This article includes the standardised rating scale for credit ratings in New Zealand.
•       “Explaining credit ratings”
        www.rbnz.govt.nz/nzbanks/3498179.pdf (Under “NZ banks”)
•       The Retirement Commission’s booklet “Investing: Making money work for you” is available at
        www.sorted.org.nz/.     The booklet contains a section on credit ratings and includes the
        standardised rating scale.


Lesson 6.           Let’s try it out again
6.1     Second time playing the game
The players now have an increased level of knowledge:
•       From game experience.
•       From a deepening of their knowledge base.


Some of the decisions made during the first sequence of play may well have ignored the levels of risk
inherent in various investment types.


Players now have the opportunity to put into practice strategies to manage risk which could include:
•       Transferring the risk to another party (e.g. by selling shares back to the bank).
•       Avoiding the risk.
•       Reducing the negative effect of the risk.
•       Accepting some or all of the consequences of a particular risk.
•       Managing the risk through referring to credit ratings.


Different forms of risk and credit ratings can now be evaluated with a knowledge base.


Facilitator’s Resource                                                                               Page 21
Lesson 7.           Review of personal actions during play
7.1     Calculation of net worth
Players have an opportunity to recalculate net worth using the Maturity and Superannuation Table
and the Personal Investment Portfolio Worksheet.



7.2       Financial planning for the future

At the same time players can evaluate their Investment Portfolio according to their investment profile.
The second sequence of play enables players to re-balance their portfolios according to their
preferred options.


The updated Investment Portfolio should give players an indication of how closely they are moving
towards their preferred investment holding.


Lesson 8.           Rewards and risks and their relationship
8.1     Returns on investments
                          Investment                     Returns
                          Term deposit                   Interest
                          Bonds                          Interest
                          Debentures                     Interest
                          Shares                         Dividends
                          Property                       Rental income
                          Managed funds                  Dividends


The cards in the game specify both the rate of return and the amount of annual investment income.


8.2     Risk/reward concept
Risk and reward are related. There is a risk-return trade-off, that is, the higher the risk, the greater
the reward should be.


The risk-return trade-off
This is the principle that potential return rises with an increase in risk. Low levels of uncertainty (low
risk) are associated with low potential returns, whereas high levels of uncertainty (high risk) are
associated with high potential returns. According to the risk-return trade-off, invested money can give
higher profits only if it is subject to the possibility of being lost or reduced in value.
(Source: www.investopedia.com/articles)




Facilitator’s Resource                                                                             Page 22
Mary Holm’s book “Snakes and Ladders – A guide to risk for Savers and Investors” is available free of
charge on the Reserve Bank’s website - www.rbnz.govt.nz/publications/snakesladders.pdf. It has a
useful article on Risk and Return.


“Skint to Mint” cards either have a credit rating or are unrated.


Hint
A useful classroom exercise is for students to analyse the cards in the “Skint to Mint” game and chart
the rewards relative to the risk stated.


Risks of default are identified by the credit ratings. The die roll options reflect the anticipated level of
risk.


8.3     Managing risk
See the Young Enterprise Trust’s Financial Studies manual “Investment” for worksheets and
information articles on how to reduce risk.


8.4     Yield and capital gain
In the Young Enterprise Trust’s Financial Studies manual, the topic “Investment” has activities on
returns for property and shares. Also there are activities about valuing property, valuing debt/interest
bearing deposits and bonds and valuing shares.



Lesson 9.           Let’s try it out again

9.1     Third time playing the game


The players’ knowledge levels are potentially such that they are now able to evaluate the
consequences of their investment holdings.


They have now learned about:
(a)       What investment is and reasons for investing.
(b)       Types of investment products.
(c)       What risk is and how to manage it.
(d)       The different forms of risk and credit ratings.
(e)       Returns on investments.
(f)       The risk and reward relationship.
(g)       Yield and capital gains.




Facilitator’s Resource                                                                              Page 23
Some of the decisions made during the first rounds of play may well have ignored the levels of risk
inherent in various investment types. Now that the concept of risk, reward and their relationship have
been covered, this adds a further dimension to player decision-making within the game.


Lesson 10.          Review of personal actions during play
10.1 Calculation of net worth
Players have a second opportunity to recalculate net worth using the Maturity and Superannuation
Table and the Personal Investment Portfolio Worksheet.



10.2      Financial planning for the future

At the same time players can again evaluate their Investment Portfolio according to their investment
profile. The third sequence of play enables players to re-balance their portfolios according to their
preferred options.


The updated Investment Portfolio should give players an indication of how closely they are moving
towards their preferred investment holding.


Lesson 11.          Investment profile or personalities
11.1 Investment profiles
Knowing your investment profile will help you decide on the best types of investment.


The Young Enterprise Trust’s Financial Studies manual contains worksheet activities that encourage
students to understand the factors that influence their investment profile.


Check out the Retirement Commission’s booklet “Investing - Making your money work for you". It
summarises four important issues to think about when evaluating personal investment profiles. The
booklet can be ordered or downloaded on the Sorted website - www.sorted.org.nz/ordering


11.2 Levels of investment risk
Risk-reward concept
As discussed, this is a general concept underlying anything by which a return can be expected. With
any investment there is a risk, whether large or small, that the investor may not get all or any of their
money back. So the investor expects a return, which compensates them for bearing this risk. In
theory the higher the risk, the more the investor should receive for holding the investment, and the
lower the risk, the less they should receive.


Risk-return tolerance
Because of the risk-return trade-off, investors must be aware of their personal risk tolerance when
choosing investments for their portfolio.       Taking on some risk is the price of achieving returns;




Facilitator’s Resource                                                                            Page 24
therefore, if to make money, investors can't cut out all risk. The goal instead is to find an appropriate
balance - one that generates some profit, but still allows investors to sleep at night.


Many investors do not understand how to determine the level of risk their individual investment
portfolios should bear.


Determining your risk preference
With so many different types of investments to choose from, how does an investor determine how
much risk he or she can handle? Every individual is different, and it's hard to create a steadfast
model applicable to everyone, but here are two important things to consider when deciding how much
risk to take:
•       Time horizon
        Before making any investment, investors should always determine the amount of time to keep
        their money invested. If the investor has $20,000 to invest today but needs it in one year for a
        down payment on a new house, investing the money in higher-risk shares is not the best
        strategy. The riskier an investment is, the greater its volatility or price fluctuations, so if the time
        horizon is relatively short, investors may be forced to sell their securities at a significant loss.


        With a longer time horizon, investors have more time to recoup any possible losses and are
        therefore theoretically more tolerant of higher risks. For example, if that $20,000 is meant for a
        holiday home to be bought in 10 years time, the money can be invested into higher-risk shares
        because there is more time available to recover any losses and less likelihood of being forced
        to sell too soon.


•       Liquidity
        Determining the amount of money an investor can stand to lose is another important factor of
        figuring out their risk tolerance. This might not be the most optimistic method of investing;
        however, it is the most realistic. By investing only money that an investor can afford to lose, or
        afford to have tied up for some period of time, they won't be pressured to sell off any
        investments because of panic or liquidity issues.


        The more money an investor has, the more risk they are able to take and vice versa. Compare,
        for instance, a person who has a net worth of $50,000 to another person who has a net worth
        of $5 million. If both invest $25,000 of their net worth into securities, the person with the lower
        net worth will be more affected by a decline than the person with the higher net worth.
        Furthermore, if the investors face a liquidity issue and require cash immediately, the first
        investor will have to sell off the investment while the second investor can use his or her other
        funds.




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Investment risk pyramid
For various types of investment, a pyramid can be created with the different types of securities and
their associated risk/reward profile (See page 27).


Although this pyramid is by no means scientific, it provides a guideline that investors can use when
picking different investments. Located on the upper portion of this pyramid are investments that offer
investors a higher potential for above average returns, but this potential comes with a higher risk of
below-average returns. On the lower portion are much safer investments, but these investments have
a lower potential for high returns.


After deciding on how much risk is acceptable in a portfolio by acknowledging the investor’s time
horizon and bankroll, the risk pyramid approach can be used for balancing assets.


This pyramid can be thought of as an asset allocation tool that investors can use to diversify their
portfolio investments according to the risk profile of each security. The pyramid, representing the
investor's portfolio, has three distinct tiers:


•       Base of the pyramid – The foundation of the pyramid represents the strongest portion, which
        supports everything above it. This area should be comprised of investments that are low in risk
        and have foreseeable returns. It is the largest area and composes the bulk of your assets.
•       Middle portion – This area should be made up of medium-risk investments that offer a stable
        return while still allowing for capital appreciation. Although more risky than the assets creating
        the base, these investments should still be relatively safe.
•       Summit – Reserved specifically for high-risk investments. This is the smallest area of the
        pyramid (portfolio) and should be made up of money you can lose without any serious
        repercussions. Furthermore, money in the summit should be fairly disposable so that you don't
        have to sell prematurely in instances where there are capital losses.




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                                                                                                   High Risk




Summit




Middle




Base




                                                                                                   Low Risk




   Personalising the pyramid
   The beauty of the investment pyramid is that those who want more risk in their portfolios can increase
   the size of the summit by decreasing the other two sections, and those wanting less risk can increase
   the size of the base. The pyramid should be customised to your risk preference.


   It is important for investors to understand the idea of risk and how it applies to them. Making informed
   investment decisions entails not only researching individual securities but also an understanding of
   personal finances and risk profiles. To get an estimate of the securities suitable for certain levels of
   risk tolerance and to maximise returns, investors should have an idea of how much time and money
   they have to invest and the returns they are looking for.
   (Source. www.investopedia.com/articles)


   Facilitator’s Resource                                                                           Page 27
The “Risk Recommender” and “Investment Recommender” on the Sorted website will personalise risk
tolerances and investment decisions. www.sorted.org.nz/calculators/investing.


A more detailed version of a risk tolerance questionnaire and tolerance calculation can be found at
www.myrisktolerance.com/index.php?module=htmlpages&func=display&pid=3


11.3 Asset mix of various investment funds
Whether investors invest by buying investments themselves (direct investment) or by getting
someone else to do it for them (indirect investment), the mix of investment products that suits one
investor is unlikely to be the same as for everyone else. It would be wise to know personal risk
profiles so that investors can put together an appropriate investment portfolio mix.


An industry wide recognised range of investor profiles suggests:


Investor           Risk         Time     Description
profile            level        frame
Defensive          Low          Less     Primary investment goal is security and not losing original capital
                                than 1   (investment funds). Funds will be invested in assets which do
                                year     not change in value and which produce income. Over the long
                                         term, the real value of capital and income is likely to significantly
                                         decline due to inflation and taxation.
Conservative       Low     to   Less     Security is more important than growth in the value of the
                   medium       than 2   investment capital. The real value of secure investments and
                                years    income is likely to decline due to inflation and taxation. To help
                                         offset this, a part of portfolio will be invested in growth assets.
Balanced           Medium       2 – 5    Security and growth are equally important. Would like capital to
                                years    grow over time but with moderate volatility. There will be times
                                         when the value of the portfolio decreases due to volatility of
                                         growth assets, but prepared to keep them until they can be sold
                                         at a price that will result in a good return over the investment
                                         time.




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Investor           Risk       Time              Description
profile            level      frame
Growth             Medium     6 – 10            Growth is more important than security. Funds will mostly be
                   to high    years             invested in assets which change in value and may only produce
                                                a small amount of income which may vary considerably from one
                                                time period to the next.                Prepared to keep funds invested in
                                                growth assets until they can be sold at a price that will result in a
                                                good return over the investment time.
Aggressive         High       Over              Growth is of prime importance. Most investment in assets which
                              10                change in value and which may produce only a small amount of
                              years             income.          The value of portfolio may vary extremely from one
                                                period to the next.           Entails long investment time frame and
                                                readiness to keep investments until they can be sold at a price
                                                that will result in a good return over the investment time.
(Source: Modified from a range of internet sources and Liz Koh, Financial Planner)




          LOW RISK                                                                                          HIGH RISK
                                                  Conservative
                             Defensive




                                                                   Balanced




                                                                                               Aggressive
                                                                               Growth




Financial institutions have a variety of investment funds that are designed to match up with investor’s
profiles.


For example
A defensive investor profile may suggest
Pyramid base:                            Cash, term deposits, bonds                     95%
Pyramid middle:                          Property and shares                            5%
Pyramid summit:                          Collectibles/speculative etc                   0%


A balanced investor profile may suggest
Pyramid base:                            Cash, term deposits, bonds                     40%
Pyramid middle:                          Property and shares                            60%
Pyramid summit:                          Collectibles/speculative etc                   0%




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A growth investor profile may suggest
Pyramid base:                    Cash, term deposits, bonds      9%
Pyramid middle:                  Property and shares             91%
Pyramid summit:                  Collectibles/speculative etc    0%


11.4 Matching investment funds to investor profile
Many New Zealand financial institutions offer managed funds of various investor profile asset mixes.
Their websites give information on the asset mix of their managed funds.


In groups, students could search the internet for different investment product allocations for these five
different investor profiles.


Try www.kiwisaver.govt.nz/providers/about or any of the banks or financial institutions.


11.5 Determining personal risk preference
Students can use www.sorted.org.nz/calculators/investment-recommender/ to work out their type of
investment mix according to their profile.


The game cards have various levels of risk. Students can now identify which game card mix might
suit their investor profile.



Lesson 12.          Let’s try it out again

12.1 Fourth time playing the game
The players knowledge levels should have grown to the point they are now able to evaluate the
consequences of their investment holdings.


They now have knowledge of:
(a)       What investment is and reasons for investing.
(b)       Types of investment products.
(c)       What risk is.
(d)       The different forms of risk and credit ratings.
(e)       Returns on investments, risk and reward relationship, how to manage risk, and yield and
          capital gain.
(f)       Investment profiles.


Investment profiles add a personal dimension investing. As investment profiles are related to age and
risk tolerance, they are likely to change and players of the same age may well also be different.




Facilitator’s Resource                                                                              Page 30
Now that the players have had exposure to the range of investment products, matching their
investment portfolio to their investor profile make a lot more sense.


Lesson 13.          Review of personal actions during play
13.1      Calculation of net worth

See “game documents” where teachers can download:

•      The Maturity and Superannuation Table.

•      The Personal Investment Portfolio Worksheet.

•      My Financial Plan Worksheet.

These can be downloaded from:

•      www.financialeducation.org.nz/ in the Teacher Resources Section (log on required).
•      www.rbnz.govt.nz/skinttomint



13.2      Financial planning for the future

Players have now had a third opportunity to recalculate their net worth using the Maturity and
Superannuation Table and the Personal Investment Portfolio Worksheet. This is potentially the most
meaningful calculation of net worth and the most useful rebalancing of their Investment Portfolio
according to their investment profile.



Lesson 14.          Considerations for buying investments
14.1 Gearing, quality and timing
The Young Enterprise Trust’s Financial Studies manual contains worksheet activities that encourage
students to understand gearing, quality and timing. (Investment module)


14.2 Scams
The Young Enterprise Trust’s Financial Literacy Programme manual contains a lesson with suggested
resources on investment scams.


The Financial Studies manual also contains teaching and learning material about making wise
investment decisions, including consideration of scams.


Visit the Securities Commission and Consumer Affairs sites below to learn about various scams in
New Zealand and how they work.
•       www.consumeraffairs.govt.nz/scamwatch/index.html
•       www.seccom.govt.nz/invest/scam-alerts.shtml




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The Consumer website also has information on Scams and ethics under “Public issues”.


Lesson 15.          Factors beyond your control

15.1 Life and external events that impact on investments and investing decisions
The Young Enterprise Trust’s Financial Studies manual contains a section entitled “External factors
influencing investment decisions”.


The major factors are interest rates, inflation, economic activity, the global economy and international
events. The activities in the above manual give students insights into what can cause investments to
change value or to change income earning capability.        The activities are designed to create an
awareness that investment opportunities are not constant and that investments must be monitored to
be of value.


Worldwide events with the potential to impact on investment include:
•       Climatic changes.
•       Political events.
•       Environmental events or concerns.
•       Natural disasters.
•       Trends (e.g. a rise in security concerns).
•       Technological developments.
•       Resource issues.
•       Transport developments.
•       Demographic trends.
•       Terrorism.
•       Recreational interests.
•       Financial crises.


Hint
A useful classroom exercise is for students to analyse the external events cards in the “Skint to Mint”
game and match them with the investment products (in the game) to determine potential impacts on
that particular investment.




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Lesson 16.          Assessment
16.1      Post test

Should the teacher decide to establish what the players have learned from playing “Skint to Mint”, the
pre test could be administered again and the difference in scores compared.

An alternative approach to using the pre and post-testing option could be to administer the post test in
sections (relating to the content of the teaching and learning undertaken).

The test is accessible on-line at www.financialeducation.org.nz/ under teacher resources and on the
Reserve Bank website at www.rbnz.govt.nz/skinttomint



16. 2 Unit standards
Further assessment is available through the Unit Standards in the Personal Financial Management
domain that can be used for classroom assessment.


These are:
Level 2
US 25242            4 credits
Demonstrate knowledge of wealth creation through the personal financial planning process.
US 25246            2 credits
Demonstrate an introductory knowledge of risk and return for personal financial management.


Level 3
US 25247            3 credits
Demonstrate knowledge of risk and return, and diversification for personal financial management.

16. 3     The Glossary

The glossary definitions can be used to test student’s knowledge of the meanings of investment
terms. Activities such as “team ping-pong” or the use of “Snap cards” can be useful here.

Hint
Refer to the Unit Standard Element and Performance Criteria Matrix to ascertain how much of the
standard/s have been covered through playing the game.




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Appendix One

Glossary

Active income
Active income is income for which services have been performed. This includes wages, tips, salaries,
commissions and income from businesses in which there is material participation.


Asset classes
An asset class is a category of investment assets with similar return and risk characteristics and
subject to the same laws and regulations. Whatever the asset class line-up, each one is expected to
reflect different risk and return investment characteristics and to perform differently in any given
market environment.


“Asset classes” refers to the four main types of investment categories. The main asset classes are:
•       Shares or equities – a stake or ownership of a company.
•       Bonds – representing money loaned to an issuer, for example the New Zealand government.
•       Property – a physical building, whether commercial or residential, other than the primary family
       residence.
•       Cash deposits – including money deposited in an interest bearing account.


Asset protection planning (related to risk management)
Asset protection refers to a wide range of activities that are aimed at safeguarding and protecting
wealth both in the short term and long term.


Bogus share offer
A bogus share offer is the offer to sell shares in a company that is either fake or one that is not
allowed to sell shares. Unsuspecting investors handing over their money soon realise that they have
been tricked and that their “shares” are in fact worthless.


Bonds
A bond is a general term that describes the vehicle that an organisation uses for financing its
activities. Bonds represent long-term debt obligations of a company or government. They are fixed
interest investments whereby the individual receives a number of payments at fixed intervals until the
bond is repaid. Fixed interest securities can be bought and sold and may be traded on a stock
exchange.




Facilitator’s Resource                                                                            Page 34
Many organisations borrow money so they can become even bigger and more successful. One way
they borrow money is by selling bonds. When buying a bond, investors are lending money to the
company so it can grow. The company promises to pay interest and to return the money on a date in
the future.


Bonus issues
Bonus issues are new shares in a company that are given to existing shareholders for free; they are a
bonus or reward for owning shares in the company. A company may decide to distribute further
shares as an alternative to increasing the dividend payout issued to shareholders in proportion to their
holdings, for example one bonus share for every 10 shares held.



Business ownership

Business ownership means having control over a business enterprise and being able to dictate its
functioning and operations.


There are three ways in which business ownership may be acquired:
•       Initiating a business.
•       Purchasing a company that already exists.
•       Franchising.


The most common forms of business ownership are the sole proprietorship, partnership and
companies.


Capital gains
Capital gain is the profit that results from the sale or the exchange of a capital asset which exceeds
the purchase price.


Cash
Cash refers to money in the physical form of currency, such as banknotes and coins.


Collectables/ Collectibles
Collectables are things considered to be worth collecting (not necessarily valuable or antique). For
investment purposes, a collectable (collectible) is any physical asset that appreciates in value over
time because it is rare or it is desired by many. Many people think of collectables as things like
stamps, coins, fine art or sports cards, but there are really no strict rules as to what is or is not a
collectable.




Facilitator’s Resource                                                                                Page 35
Company shares
A share (also known as stock) is a document issued by a company, or a record held electronically,
that registers its holder as a part owner of the company. A share is issued by a company or can be
purchased from the share market. Owning a share can earn a portion of profits and selling shares
can result in a capital gain. So, the return is the dividend plus the capital gain. However, investors
also run a risk of making a capital loss if shares have been sold at a price below the buying price.


Cross sector
A range of different industries.    For example, investors can diversify their equity portfolios that
encompasses shares in the energy, financial and utilities industries.


Debentures
Debentures are a type of fixed interest or debt security where the issuer's obligation to repay investors
is secured by the issuer's assets. The value of a debenture depends on the value of the issuer's
assets. Debentures earn interest. (Other definitions do not include the feature of a debenture being
secured by the issuer’s assets).


Direct investment
The act or practice of buying an investment product by an individual, without using a broker as an
intermediary and gaining direct ownership of the investment (such as owning property or shares).


Indirect investment involves investing in securities or other assets that are traded on financial
markets.


Diversification
The practice of spreading money among different investments to reduce risk is known as
diversification. By buying a mixture of different types of shares, bonds, or mutual funds, savings will
not be wiped out if one of the investments fails. By diversifying, investors aim to limit their losses and
reduce the fluctuations of investment returns without sacrificing too much potential gain.


Dividends
Dividends are payments made by a company to its shareholders as a reward for owning shares in the
company. Dividends are the yield from the investor’s investment in the company. It is the portion of a
company’s net profit paid to its shareholders (owners). The proportion of a company’s profit that it
pays to its shareholders is usually declared as a dividend per share (DPS).


Dollar cost averaging
Dollar cost averaging is a method of purchasing securities by investing a fixed amount of money at
set intervals. It is a timing strategy of investing equal dollar amounts regularly and periodically over




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specific time periods (such as $100 a month) in a particular investment portfolio. By doing so, more
units are purchased when prices are low and fewer units are purchased when prices are high. The
point of this is to lower the total average cost per share of the investment, giving the investor a lower
overall cost for the units purchased over time. The investor buys more shares or units in a managed
fund when the price is low and fewer shares or units when the price is high, thus reducing the overall
cost.


Email scams
An email scam is the use of email messages to trick people into providing sensitive personal
information or to convince people to pay money for assets that are either fake or worthless. (Same as
a phishing scam).


Equities
Equities are an alternative term for shares.      Equities are an entitlement to a proportion of the
ownership of a business with the expectation that the share owner will get a portion of the business’
profit.


Financial adviser
A financial adviser is a professional who renders financial planning services to individuals, businesses
and governments. This can involve investment advice which may include pension planning, and/or
advice on financial products, such as life insurance and other insurances such as income protection
insurance, critical illness insurance etc, and/or advice on mortgages, and other investment products.


A financial adviser may include but is not limited to an insurance adviser or broker, an accountant,
lawyer, tax agent, or banking service.


Financial planning
In general usage, a financial plan can be a budget, a plan for spending and saving future income.
This plan allocates future income to various types of expenses, such as rent or utilities and also
reserves some income for short-term and long-term savings.           A financial plan can also be an
investment plan which allocates savings to various assets or projects expected to produce future
income, such as a new business or product line, shares in an existing business, or real estate.


Fixed interest savings account
A savings account which pays a set amount of interest until maturity.


Futures
Futures are financial contracts or agreements between a buyer and a seller. The seller agrees to sell
a specific product to the buyer, at a specific date in the future, at an agreed price. Because futures
are contracts, when the contract date arrives, the buyer must buy the product. For example, if an


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investor buys gold futures today they agree to take possession of a certain amount of gold at a date in
the future in return for paying the agreed price. Futures investments in things like foreign currency,
oil, electricity or wool occur where investors invest now on a prediction of what the commodity will sell
for at a later date. Futures contracts are a way of trying to profit (or minimise loss) from future
movements in prices or values, without actually buying the commodity that the contract relates to.


Gambling
Gambling is any activity in which money is bet on an event occurring or not occurring and in which
luck plays a large role in the final outcome. There is usually less skill, planning and research involved
compared to investing. Elements of ‘gambling’ often include a limited number of scenarios: Win/lose
situations, a limited number of options to choose from, more luck than skill required and the results of
gambling are generally known immediately. Gambling is an activity often undertaken for excitement
and/or financial gain.


One very important aspect about gambling is that it generally has a negative expected return. For
example, the buyers of lottery tickets as a whole pay more than the value of prizes paid out and the
shareholders of casinos make reasonably steady returns from the net amount lost by all those who
gamble at casinos. Conversely, investing generally has a positive expected return.


Geographic spread
A range of different areas, usually expected to encompass the world. For example, investors can
spread their equity portfolios that to encompass investment in New Zealand, Australia, Asia, the US
and Europe.


Government bonds (also referred to as government stock)
Governments issue securities or bonds to finance their budget deficit (the difference between what it
gets in taxes and what it spends). Government bonds are is usually considered to be a very safe
form of investment and is essentially an IOU from the government. Both the public and companies
can lend the government money. In return they get a fixed rate of interest for a certain period of time
and then the money is repaid. The document which acknowledges the amount the government owes
each person or company is called a government bonds.


Hedging
Hedging is a plan to limit or offset probability of loss from fluctuations in the prices of assets. Hedging
includes a variety of techniques such as taking equal and opposite positions in two different markets,
or in protecting capital against the effects of inflation through investing in high-yield financial
instruments (e.g. bonds or shares), property, or precious metals.




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A hedge is a position established in one market in an attempt to offset exposure to price fluctuations
in some opposite position in another market with the goal of minimising one's exposure to unwanted
risk. The aim of hedging is to avoid or limit risk and protect against price changes.


Indirect investment
This is a way of investing through an intermediary, either an external adviser or body. Indirect
investors are those who access a market by investing through a collective investment fund as
opposed to purchasing an asset directly in their own name.


Interest
The fee charged by a lender to a borrower for the use of borrowed money, usually expressed as an
annual percentage of the principal. It is the cost of borrowing and is a return on savings.


Investment
Investing is the process of buying assets with the intention of making a financial return. The returns
can be realised as income, capital gains, or a combination of both. Investment possibilities include
shares, bonds, deposits, mutual funds, real estate and other financial instruments or ventures.


However, there is no guarantee an investor will make the expected return or even a positive return
with any investment. In some cases, an investor may even lose the money invested. The potential
for variation of returns relative to that expected is known as investment risk.


Investment products
Products purchased with the expectation that they will provide a return or an income stream.
Typically, investment products include shares, debentures, bonds, property, term deposits and
collectibles.


Liquidity
Liquidity refers to how easily and quickly investments can be sold, and money accessed, without
incurring a significant loss.


Managed funds
Managed funds are investment products in which a professional investor, called a fund manager,
researches and buys assets for investors and charges a fee.


Options
Options are similar to futures since they are also a contract between a buyer and a seller. In an
options contract, the seller gives the buyer the option or right to buy a product at a specific date in the




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future and at an agreed price. Options are different to futures since the buyer doesn’t have to buy on
the contract date. The buyer can choose whether to buy or not.


Passive income
Passive income is income received from rental property, limited partnership or other enterprise in
which the person is not actively involved. Some examples of passive income are:
•       Earnings from a business that does not require direct involvement from the owner or merchant.
•       Rent from property.
•       Royalties from publishing a book or from licensing a patent or other form of intellectual
       property.
•       Earnings from internet advertisements on websites.
•       Residual income, repeated regular income earned by a sales person, generated from the
       payment of a product or service, that must be renewed on a regular basis in order to continue
       receiving its benefits.
•       Dividend and interest income from owning securities, such as shares and bonds, is usually
       referred to as portfolio income, which may or may not be considered a form of passive income.


Personal risk profile
A personal risk profile is an assessment of the level of risk an investor is comfortable with when
making investments, balanced with the level of returns they would like to earn on those investments.
Think of a ladder and call it the “returns ladder”. The highest investment returns are right at the top of
the ladder and the lowest returns are right at the bottom. The higher the investor climbs up the
ladder, the higher the returns they earn on their investments, but the higher the risk of falling.
Investors can’t have high returns without taking the higher risk. The personal risk profile refers to
where the investor stands on the returns ladder.


Phishing
Phishing is any method in which a person tries to obtain sensitive personal information from another
person with the intention of using that information for criminal activities. Phishing scams are typically
fraudulent email messages appearing to come from legitimate enterprises (e.g. a university, an
Internet service provider, a bank). These messages usually direct the recipient to a spoofed website


or otherwise get them to divulge private information (e.g. password, credit card, user names or other
account updates). The perpetrators then use this private information to commit identity theft.


Property
Property can be:
•       Something owned; a possession.
•       A piece of real estate.




Facilitator’s Resource                                                                              Page 40
•       Something tangible or intangible to which its owner has legal title: properties such as copyrights
        and trademarks.
•       Possessions considered as a group.
•       The right of ownership; title.


Rate of return
A rate of return is the percentage of the original amount invested that is earned/returned to investors
during or at the end of the investment period (the length of time the investment is held for).


Residential rental property
A rental property used for residential purposes, rather than industrial or commercial ones. The tenant
pays the owner for the use of the property.


Risk
Risk refers to the possibility an investor will either lose some or all of the money invested or not
receive an expected return.


Risk and return relationship
The relationship between risk and return means that the returns investors will get when investing their
money will vary according to the risk level of the investment. Investors may lose money but if they
take greater risks, they should also expect to get greater returns.        No investment return is ever
guaranteed - there is always a risk.


Risk management
Risk management is the process of assessing what an investor’s personal financial risk profile is,
identifying the risk of the different investment products they are considering and then matching that
risk profile to suitable investments. It means having a plan to deal with those possible changes,
especially if those changes may cause the value of the investment to decrease. Hedging is one
example of a plan to limit possible losses in the future.


Savings
Savings is money set aside for a future use that is held in easily-accessed accounts, such as savings
accounts. Savings are cash related with the expectation of no risk of capital loss and relate to short-
term goals.


To save money is to put money aside for use in the future. Savings are normally put in a bank
account where they will be safe and earn a reasonable rate of interest. Savings are generally for
emergencies or for making specific purchases in the near term e.g. buying an Xbox or travelling
overseas.




Facilitator’s Resource                                                                             Page 41
Securities
A broad term for shares and other investments that are essentially a legal claim to part ownership of a
company and/or to financial entitlements (e.g. interest payments). By definition, securities can be
traded among investors. Shares, capital notes, bonds and some other interest-paying investments
are securities tradable through stock exchanges.


Scam
A scam is a ploy to obtain money or other goods or information from somebody by dishonest means.
It is an attempt to intentionally mislead a person usually with the goal of financial or other gain.
Deception techniques can include fake personalities, fake photos, fake template letters, non-existent
addresses and phone numbers, forged documents and non-existent businesses. A financial scam is
the attractive but false presentation of financial assets, transactions or schemes, by manipulators
whose real aim is to pocket those investor's savings.


Shares
Shares are an entitlement to a proportion of the ownership of a business with the expectation that the
share owner will get a portion of the business’ profit.


Speculation
Speculation is the process of selecting investments with higher risk in order to profit from an
anticipated price movement.       Speculation is a form of high-risk investment.         Speculators, like
investors, aim to use their money to make more money but are willing to accept very high levels of
risk to do so.


Term deposit
A term deposit is a deposit at a bank or other financial institution that has a fixed return (usually via an
interest rate) and a set maturity date. The depositor does not have access to the funds until maturity;
in exchange, he/she is usually entitled to a higher interest rate than for a call account.


Time in the market
Time in the market is the length of time that an investor expects to own an investment. It is used to
determine the investor's income needs and desired risk exposure, which is then used to help in
security selection.


Transaction costs
These are the costs associated with buying and selling assets and investments.               They are the
charges investors pay middlemen for their services e.g. fees, commissions.




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Unearned income
Unearned income is an individual's income derived from investments, such as interest and dividends
from investments, or income from rental property and other sources other than related to employment
services.


Volatility
Volatility is a measure of an asset’s stability. It is a term used to describe the risk of an investment
product. If the returns for a particular investment fluctuate and are very uncertain, the investment has
high volatility. Investments with high volatility are risky investments since investors cannot accurately
predict whether they make or lose money or how much money they might make or lose. Volatility can
be low, high, short, medium, or long term and can vary across asset classes.


Wealth
Wealth is financial independence through the accumulation of net assets. It is the abundance of
valuable resources or material possessions or the control of such assets.


Wealth creation
Wealth creation involves the building of assets by means of careful investment into asset-based
investments, usually over a long period of time so as to achieve an income stream that will ensure a
continuation of a high-quality lifestyle in the years beyond retirement.


Yields
Yield is the income that investments generate while investors own them. For example, if an investor
owns a rental property, the rent that they receive from the tenants each month is called the rental
yield. It is calculated as the return on an investment, normally expressed as a percentage of its
current value.


Sources
Sources used in the compilation of this glossary
•       www.moneymadeclear.org.uk/products/investments/types/asset_classes.html
•       www.looklearninvest.org.nz/glossary.php#investment-plan
•       www.sorted.org.nz/glossary
•       www.nzx.com/investing/glossary/
•       NZQA unit standards 25242, 25246 and 25247.




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Appendix Two
Pre and post test


1.    Someone who buys an asset and intends to hold it for a long time to earn the returns it produces
      is:
      (a) a trader
      (b) a broker
      (c) an investor
      (d) a dealer
      (e) a speculator


2.    Which of the following financial products or assets is not considered an investment?
      (a) bonds
      (b) shares
      (c) real estate property
      (d) futures
      (e) gold


3.    Buying a managed fund is:
      (a) direct investment
      (b) indirect investment
      (c) speculating
      (d) gambling
      (e) savings


4.    A _____ is not secured by physical asset or collateral. People buy it based on the belief that the
      issuer is unlikely to default on the repayment.
      (a) share
      (b) debenture
      (c) future
      (d) property
      (e) managed fund


5.    If you buy a company's shares:
      (a) you own a part of the company
      (b) you have lent money to the company
      (c) you are liable for the company's debts
      (d) the company will return your original investment to you with interest




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6.    If you buy a company's bond:
      (a) you own a part of the company
      (b) you have lent money to the company
      (c) you are liable for the company's debts
      (d) you can help manage the company




7.    Marika wants to take some of her savings and invest in a managed fund because she has heard
      that managed funds:
      (a) guarantee to earn more than savings accounts
      (b) are risk free
      (c) are managed by experts at picking investments
      (d) allow the investor to invest a set amount per month


8.    _____ is the degree to which an asset can be bought or sold in the market without the asset’s
      price moving by a large amount:
      (a) risk
      (b) return
      (c) interest
      (d) liquidity
      (e) all of the above


9.    Many people put aside money to take care of unexpected expenses. If Daniel and Mahina have
      put money aside for emergencies, in which of the following forms would it be of LEAST benefit to
      them if they needed it right away?
      (a) cheque account
      (b) savings account
      (c) shares
      (d) invested in a down payment on the house


10. Over the past 70 years, the type of investment that has earned the most money, or the highest
      rate of return, for investors has been:
      (a) shares
      (b) corporate bonds
      (c) savings accounts
      (d) property




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11. Jack and Lani have just had a baby. They received money as baby gifts and want to put it away
      for the baby's education. Which of the following is likely to have the highest growth over the next
      20 years?
      (a) a savings account
      (b) shares
      (c) a New Zealand government bond
      (d) a cheque account


12. Your net worth is:
      (a) the difference between your expenditure and income
      (b) the difference between your liabilities and assets
      (c) the difference between your bank borrowings and savings
      (d) none of the above


13. Which of the following is not a long-term investment product?
      (a) property
      (b) shares
      (c) superannuation
      (d) term deposits
      (e) call account


14. Which of the following would be the safest investment?
      (a) government bonds
      (b) managed funds
      (c) property
      (d) Kiwisaver
      (e) shares


15. Abby has left school and started her first job. Which of the following is not true about KiwiSaver?
      (a) she must contribute 4% of her gross income
      (b) she will receive $1000 towards her account from the government to kick-start her account
      (c) she must be over eighteen to be automatically enrolled
      (d) she can take a contribution holiday after she has been in the scheme for at least one year




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16. Which of the following features of an investment would make you think it might not be a scam?
      (a) promise of very high returns and very little risk
      (b) being told that the offer is only being made to a select few people
      (c) the minimum amount you are told you have to invest keeps reducing
      (d) being offered by a well known reputable finance organisation


17. The Reserve Bank Act of New Zealand regulates non-bank deposit takers. Which of the
      following statements is false? This Act:
      (a) affects credit unions, finance companies and building societies
      (b) means that non-bank deposit takers are required to have a credit rating
      (c) means that depositors continue to remain responsible for their own investment decisions
      (d) means that investors can now rely on the government to ensure that non-bank deposit
            takers do not fail depositors
      (e) gives the Reserve Bank powers to regulate non-bank deposit takers


18. Which of the following statements is false?
      (a) credit ratings indicate how risky it is to deposit money with a financial institution
      (b) a deposit taker with a credit rating will never fail to pay your money back
      (c) the Reserve Bank approves which credit rating agencies deposit takers can use
      (d) a credit rating is issued by a credit rating agency


19. James has received $50,000 bonus from his company and is trying to decide how to invest it. He
      has looked at shares but knows that some shares have lost a lot of value for their owners
      recently. What aspect of investing is he most concerned about?
      (a) risk
      (b) return
      (c) diversification
      (d) liquidity
      (e) investment growth


20.   In general, which one of the following financial assets has the lowest risk?
      (a) shares
      (b) options
      (c) futures
      (d) managed funds
      (e) government bonds




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21. Which of the following assets could be the best target for short-term investors?
      (a) property
      (b) shares
      (c) deposits
      (d) cars
      (e) futures


22. Investors can reduce the risk of their investment by:
      (a) buying quality investments
      (b) staying out
      (c) diversification
      (d) hedging
      (e) all of the above


23. If you buy the shares of a new company:
      (a) you cannot lose money
      (b) you can lose all the money you used to buy the shares
      (c) you can lose only a portion of the money you used to buy the shares
      (d) you are guaranteed to get a dividend


24. Who insures your shares in the share market?
      (a) The New Zealand Stock Exchange
      (b) The Securities Commission
      (c) Treasury
      (d) no one


25. If Liam wanted to reduce risk with his investments, which of the following would not be true? He
      would:
      (a) invest in capital guaranteed investments
      (b) diversify his investment portfolio and have a variety of investments
      (c) invest only in property
      (d) change from high risk to low risk investments




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26. Which of these investments have risk of losing value?
      (a) property
      (b) shares
      (c) superannuation
      (d) bonds
      (e) all of the above


27. Thomas has saved some cash and faces these choices. What would be the best thing for him to
      do?
      (a) put it in his savings account
      (b) invest in a managed fund
      (c) invest it in a debenture in a finance company
      (d) pay off the balance on his credit card that charges 18% interest


28. Isabella owns a wide variety of shares, bonds and managed funds to lessen her risk of losing
      money. This is called:
      (a) saving
      (b) compounding
      (c) diversifying
      (d) rationalising


29. _____ is a long-term technique used by investors who purchase an equal dollar amount of the
      same shares at equal intervals is called:
      (a) buy-and-hold technique
      (b) dollar cost averaging
      (c) direct investment plan
      (d) dividend reinvestment plan
      (e) day trading


30.   Dollar cost averaging allows investors to buy _____ shares when prices are ____ and _____
      when prices are _____.
      (a) more, low, fewer, high
      (b) constant, low, constant, high
      (c) fewer, low, more, high
      (d) more, constant, fewer, high
      (e) none of the above




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31. David has been investing $2,000 in a managed fund each year for a period of four years. The
      prices of each unit of the managed fund over the past four years are $50, $60, $68 and $60,
      respectively. How many units of the managed fund David has purchased so far?
      (a) 120
      (b) 126
      (c) 130
      (d) 136
      (e) 140



32. According to Question 31 above, what is the average cost of his investment?
      (a) 55.60
      (b) 56.80
      (c) 58.82
      (d) 59.99
      (e) 60.06


33. A dollar-cost-averaging approach to investing involves:
      (a) buying low and selling high
      (b) complex calculations of risk and return
      (c) selling securities to minimise capital
      (d) ignoring short-term ups and downs in the market on a day-to-day basis.


34. _____ are the profits from the sale of a capital asset such as shares, bonds, or real estate.
      (a) dividends
      (b) capital gains
      (c) market values
      (d) interests
      (e) bonuses


35. The dividend yield for a shares investment is calculated by dividing the _____ by the _____.
      (a) profits, dividends
      (b) dividends, profits
      (c) dividends, market value
      (d) market value, dividends
      (e) dividends, book value




Facilitator’s Resource                                                                              Page 50
36. The deposit in your savings account will grow faster if it is compounded:
      (a) weekly
      (b) fortnightly
      (c) monthly
      (d) quarterly
      (e) annually


37. Sophie wants to have $100,000 in 20 years. The sooner she starts to save, the less she'll need
      to save because:
      (a) the share market will go up
      (b) interest rates will go up
      (c) returns on her savings will start compounding
      (d) prices will go up


38. If you invest $1,000 today at 4% for a year, your balance in a year will be?
      (a) higher if the interest is compounded daily rather than monthly
      (b) higher if the interest is compounded quarterly rather than weekly
      (c) $1,000 no matter how the interest is computed
      (d) $1,040 no matter how the interest is computed


39. Ben and Sarah are the same age. At age 25, Sarah began saving $2,000 a year while Ben
      saved nothing. At age 50, Ben realised that he needed money for retirement and started saving
      $4,000 a year, while Sarah kept saving her $2,000. Now they are both 75 years old. Who has
      the most money in his or her retirement account?
      (a) Ben, because he saved more each year
      (b) they would each have the same amount because they put away exactly the same
      (c) Sarah, because she has put away more money
      (d) Sarah, because her money has grown for a longer time at compound interest


40. Yi Hang’s savings account earns 1% interest per year and inflation is 2% per year. After one
      year, with the money in the account, would she be able to buy:
      (a) more than today
      (b) exactly the same as today
      (c) less than today
      (d) none of the above




Facilitator’s Resource                                                                       Page 51
Pre and post test answers


1           c               2    d
3           b               4    b
5           a               6    b
7           d               8    d
9           d               10   a
11          b               12   b
13          e               14   a
15          a               16   d
17          d               18   b
19          a               20   e
21          c               22   e
23          b               24   d
25          c               26   e
27          d               28   c
29          b               30   a
31          d               32   c
33          d               34   b
35          c               36   a
37          c               38   a
39          d               40   c




Facilitator’s Resource               Page 52

				
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