1. Introduce the lesson by asking students if they have a savings or a checking account at a bank. Ask students if there are any other bank services that they have used? Ask students to think of the different services that banks provide. Write these services in a list on the board or a piece of chart paper. (Answers may include: checking accounts, savings accounts, CDs, special incentives like free student checking, or a “Keep the Change” program, credit cards, debit cards, insurance, currency exchange, money transfers, mortgages, home equity loans, refinancing, investments, mutual funds, auto loans, boat loans, student loans, business loans.)

2. Go through the list you have created of bank services with the class. One by one, review what each service involves, and decide if it involves money lending (the bank giving money to the customer or account holder) or not (the customer or account holder giving their own money to the bank). Review the Bank Services Answer Key (RTF) (PDF) for answers.

3. Divide the class into two groups, Consumers and Lenders. Distribute chart paper to each group. Ask the Consumers to think about the reasons they would want to use the bank services listed. Ask the Lenders to think about the reasons why banks would want to provide these services. Give the groups 10 – 15 minutes to discuss and list their answers on the chart paper.

4. Bring the two groups together and discuss each group’s answers as a class. (Reasons for Consumers should include: safety & security, convenience of payment, access to cash, earning interest, incentives to save. Reasons for Lenders should include: providing services for customers, helping people achieve financial goals, helping to generate economic activity, access to capital that the bank needs to provide loans, financial profit.)

5. As students can see, lending money is a huge component of the banking industry. Tell students that they are going to watch a video clip explaining the foundations of money lending. FRAME the first part of the clip, “Establishing Credit, Earning Interest,” by explaining to students that money lending is a risky endeavor, and the world financial system did not always have structures in place to guarantee repayment. Give students a FOCUS by asking them to note the root of the word “credit” as they watch the clip. PLAY Clip 1, PAUSE after “I believe.” FOLLOW UP by asking students for a working definition of “credit.” (The idea that you can lend money to someone and rely on them to pay it back at a later date.) Ask students how the concept of credit affects the consumer in bank services and transactions? How does it benefit the lender?

6. FRAME the second half of the clip by explaining that even with the trust established by credit, banks or money lenders still need assurance that their loans will be repaid, as well as compensation for their services as lenders. Give students a FOCUS by asking them to note a definition of “interest” as they watch the rest of the clip. PLAY the rest of “Establishing Credit, Earning Interest.” FOLLOW UP by reviewing the definition and writing it on the board. (Interest: the amount paid to the lender over and above the sum lent.) Ask students how the concept of interest affects both consumers and lenders in bank services and transactions?

7. Discuss with students the impact that credit and interest went on to have in the world of trade. Ask students:
• Why do you think credit and interest were essential to overseas trade? (Enabled people to have to money and goods they needed to trade)
• How is this same concept reflected in money-lending practices today? (Credit cards or loans enable people to buy things even if they don’t have the cash to buy them)
• How do the concepts of credit and interest, as incorporated into banking and money lending, help to stimulate economic growth? (Giving people credit means giving more loans which provides more work for lenders and more money in the system, increased revenue for lenders in the form of interest, and the creation of banking jobs as people want loans handled by professionals.) Give one example of how you think it may have stimulated growth in medieval times, and one example of how it works today. (Answers will vary.)

LEARNING ACTIVITY 1

1. Explain to students that with credit and interest as the foundation of international finance, it became possible for more advanced financial services to develop. Explain that in the Middle Ages, when the banking system as we know it began to evolve, the practice of lending money at interest was restricted to Jewish moneylenders.

2. FRAME Clip 2 , “Borrowing Time,” by asking if any of the students are familiar with the Shakespeare play “The Merchant of Venice.” Ask for (or provide, if students are not familiar with the play) a brief synopsis. (In “The Merchant of Venice,” Jewish moneylender Shylock lends money to Antonio, asking for a pound of flesh if the loan is not repaid. Explain that this play and the character of Shylock both reflected prevailing attitudes and helped to perpetuate many anti-Semitic stereotypes about Jews and money.) Give students a FOCUS by asking them to think about the following questions as they watch the clip:
• How were Jews set apart from other residents of Venice?
• What service was only provided by Jewish merchants? Why?
PLAY ”Borrowing Time.” FOLLOW UP by reviewing the questions and asking students for their answers. (1. They had to wear yellow “O”s or hats, and were confined to the ghetto nuovo. 2. They could lend money at interest; it was a sin for Christians to do so.) You may wish to explain to students that while the Christian church had declared usury to be a sin, the Jewish faith took a different perspective. Biblical interpretations suggest that the Old Testament declared that while Jews cannot lend at interest to other Jews, they are allowed to do so to non-Jewish people – therefore when Jewish merchants lent charged interest to Christians, it was not considered a sin.

3. Discuss with students why they think the Jewish merchants and moneylenders were so hated by the Christians. (Possibly because the Jews were engaged in a practice they considered to be a sin.) If the Christians were so opposed to the Jews, why did they still go to them for loans? (Likely because it was still necessary for Christians to obtain loans for business and trade.) Why didn’t the Christians just lend money to each other without interest? (Based on what students know about interest, it is not beneficial to the lender to give a loan without interest, so the Christians were probably reluctant to do so.)

4. FRAME Clip 3, “First Bank of the Medici,” by telling students that elsewhere in Italy, money lending was moving out of the ghettos, and was adopted by Christians as banking. One extremely wealthy family in Florence, the Medicis, adapted and revolutionized the established practices of banking. Give students a FOCUS by asking them to think about the following questions as they watch the clip:
• How did the Medicis enter into banking, if money lending at interest was a Christian sin?
• How did they earn revenue from bank services?
PLAY “First Bank of the Medici.” FOLLOW UP by reviewing the answers to the questions. (1. Earning money on foreign currency exchange. 2. Commission on currency conversions; funds to compensate for risking money deposited – rewarding credit with discreetly concealed interest payments.)

5. Lead students in a discussion about how banks may have transitioned from less formal organizations (merchants sitting on benches in the town square) to today’s reliable financial intermediaries.

LEARNING ACTIVITY 2

1. Ask students to make a list of the services that early banks provided, based on what they saw in the video. (Lending money, currency exchange, discretionary payments.) Compare and contrast this with the list of services that modern banks provide. What is the same? What has evolved or changed? What do they do now?

2. Tell students that a popular and accessible form of credit today comes in the form of a credit card. Ask students (either individually, or in pairs or small groups) to log on to the It Costs What?! Credit Card Primer, read through the information about credit cards, and take the quiz at the end. Give students a FOCUS by asking them to come up with a brief description of what credit cards are, how they work, and how interest relates to credit card use. Give students 5 – 10 minutes to review the site and come up with their answers.

3. When students have finished, ask for a couple of individuals or pairs/groups to share their descriptions. (Answers will vary, but should include: credit cards are a way to borrow money from a bank or other organization. When you make charges on a credit card, you are effectively taking out a loan from the bank for that amount. This loan must be repaid, and if you don’t pay your balance in full you will be charged interest on your debt to the bank. Interest is the cost of borrowing money from the bank.)

4. Ask students: how do credit and interest, in the form of a modern credit card, compare with the early forms of credit and interest they saw in the medieval Italian banks? What is the same? (People are accountable for their loans from the bank, and must pay interest on their debts.) What is different? (Technology has advanced, early on interest was perceived as a way to insure lenders against risky investments).

5. Distribute the Weekend Trip Invitation (PDF) (RTF) to students. The invitation describes a scenario where a friend has gotten a credit card, and is inviting the student on an expensive weekend trip; however, this hypothetical friend has little to no understanding of credit. Ask students, either in class or as a homework assignment, to write an email response to their friend explaining how credit and credit cards work, why banks are interested in lending money, what the friend should consider/think about, and least one historical example of banks and lending.

CULMINATING ACTIVITY

1. Ask students if they have ever lent money to a friend or someone close to them. What were some of the pros and cons of that experience? (Answers will vary but should address levels of trust between the borrower and the lender.) How did you, as the lender, benefit from that situation (if at all)?

2. Ask students if they would think of charging interest to a friend. (Likely not, but perhaps if the friend is unreliable, or they don’t expect the friend to be timely in their repayment of the loan.) Ask students how they would decide whether or not to loan money to a friend. Would they lend money to the hypothetical friend with the new credit card? (Answers will vary, but may include how much money the friend makes, how reliable they are in other areas, etc.)

3. Tell students that in order to give any kind of loan – be it a small business loan, credit card, home equity loan, etc. – the lender has to determine the borrower’s ability to repay the loan, or creditworthiness. Explain that throughout history, money lenders and banks have established different criteria for determining a borrower’s creditworthiness. Ask students to come up with some examples of what criteria they think medieval banks would have used to establish creditworthiness. (Answers will vary, but may include: how much money the borrower’s family had, how much land the borrower owns, what kind of trade the borrower engages in.)

4. Tell students that banks today have well-defined criteria for how they recognize a borrower’s creditworthiness. Divide students into pairs or small groups. Ask each pair/group to visit the Citibank “5 Cs” website. Explain that this website is an example of how one particular bank defines creditworthiness.

5. Explain to students that while these criteria can be a good indicator of creditworthiness, unfortunately being creditworthy alone does not always guarantee good use of loans or credit. Have the pairs/groups students log on to the Case Files section of “It Costs What?!” in a separate browser, and answer the questions based on the information.

6. As a FOCUS while reading and reviewing these websites, distribute the Creditworthiness Student Organizer (RTF) (PDF) to each student. Ask students to complete the Organizer as they learn about creditworthiness from the two websites, listing at least three examples of Responsible Credit Behavior and Irresponsible Credit Behavior that would apply to each of the five criteria listed on the Citibank website. Give students 15 – 20 minutes to complete the activity. When students have finished, ask for volunteers to share their answers with the class.

1. Ask if anyone would like to volunteer a definition of what insurance is. (Answers will vary.) Explain that all types of insurance are essentially contracts—a promise from the insurer of compensation for specific potential future losses (of life, health, property, or almost anything else) in exchange for a periodic payment from the insured. It is a calculation of risk on behalf of both parties. Tell students that over the next few class sessions they will be learning about insurance and the role it has played in world history, economics, and politics using clips from the PBS series THE ASCENT OF MONEY, hosted by Niall Ferguson.

2. For the first clip, provide students with a FOCUS FOR MEDIA INTERACTION by asking which three options Ferguson offers for “deal[ing] with the risks and uncertainties of the future?” WATCH Clip 1, “Who Bears the Risk?”

3. Review the focus question: What are the three options Ferguson suggests for who should bear the risks of the future? (1 – The individual, by purchasing private insurance; 2 – the community, through voluntary charity; 3 – the state, through compulsory taxes.)

4. Distribute the “Who Should Pay?” Student Organizer (PDF) (RTF). After explaining that there are no “correct” answers, give students a few minutes to read the organizer’s list of expenses commonly incurred over the course of a lifetime and mark on the organizer—according to the options established by Ferguson—which ones they feel should be 1) paid for by the individual, 2) paid through charity, or 3) paid for by the government. When students have completed their organizers, ask for a show of hands indicating how they categorized each expense, asking students who responded differently to explain why they feel as they do. Tabulate the results on a blackboard or whiteboard, also noting the results on your own copy of the organizer. Ask the class what they think the results say about their collective politics and philosophy? (Accept all answers.) Put your own copy of the organizer aside for later use in the lesson’s Culminating Activity.

5. Explain that disagreement about how various types of insurance should be paid for is one of the defining aspects of the political landscape both within the United States and the world at large. Explain that those who tend to favor Option 1 probably regard insurance as a privilege to be purchased like any other service, whereas those who tend to favor Option 3 probably regard insurance as a right of citizenship—if not a right of humanity itself.

LEARNING ACTIVITIES

1. Ask students what they currently do (or should be doing!) to prepare for future financial needs? (Most will answer that they save money.) Explain that saving is indeed the oldest method of providing for the future, and that it is still a basic element of modern economics, but that insurance is a more recent financial invention that puts a more profitable twist on saving for the future by introducing the element of risk. Tell students that they will now be looking at a clip that explains the origins of the modern life insurance fund. Provide a FOCUS FOR MEDIA INTERACTION by asking students how Robert Wallace and Alexander Webster’s Scottish Ministers’ Widows and Orphans Fund worked. PLAY Clip 2 “The Birth of Insurance.” PAUSE the clip a little more than 3 minutes in, after Professor Ferguson says “…the widows and orphans henceforth would be paid out of the returns on that money, leaving the premiums to accumulate.”

2. Review the focus question: How did Robert Wallace’s and Alexander Webster’s Scottish Ministers’ Widows and Orphans Fund work? (Premiums were paid by the insured into the fund, which was then invested by the insurers for profit; payments were made from the returns on the investment, leaving the premiums to accumulate.) Tell students that this remains the basic premise for insurance companies to this day, including Scottish Widows—the present day incarnation of Wallace and Webster’s original fund.

3. Explain that all types of insurance are essentially contracts—promises from the insurer of compensation for future losses (of life, health, property, or almost anything else) in exchange for a periodic payment (or “premium”) from the insured. Insurance can also be described as a type of gamble—a calculation of risk and probability in which both parties bet against each other: the insured weighs the possibility (or relative imminence) of possible losses against the certainty of paying premiums over time, while the insurer makes exactly the opposite wager. Premium rates are set based upon the insurer’s calculation of the insured’s risk—the higher the risk, the higher the premium. Provide students with a FOCUS FOR MEDIA INTERACTION for the remainder of the clip by asking them what Professor Ferguson means when he says that “size matters” in calculating insurance risk? PLAY Clip 2 through to the end.

4. Review the focus question: What does Professor Ferguson mean when he says that “size matters” in determining insurance risk? (The more people who pay into an insurance fund, the easier it is to predict how much will need to be paid out.) Ask students why they think this is? (Accept all answers.)

5. Have students log on to the “Ken White’s Coin Flipping Page” (available at http://shazam.econ.ubc.ca/flip/). Ask students what the statistical probability of a flipped coin landing heads up is. (50%) Have each student predict whether a tossed coin will turn up heads or tails, and then have each student flip a coin. Ask how many students predicted incorrectly? (Probably around half the class.) Explain that this is a pretty high rate of unpredictability—you certainly wouldn’t want to bet your life (or life savings) on it!

6. Next, have each student flip 10 coins and ask how many got within 10% of an even split (i.e. between 4 and 6 heads results)? (This will probably be well over 50%.) Finally, have each students flip 100 coins and ask how many got within 10% of the statistical average (i.e. 40 to 60 heads results)? (This will probably be closer to 100 %.) Have students note the almost exact split between heads and tails between the many millions of coins flipped on “Ken White’s Coin Flipping Page” since the site was established in 1995 (these numbers are given on each flip results page). Ask students why they think this is so? (Accept all answers.) Explain that this “law of averages”—also known as Bernoulli’s Law—states that a large number of independent measurements of an uncertain quantity tends toward the theoretical average of that quantity; in other words, the larger the number of measurements, the more precisely average the results. Explain that this law of averages is more than a game of nickels and dimes—it’s a fundamental principle of the entire world’s insurance economy.

7. Ask students what possible problems they might detect in a premiums-based system of private insurance such as Wallace and Webster’s Scottish Ministers’ Widows and Orphans Fund. (Accept all answers.) Tell students that they will now be looking at a clip that examines the primary shortcoming of private insurance: not everyone can afford it! Provide students with FOCUS FOR MEDIA INTERACTION by asking them how Japan addressed this problem, and why. PLAY Clip 3 “From the Cradle to the Grave.” PAUSE clip about 3 minutes in, after Ferguson says: “The wartime slogan ‘all people are soldiers’ was adapted to become ‘all people should have insurance.’”

8. Review the focus question: How did Japan address the issue of insurance affordability, and why? (It “nationalized” insurance—i.e. had the government pay for it—with the aim of creating a large and able-bodied population of soldiers and workers to help realize its imperial ambitions.) Ask students what they think this policy led to? (Answers will vary, but should mention Japan’s defeat and near destruction in World War II.) Explain that very similar policies of nationalized insurance were adopted by other nations of this era—including Nazi Germany—for similar militaristic reasons.

9. Tell students that the next part of the clip will explain why the end of Japan’s “warfare state” was just the beginning of what would become known as the “welfare state.” Provide students with a FOCUS FOR MEDIA INTERACTION by asking them what economic lesson the Japanese and other exhausted combatants drew from the wreckage of World War II? RESUME PLAYING Clip 3. PAUSE after another 3 minutes, after Ferguson says “and when they died, the state would pay their dependents.”

10. Review the focus question: What economic lesson did the Japanese and other exhausted combatants draw from the wreckage of WWII? (They determined that the modern world was too dangerous and unpredictable for private insurance, so risk had to be nationalized. A minimum standard of living for all citizens “from the cradle to the grave” would be guaranteed by the state, including education, unemployment, health care, retirement, and death benefits.) Explain that this policy of “nationalization” is also commonly understood as a form of “socialism,” and that it was a system adopted not only in Japan, but throughout much of the western world after World War II.

11. Ask students what they think would be the pros and the cons of this modern “welfare state.” (Accept all answers.) Provide students with a FOCUS FOR MEDIA INTERACTION for the remainder of the clip by asking them what Professor Ferguson believes was the fatal flaw of the modern welfare state. PLAY Clip 3 through to the end.

12. Review the focus question: What does Professor Ferguson believe was the fatal flaw of the modern welfare state? (That the safety net of the welfare state stifled the incentives and disincentives of capitalism: reward for industriousness and hardship for idleness.) Explain that the result was “stagflation”—low growth combined with high inflation—while welfare states’ treasuries were steadily drained by “entitlement” payments to citizens who had come to expect government insurance as a right.

13. Explain that in the 1970s, Chicago economist Milton Friedman proposed a solution that was first tested in Chile, which had been bankrupted in part by the welfare state benefits offered under the recently deposed communist regime. Provide students with a FOCUS FOR MEDIA INTERACTION by asking them what Friedman’s economic advice was for Chile’s new right wing military dictator, General Augusto Pinochet. PLAY Clip 4 “Trickle Down Economics.” PAUSE after Ferguson says “Friedman found himself denounced for acting as a consultant to a military dictator, responsible for the executions of over 2,000 real and suspected communists, and the torture of over 30,000 more.”

14. Review the focus question: What was Friedman’s economic advice for Chile’s new leader, General Augusto Pinochet? (Cut governmental budget deficit—i.e. government spending—to control inflation, then running at 900%.) Explain that Freidman’s economic theory was based on the principle that government spending increases the money supply, which in turn increases inflation. Tell students that despite Friedman’s political condemnation for having worked with the brutal Pinochet, he was eventually awarded a Nobel Prize in economics for the success of his economic theory—commonly known as “Monetarism.”

15. Provide a FOCUS FOR MEDIA INTERACTION for the next part of the clip by asking students how Friedman’s Chilean protégé Jose Panera took Friedman’s principle of smaller government a step further. PLAY Clip 4 from where it was previously paused. PAUSE after Ferguson says that “in the 20 years since 1987, the Chilean stock market has gone up by a factor of 18.”

16. Review the focus question: How did Friedman’s Chilean protégé Jose Panera take Friedman’s principle of smaller government even further? (By effectively replacing the national retirement pension system with private retirement plans, in which a portion of an employee’s paycheck is paid into his or her personal account, which then is invested for profit in the market.) Ask students if they think this was successful? (Accept all answers, but encourage an understanding that Chile’s economy, built around a new middle class of private pension owners created by Panera’s reform, has prospered.)

17. Ask students if Panera’s system of private retirement pension funds invested for profit reminds them of anything they’ve learned about earlier in this lesson? (Wallace and Webster’s original Scottish Ministers Widows and Orphans fund.) What was the central failing of Wallace and Webster’s brand of insurance? (Not everybody could afford coverage.) Explain that Chile’s system—like that of many nations, including the United States—essentially has the same shortcoming: not everyone has a full-time job that offers a pension or benefits, so many have neither.

18. Explain that Professor Ferguson doesn’t consider modern Chile’s lack of universal pensions to be a major problem; like Friedman and Panera, he believes that Chile’s rapidly growing economy—largely driven by private retirement pensions—ultimately benefits everyone. Explain that this “free market” economic philosophy of smaller government and greater privatization of services and industry was embraced (at least in principle) by conservatives in other nations, notably Margaret Thatcher in the United Kingdom and Ronald Reagan in the United States. Modern economic conservatism came to be defined in the 1980s by the notion that “a rising tide floats all boats” (i.e. a strong economy benefits both rich and poor), and its corollary of “trickle-down economics” (in which the prosperity of the wealthy “trickles down” to benefit the middle class and the poor).

19. Explain that this view is vehemently opposed by many other economists and policy-makers, who argue that this free-market philosophy is fundamentally unjust—widening the disparity between rich and poor and failing to provide what they regard as basic socioeconomic rights of citizenship. They also argue that the market is an unreliable guarantor of pensions, health care, and other forms of social insurance—a view that many feel has been validated by the 2008 collapse of worldwide financial markets, which has wiped out many pension funds.

20. Ask students to discuss which economic philosophy they agree with: 1) the “small government,” free market, anti-welfare state approach that regards pensions, health care, and other types of “social security” as privileges to be paid for by the individual, or 2) the “big government,” regulated welfare state approach that regards pensions, health care, and other types of social security as basic rights of citizenship? (Accept all answers, encouraging discussion and debate while emphasizing that there is no “right” or “wrong” answer.)

CULMINATING ACTIVITY

1. Divide the class into five groups, and have each group log on to “The Uninsured in America: The U.S. vs. Other Nations” website. Assign each group one of five nations featured on the site—Canada, China, Japan, Mexico, or the United Kingdom. Allow 20 minutes for each group to read the website and compile a brief report comparing and contrasting the relative strengths and weaknesses of the insurance model of their assigned nation with that of the United States.

2. Give each group five minutes to present their findings to the rest of the class. Encourage discussion of the pros and cons of each system.

3. Ask the class which system they consider the most “free market?” Which is the most nationalized? What might the nature of a nation’s health care system say about that nation’s culture and society as a whole? Have the class vote on which nation’s system of insurance they consider the best. Why? (Accept all answers.)

4. Pull out your copy of the “Who Should Pay” Student Organizer, and review for the class their earlier tabulated responses from the Introductory Activity. Based on those responses, ask students which of the five national systems they’ve been looking at most closely resembles their own collective attitudes to insurance? (Accept all answers.) Ask if anyone would now respond differently to the Student Organizer based on what they’ve learned in this lesson? If so, why?

5. As a supplementary homework assignment, have each student write a brief research paper on the nation they were assigned earlier in class, focusing on how that nation’s history may have shaped its approach to healthcare.

Who Bears The Risk?
A primer on to the three basic approaches to insurance: private, public, and charitable.
(View full post to see video)

The Birth of Insurance
How and why the world’s first life insurance fund was created in 18th century Scotland.
(View full post to see video)

From the Cradle to the Grave
Japan’s nationalized insurance policy—from its imperial, militaristic origins to the first modern welfare state.
(View full post to see video)

Trickle Down Economics
The crisis of the Chilean welfare state and its replacement by a more conservative, capitalistic system.
(View full post to see video)

Downloadable QuickTime versions of the video segments:
(Note: To download a video, right-click on the video title and click “Save Link As…” or “Save Target As…” On a Mac, press the CTRL key and simultaneously click the mouse, then save the link.)

Clip 1: Who Bears The Risk?

Clip 4: Trickle Down Economics

Lesson plans for THE ASCENT OF MONEY were created by the LAB@Thirteen, Thirteen’s Community and Educational Outreach Department.

1. Distribute a copy of the “Taking Stock” Student Organizer to each student. Starting at the top, ask the class which larger industry each company is part of—i.e. what type of goods it produces or services it offers. Have students note each correct response on their organizers, and search online for unfamiliar companies.

2. Once the class has completed the organizer, inform them that the economic performance of these thirty companies are used to determine the Dow Jones Industrial Average (DJIA)—the most commonly used index of the New York Stock Exchange (NYSE). Explain that the NYSE—where shares in these thirty companies are publicly traded among investors—is the world’s largest stock market. Because their various industries span most forms of activity in our economy, these thirty companies’ performance is used as a benchmark for determining the relative health of the stock exchange as a whole and the economy more generally. Explain that when people refer to the stock market being “up” or “down,” they are generally referring to the DJIA.

3. Explain to students that in the course of this lesson they will be learning more about companies, stocks, and the stock market through clips from the PBS series THE ASCENT OF MONEY, hosted by Professor Niall Ferguson.

LEARNING ACTIVITES

1. Explain that companies generally start as a vision of one or more “entrepreneurs”—resourceful and enterprising individuals who often have little aside from a “business model”—i.e. an innovative plan for producing profits. Tell students that they will now be watching a video clip about the world’s first true company. Provide a FOCUS question by asking: What was the Dutch spice merchants’ entrepreneurial business model in the late 17th century? PLAY CLIP 1, “Birth of the Stock Market.” PAUSE about 40 seconds into the clip, after Ferguson says “The Dutch plan was to fetch them the longer but quicker way—by sea.”

2. Review the focus question: What was the Dutch spice merchants’ entrepreneurial business model in the late 17th century? (Rather then bringing the spices from Asia overland, they would ship them by sea.) Explain that many ambitious business models like this one require capital resources—generally cash or credit—beyond those of individual entrepreneurs. Provide students with a FOCUS for the next part of the clip by asking them why these spice traders found it necessary to pool their resources and form partnership companies. RESUME playing CLIP 1. PAUSE after about one minute, after Ferguson says “The result was around six fledgling East India enterprises.”

3. Review the focus question: Why did Dutch spice traders find it necessary to pool their resources and form partnership companies? (The sea voyage to and from the spice producing regions of Asia was so prolonged and dangerous that the expense and risk of such voyages had to be shared among the merchants.) Explain that a basic principle of joint ownership in a company is that both profits and risks are pooled and shared by all partners.

4. Ask students if anyone knows what an “IPO” is. (IPO is an acronym for “Initial Public Offering,” referring to a company’s first offering of “stock” to the general public.) Ask students what “stocks” are. (Stocks are ownership shares of a company sold by that company.) Ask students why they think a company’s original partners would want to share ownership with additional shareholders? (The potentially unlimited capital raised by the sale of stock allows a company to expand its business beyond the limited resources of the original partners.) Provide a FOCUS for the remainder for the clip by asking how the world’s first true stock market came into existence. RESUME playing Clip 1 through to the end.

5. Review the focus question: How did the world’s first true stock market came into existence? (After an offering to the general population of shares—the first “IPO”—the newly consolidated United Dutch East India Chartered Company declared that these shares could not be returned to the company for a refund, but only sold to another investor. The brisk market for these highly profitable shares became the world’s first stock market.) Ask students if they are familiar with the laws of supply and demand to which Ferguson refers at the end of the clip. (Accept all answers.) Explain that it is an economic model which concludes that in a competitive market, price fluctuates to equalize the quantity demanded by consumers and supplied by producers, resulting in an economic equilibrium.

6. Asks students if they think that the law of supply and demand guarantees a stable market? (Accept all answers.) Provide students with a FOCUS question for the next video clip by asking: Who coined the term “irrational exuberance” and what does it mean?
PLAY Clip 2: “Shock Markets.” Review the focus question: Who coined the term “irrational exuberance” and what does it mean? (Former Federal Reserve Chairman Alan Greenspan coined the term to describe the “collective euphoria” and unwarranted optimism that investors often demonstrate when they invest in the ultimately unpredictable stock market.) Explain that history has shown time and again that investors seeking to profit from a strong—or “bull” market—often ignore signs that the stocks they’re buying have become overvalued. A key principle of investing is to “buy low and sell high,” but when all prices are rising it can be difficult to know exactly what “low” and “high” prices are. Moreover, when investors sell stocks which they think have peaked in value, it can spark a “sell-off” which, if widespread enough, can trigger a weak “bear” market.

7. Divide students into groups of 4-5. Have each group log on to “Play the Market” (http://www.pbs.org/wgbh/nova/stockmarket/virtual.html) and tell them to click “Trade Traditional Stocks” in the bottom right corner of the window to start the game. Explain that each group will assemble their own collection of investments—or “portfolio”—from some combination of the four imaginary stocks offered. They can then modify this portfolio according to market changes they will learn about by clicking on the “News Flash” button in each 2 week turn of the 16 week simulation. Also point out that each group is also free to keep some or all funds in the “bank” at 4% interest rather than purchasing stocks. Explain that the point of the exercise is to increase the value of one’s portfolio as much as possible. Allow 20 minutes for the groups to play through the simulation.

8. Ask each group to share the simulation’s final evaluation of their portfolio performance (found by clicking the “Evaluation” button on the simulation’s last screen). Which group performed best, and why? Which group performed worst, and why? Would any group have been better off keeping all their money in the bank? Did any group invest heavily in YeeeeeHaw.com when it was performing well, only to see the value of their stock plummet later on? Explain that similarly high expectations of unproven technology stocks fueled the “dot-com boom” of the late 1990s, when Mr. Greenspan made his famous observation that investors were deluding themselves through “irrational exuberance.” Explain that as with the simulation’s fictional YeeeeeHaw.com stock, many real technology stocks plummeted in the “dot-com crash” around the turn of the 21st century.

9. Explain that the stock market crash of September 2008 and the ensuing financial crisis—largely based on overvalued real estate investments—dwarfed the dot.com crash. Many experts are in fact comparing it to the crisis of October 1929 that precipitated the Great Depression of the 1930s. Explain that while the stock market fluctuates minute to minute and day to day, broad trends can be discerned over time.

10. Have each group to log onto the “Dow Jones Industrial Average Timeline” (http://www.stockcharts.com/charts/historical/images2/DJIA1900.gif), which depicts the Dow Jones Industrial Average’s performance over the past century. What general trend can be discerned? (Overall growth over time; periods of fast growth interspersed with periods of relative stagnation.) Ask if anyone can make a correlation between a major event or period in history and significant gains or losses in the market? How, for instance, did the market respond to the December 1941 attack on Pearl Harbor, and the string of Allied defeats which followed? What about the 1973-4 Arab Oil Embargo? The terrorist attacks of September 11, 2001? During which presidential administrations did the stock market climb? During which did it fall?

CULMINATING ACTIVITY

1. As homework, assign each student in the class to write a brief research report on one of the companies listed on the “Taking Stock” Student Organizer. Important questions to be addressed should include: What was the original business model of the company’s entrepreneurial founders? How much time passed from the company’s creation to its IPO, and why was an IPO necessary? When was it chosen to become on of the thirty companies which determine the Dow Jones Industrial Average? How has the company’s stock performed throughout its history? Has it been affected by current events in the past ten years?

2. During the next class period, have students divide into their previously established groups of 4-5 and present their findings to each other. Within each group, have certain companies prospered while others have suffered? Have certain events affected some companies more than others?

Birth of the Stock Market
An overview of the origins of the company and the stock market in 17th century Holland.
(View full post to see video)

Shock Markets
A brief description of the volatility of stock markets.
(View full post to see video)

Downloadable QuickTime versions of the video segments:
(Note: To download a video, right-click on the video title and click “Save Link As…” or “Save Target As…” On a Mac, press the CTRL key and simultaneously click the mouse, then save the link.)

Clip 1: Birth of the Stock Market

Clip 2: Shock Markets

Lesson plans for THE ASCENT OF MONEY were created by the LAB@Thirteen, Thirteen’s Community and Educational Outreach Department.

Establishing Credit, Earning Interest
Root of credit, definition of interest
(View full post to see video)

Borrowing Time
History of Jewish moneylenders
(View full post to see video)

First Bank of the Medici
Evolution of Medici banks.
(View full post to see video)

Downloadable QuickTime versions of the video segments:
(Note: To download a video, right-click on the video title and click “Save Link As…” or “Save Target As…” On a Mac, press the CTRL key and simultaneously click the mouse, then save the link.)

Clip 1: Establishing Credit, Earning Interest

Clip 2: Borrowing Time

Clip 3: First Bank of the Medici

Lesson plans for THE ASCENT OF MONEY were created by the LAB@Thirteen, Thirteen’s Community and Educational Outreach Department.

Is Property the Route to Wealth?
Property ownership has not solved the problem of global poverty.
(View full post to see video)

Microfinance
Microcredit puts loans in the hands of low-income entrepreneurs.
(View full post to see video)

Downloadable QuickTime versions of the video segments:
(Note: To download a video, right-click on the video title and click “Save Link As…” or “Save Target As…” On a Mac, press the CTRL key and simultaneously click the mouse, then save the link.)

Clip 1: Is Property the Route to Wealth?

Clip 2: Microfinance

Lesson plans for THE ASCENT OF MONEY were created by the LAB@Thirteen, Thirteen’s Community and Educational Outreach Department.

1. Ask the students what the name is for someone who starts, organizes, and manages his or her own business? (Answer: entrepreneur)

2. Next ask: what does an aspiring entrepreneur need in order to start a business? (Accept all answers, which should include capital, or elements that could function as capital: money or goods that can be used to produce more wealth). Confirm with the students that one thing that entrepreneurs need to start a business is capital.

3. Distribute the “Terms and Definitions” student organizer (PDF) (RTF) to each student. Have the students fill in the definitions for the first two terms, which they have already discussed. An Answer Key (PDF) (RTF) is provided for teacher reference. As the lesson proceeds, students should fill in the rest of the definitions for the terms on the organizer as they arise.

4. Tell the students that capital is something entrepreneurs need not only to start a business, but also to expand their businesses. Ask: How can entrepreneurs get the capital they need to start or expand businesses? (Answer: by getting a loan – also known as credit).

5. Pass out the “Entrepreneur Descriptions” strips (PDF) (RTF) to the class – 1 strip to each student or pair of students. Tell the students that each strip identifies an entrepreneur in the developing world. For each scenario, the students should think of at least one way that the individual could expand his or her business (to get more profit). Specifically, what would a loan of additional capital enable him or her to do to expand the business? Give the students a few minutes to come up with ideas, then share with the class. (Ideas might include: buying more inventory, investing in equipment or tools, renting or buying a storefront, buying livestock, or hiring staff).

6. Now have the students imagine that the entrepreneurs put in applications to a bank for loans to expand their businesses. What would the banks want to be sure of before lending them the money? (Answer: The banks want to be sure that the loans will be repaid).

7. Examine the factors that a typical bank will consider when evaluating a loan application. Explain the term creditworthy to the class, and have the students create the chart below (leaving the right-hand column empty for the moment). Have the students visit the CitiFinancial: Resource Center: All About Credit website (or distribute printouts of the page to the class) and explore the factors that contribute to a bank’s assessment of creditworthiness in a potential borrower (making sure the students also define each term on their “Terms and Definitions” Student Organizer – see the “Terms and Definitions Answer Key” for suggested definitions). [NOTE: If students have completed the “You Can Take that To the Bank!” lesson, they may be able to do this step from memory].

8. Remind the students of the entrepreneurs they read about earlier. Ask the students to refer to the creditworthiness factors and determine why these individuals might have trouble getting a loan from a bank? (They may have no prior loans on which to base a character assessment that relies largely on this, they may not have large income potential for the capacity assessment, nor much net worth for the capital assessment, they probably have few items of value to offer as collateral). If these individuals were to present their loan applications to a typical Western bank, would they likely be approved? (Most likely, no!).

Learning Activity 1: Two models of credit for the poor
1. Discuss the global problem of poverty: over 1 billion people in the world survive on less than one dollar a day, which is a figure used by international organizations to measure abject poverty (equal to over three times the entire population of the United States, or one in every five people in the world). This is a problem on a grand scale, and many people are trying to find ways to raise the global poor out of poverty.

2. Explain that the inability of poor people to borrow money to expand businesses and generate wealth has been one factor in the ongoing difficulty people around the world have in raising themselves out of poverty.

3. Review the concept of collateral by asking the students to give you examples of collateral that might be leveraged for a business loan (these should be items of high value). Make sure that students understand that one of the most common forms of collateral for individuals seeking loans is the home that they own. But what about people who are too poor to own homes?

4. Frame Video Clip 1, “Is property the route to wealth?” by explaining that many poor people throughout the world cannot afford to own homes, and also are too poor to pay rent to landlords. The poorest people worldwide often set up shanties or huts in the shadows of cities, building on land that does not belong to them. This practice is known as “squatting.” In this video clip, the students will see if programs encouraging home ownership among the poor can help them out of poverty by providing them with collateral.

5. Provide the students with a FOCUS, asking them to determine how the video answers this question: Can making sure poor people own their own homes give them the means to rise out of poverty? PLAY Clip 1. Follow up by discussing the focus question (No – in the Argentinean example, a government program to encourage property ownership – one that gave squatters leases that converted after 20 years to full ownership of their homes – did not ensure they could borrow money after that).

6. Review the elements of a typical bank’s assessment of creditworthiness. Consider: How did giving poor Argentineans title to their property impact their character, capacity, capital, collateral, and conditions? (It increased their capital and the collateral they could use against a loan, but did nothing for their character, capacity, or conditions. Using the typical bank definition of creditworthiness, they were still not considered creditworthy).

7. FRAME Clip 2, “Microfinance,” by explaining that this video segment will show a totally different way to get money in the hands of poor people around the globe. Provide the students with a FOCUS, asking them to determine: “How are the loans that the Bolivian women are receiving in the video segment different from traditional bank loans?” PLAY Clip 2.

8. FOLLOW UP by reviewing the focus question (the loans seen in the video are different from traditional bank loans in that they are not secured with anything – no collateral backs up the loan). Ask: Would the women in the clip be considered creditworthy by a traditional bank? Why or why not? (No – they have very little capital or capacity, no collateral and no credit history on which to base a character assessment). Explain that this model – of giving out small unsecured loans to poor entrepreneurs who have no collateral or prior loan history to back up their repayment promises – is called microcredit and is one of the services of a financial service industry called microfinance. The institutions lending the poor people the money are not traditional banks, but microfinance institutions that specialize in this kind of lending. Have the students fill out the definitions for these terms in their “Terms and Definitions” Student Organizer.

9. Explain that while the traditional bank criteria for creditworthiness do not apply to most microcredit applicants, the microfinance model has proven that poor people, with little to no net worth or assets, can still be extremely creditworthy. Microfinance loans get successfully repaid 95 to 98 percent of the time – a rate higher than for almost any other kind of loan, including student loans and credit card debt in the United States (source: Grameen Bank Foundation)

10. Ask the student which Bolivians, in particular, were shown as being creditworthy in the video? (Women). Explain that not all microfinance institutions give loans only to women, as ProMujer does, but that in general it has been found that women with many responsibilities in the home are extremely dependable, financially responsible, and pay back loans promptly and on time. Microfinance, in fact, has opened up a completely new set of criteria for creditworthiness. Have the students create a chart comparing the traditional bank criteria for creditworthiness to the microfinance criteria for creditworthiness. Lead them through the activity by creating the following chart on the board:

Culminating Activity
1. Distribute the “Profiles of Microloan Applicants” Student Organizer (PDF) (RTF) to the students. Explain the instructions on the organizer: as homework (or in class if time permits), have the students view the 15-minute video from the FRONTLINE/World episode “Uganda: A Little Goes a Long Way,” at http://www.pbs.org/frontlineworld/stories/uganda601/video_index.html (this video showcases the lives and businesses of some microloan recipients in Uganda, and shows how an innovative website, kiva.org, provided a new way for individuals in the United States to loan money directly to these small business owners who had been preapproved for loans by Ugandan microfinance institutions).

2. As a FOLLOW UP to the FRONTLINE/World video, lead a discussion in the class about Jessica and Matt Flannery (founders of kiva.org). Ask the class to describe how they, too, are entrepreneurs – and to name some steps they had to take to run their successful enterprise (generate the idea, work with local partners, set up the technology, hire staff, build a website, expand the business with new technology etc.)

3. The Organizer also directs students to visit kiva.org and browse profiles of the microloan applicants on the site, picking one entrepreneur to present to the class (this can be completed as homework). The students will produce written reports, at least some of which should be shared orally with the class.

4. If desired, this activity could be used as a stepping-off point for real fundraising and loan granting from the class and/or school, granting and tracking loans using kiva.org, Donors Choose, or another microloan website.