How Companies Make Money: A Stock Market Lesson for Families

Have you ever wondered how companies like Apple, Disney, and McDonald's make money? It’s not just about selling products—companies use many strategies to grow their profits.

✅ Companies sell products or services to customers. 💰
✅ They reinvest money to grow their business. 📈
✅ Successful companies reward investors through stock growth and dividends. 🏦

Understanding how companies make money helps kids and families become smarter investors in the stock market!

Step 1: The 3 Main Ways Companies Make Money

1. Selling Products or Services

Most companies earn money by selling something people need or want.

📍 Examples:

• Apple sells iPhones, iPads, and MacBooks.

• McDonald's sells burgers and fries.

• Netflix sells a streaming service for movies and shows.

💡 Lesson for Kids:

• "Companies make money by selling things people buy every day!"

2. Subscriptions & Memberships

Some companies make money by charging customers monthly or yearly fees.

📍 Examples:

• Netflix and Disney+ charge customers a monthly fee to watch movies.

• Amazon Prime charges $139 per year for fast shipping and free streaming.

• Gyms and apps also use membership models!

💡 Lesson for Kids:

• "Subscriptions help companies make steady money every month!"

3. Advertising & Partnerships

Companies also make money by selling ads or working with other businesses.

📍 Examples:

• YouTube & Facebook make billions by showing ads.

• Google sells ad space to companies that want to be seen online.

• Sports teams make money by partnering with brands (like Nike sponsoring athletes).

💡 Lesson for Kids:

• "Big companies make extra money by selling ads!"

Step 2: How Companies Grow Their Profits

✅ 1. Expanding to More Locations

When a company opens more stores or factories, it sells to more people.

📍 Examples:

• McDonald’s went from one restaurant in 1955 to over 39,000 worldwide!

• Tesla builds new factories to make more cars.

💡 Lesson for Kids:

• "More locations mean more customers and more money!"

✅ 2. Creating New Products

Companies grow by launching new and better products.

📍 Examples:

• Apple went from iPods → iPhones → iPads → Apple Watches.

• Nike creates new shoe designs to attract more buyers.

💡 Lesson for Kids:

• "Innovating helps companies make more money!"

✅ 3. Buying Other Companies

Big companies buy smaller businesses to grow faster.

📍 Examples:

• Facebook bought Instagram to get more users.

• Disney bought Marvel & Star Wars to make more movies.

💡 Lesson for Kids:

• "Buying other companies helps businesses expand!"

Step 3: How Companies Reward Investors

✅ 1. Stock Prices Go Up When Companies Make More Money

When a company makes bigger profits, investors buy more shares, making the stock price rise.

📍 Example:

• Amazon stock was $18 in 1997. Today, it’s worth over $3,000!

💡 Lesson for Kids:

• "A strong company makes investors rich over time!"

✅ 2. Dividends: Companies Pay Investors Money

Some companies pay dividends, giving investors extra cash just for owning shares.

📍 Examples:

• Coca-Cola pays dividends every 3 months.

• McDonald's has paid dividends for over 40 years!

💡 Lesson for Kids:

• "Dividends give investors free money just for owning stock!"

Step 4: How Families Can Invest in Profitable Companies

✅ 1. Invest in Companies You Believe In

Kids should invest in brands they love and use daily.

📍 Example Portfolio:

• Disney – If you love Marvel & Star Wars movies.

• Nike – If you love their sneakers.

• Apple – If you use an iPhone or iPad.

💡 Lesson for Kids:

• "Invest in companies you understand and believe in!"

✅ 2. Invest in Index Funds for Safe Growth

Instead of picking one company, families can invest in index funds, which include many stocks at once.

📍 Best Index Funds for Beginners:

• S&P 500 (VOO, SPY) – Invests in 500 large companies.

• Total Stock Market (VTI) – Owns small, mid, and large-cap stocks.

💡 Lesson for Kids:

• "Index funds spread your money across many companies!"

✅ 3. Think Long-Term Instead of Short-Term

Smart investors hold stocks for years, not weeks.

📍 Example:

• A $1,000 investment in Apple in 2000 is now worth over $500,000!

💡 Lesson for Kids:

• "The best investors wait patiently while their money grows!"

Step 5: Fun Activities to Teach Kids About Business & Investing

🎲 Game #1: The “Create Your Own Business” Challenge

• Have kids think of a business idea (like a lemonade stand).

• Ask: How would they make money? Sell? Advertise? Grow?

💡 Lesson for Kids:

• "Businesses grow by selling products and expanding!"

📊 Game #2: “Stock Market Tracker”

• Pick 3 companies kids like and track their stock prices for a month.

• See if they rise or fall based on news and profits.

💡 Lesson for Kids:

• "Companies that make money see their stocks grow!"

Conclusion: How Families Can Use This Knowledge to Invest Wisely

By understanding how companies make money, kids and families will:
✅ Know how businesses grow and make profits.
✅ Understand why some stocks go up while others fail.
✅ Make smarter investing decisions.

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