Bitesized Money

Inflation means that the things you buy were cheaper yesterday than they are today. Prices for everything, such as food, clothes, cars and holidays tend to go up year after year. This is called Inflation. If something was cheaper yesterday than it is today, then this is Inflation. The amount they go up by over a year is the Inflation Rate. So if your favourite breakfast cereal is 10% more expensive today than it was this time last year, then the Inflation Rate is 10%. So to understand what causes inflation let's look at my neighbour Suzy’s Lemonade Stand again .  Suzy makes excellent Lemonade and that is because she buys amazing lemons from Leroy, our local lemon farmer. For months Suzy has paid Leroy £5 for a bucket of lemons each day. Leroy has a bit of a problem though. Everybody wants his lemons, but there is a big shortage of skilled Lemon pickers. To get the people he needs he must start offering higher pay. To find the extra money to cover these costs he decides to rai

  Shares are bought and sold on a Stock Market, and just like any market, prices can move around quite a lot. Imagine you are shopping for some of your favourite apples at the local Fruit Market. But sadly lots of other people like these apples too. The savvy Fruit Trader knows how delicious they are and realises he will have lots of buyers today, so he sets a high price. The first 5 sell out very quickly so he increases the price for the rest, pushing the price higher. This is the same for Shares. Through research or ‘gut feeling’ people will decide if they want to buy a particular apple Share. If they feel someone is selling them cheaply then they will buy them, pushing the price higher. If they think the particular Share looks expensive they will choose to buy something else, leaving the Trader to lower the price of his Shares so he can sell them. It is very difficult to work out what a Share is worth as there are many different things that can impact a price. This is why Shar

This is just a simple way to compare how large of a Dividend one company is paying compared to another. An example of a Dividend Yield is if the Bitesized Money Inc share price was £100 and they paid a yearly £3 dividend, then the Dividend Yield would be 3% (£3 is 3% of £100). The higher this percentage, the higher the Dividend return you will get on your investment (a 4% Yield would pay £4 per £100 for example). You don’t have to do this maths yourself though as any decent trading platform will do this for you. As an example, looking a Barclays Bank stock on Google Finance ( Barclays ), you can see at the time of writing it states “Dividend Yield – 3.77%”. So in simple terms, for every £100 of Barclays stock you own, they will give you £3.77 in cash this year.

A Dividend is simply a profit share. If you own Shares in a company, and the company is profitable, typically once a year they will transfer some money into your account, this is called a Dividend. This Dividend is your share of the company’s profits, and you can withdraw and spend it however you wish. Let’s imagine your neighbour Suzy wants to open a Lemonade Stand. She needs some investment to buy lemons, so being a shrewd investor, you offer to give her £100 in exchange for half her company (the Shares) and half of any profit she makes (the Dividend). Suzy has a busy week and sells lots of Lemonade, after buying enough Lemons for next week she is left with £20 of profit. She gives you £10 (the Dividend) and she keeps the other £10. You still own half her company, and you will keep receiving half of the profits every week. In large companies the Directors may decide not to pay all their profits in Dividends, instead choosing to reinvest to buy new machinery, or grow the business. B

To be honest it is quite acceptable to use the words Stocks and Shares interchangeably and nobody will bat an eyelid. In reality though, Shares represent a fraction of the companies Stock. But what does that really mean? Imagine Bitesized Money Inc is a bag of 100 marbles (the Stock), and everyone that owns one of the marbles owns 100 th of the company (a Share). They benefit when the company makes money, they collectively vote when big decisions need to be made, and they share the pain when the company loses money in hard times. In simple terms this is how Shares work, when you buy a Share, you are buying a part of a company. What should you pay for one of their marbles Shares? Well that is the tricky question and why investing is fun, but also carries some risk. Generally when a company is doing well, or people think it will do well in the future the price goes up, and when its future doesn’t look so good the price will go down. Company Shares are traded on a Stock Market, and pe