Grow your money fast with compound interest

It’s one thing to teach your child the value of saving, but teaching your child to be a strategic saver by understanding the wonders of interest can mean thousands of dollars gained – or lost – over the years. coming years. Learn how interest works, especially compound interest, is an easy way to inspire your teen to save and start teaching them about passive income. But how do you break it down without losing patience and frustrating your child? Here’s a quick and easy compound interest exercise you can do every day for a week.

In this scenario, let’s use an interest rate of 50% since it will be easy for your toddler to calculate:

  • Put $2 in a piggy bank and tell your child you’ll be back tomorrow to give them “interest time.”
  • The next day, add $1 to the pot since the money is growing at 50% interest. Explain to your child that since earning interest means adding another 50% to what has already been saved, if it were a real savings account, that would mean $1 would be added to the original amount, which would bring the total to $3.
  • The next day, add $1.50, bringing the total to $4.50. Again, explain that since you are saving money, you are earning interest.
  • The next day, at “interest time,” add $2.25 to the pot, bringing the total to $6.75. It is important to reinforce the value of savings and understand how interest works. Your child will also be interested in the accumulated extra money.
  • Continue for a full week, letting your child do the math on their own.

While it’s unlikely you’ll ever have a savings or money market account with this ideal interest rate, this is a clear and explicit way to illustrate the benefits of saving. money. Eventually, your child will be a young adult looking for money market accounts with the best rates.

Take this learning one step further by teaching your child about credit card interests. Let him know that just as your money grows when you save it at a financial institution, every time Mom or Dad slips that piece of plastic, he’ll owe more than the price of what he just bought. Reinforce this every step of the way so your child understands that when you pay by credit card, you’re not just paying the listed price, you’re paying interest. When children understand how money works, they are more likely to be aware of spending and saving.

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