Its basically all abouthow time affects moneys value.
Try some of these simple, basic ways to explain compound interest for kids.
The longer the money stays in the bank, the more money you earn.
Our team has compiled alist of creative waysyou can fatten your bank account this week.
This is a long list, so dont get overwhelmed.
Well keep it updated as offers changes or expire.
Get them thinking about it.
For example, ask them if theyd like to have $10,000 right now, or a penny.
Naturally, most kids will choose the larger amount.
Then elaborate on your question, and dont be afraid to exaggerate to illustrate how interest works.
Tell them the penny will double its value every day they leave it in the bank.
Do they still want the $10,000, or will they now choose the penny?
This growth isnt at all likely, but it helps make the point.
Did you know?
This explanation is especially important as kids get older and approach the age they might get theirfirst credit card.
Even young children can learn about accruing interest the next time you lend them a few dollars.
Explain how when you borrow money, it accumulates interest while you pay it back.
Tomorrow, theyll have two, and if they put them aside, theyll have three the next day.
This gives them the incentive to watch their money grow and teaches them about choices.
Make a Game Out of the Goal
Like any lesson, itll sink in better when its fun.
Try the checkerboard method.
Start with a large bag of coins.
On Day 1, have your child place one penny in the left bottom square of the board.
Once theyve collected enough interest and stacked the pennies until they fall, theyve reached their savings goal.
Create a Visual
Is there a toy or gift your child really wants?
Make a deal: Tell them if they save a certain amount of money, youll buy it.
Write down how much they have in their savings, along with how much interest theyve earned.
How Have You Taught Your Kids About Compound Interest?
Your Turn: Have you taught your kids about compound interest?
What strategies or games did you use to illustrate the concept and help them understand its power?
Paul Sisolak (@PaulSisolak) is a freelance writer who writes about all things personal finance.
Hes been featured in U.S. News & World Report, The Huffington Post and Business Insider, among others.
(Can you sense my millennial sarcasm there?)
You know which ones were talking about: rent, utilities, cell phone bill, insurance, groceries…
