For ages: 6-11 (Grades K-5)
Time: 10-30 mins a day for 7 days
Teach Kids the Magic of Compound Interest!
The marvels of compound interest have long been apparent, yet often underappreciated. In his philanthropic pledge, Warren Buffett attributed his wealth to the power of compound interest, stating "My wealth has come from a combination of living in America, some lucky genes, and compound interest."
This lesson plan describes a hands-on, fun and eye-opening exercise that takes place over a week! Each day, a student receives an allowance and makes a choice between spending that allowance, or storing it in a bank account. The bank will pay the student some interest each day for every dollar stored there. To make the spend vs save choice more tangible and engaging, the lesson encourages creating a small marketplace poster board with various low-value items (like a pencil set) and at least one item of very high value—a bicycle at $90 for example—that will appear seemingly impossible to purchase. By the end of the week, the marvels of saving and compound interest will be revealed.
Why?
Understand how savings grow with interest
Reinforce the value of saving money
Introduce the "snowball effect" of compound interest
Show how saving helps reach big goals
How?
1.
Daily Allowance
Each kid gets a daily play allowance (e.g. $10).
2.
Visit the Bank First!
Each day before getting allowance, visit the Bank. The Bank pays interest on money saved in the Bank Account (e.g., $1 for every $10 saved). Round off the savings to the nearest 10 to keep interest in the units.
3.
Re-Save the Interest?
Kids choose: put the earned interest in their Wallet (to spend soon) or back into the Bank Account (to earn more interest tomorrow!)
4.
Allowance Choice
Kids decide where to put their daily allowance: Wallet or Bank Account.
5.
Marketplace
Kids can spend money from their Wallet anytime at the marketplace (small items + one big goal item like a $90 bicycle!).
6.
Track It
Use a worksheet to track daily allowance, interest earned, spending, and saving.
7.
Watch it Grow!
See how money in the Bank Account grows much faster thanks to compound interest, especially compared to Saver Sam who saves everything!
Key Learnings
-
Money saved in a bank can earn extra money (interest).
-
Interest can also earn interest (that's compounding!).
-
Compounding is like a snowball – it grows faster over time (exponential growth).
-
Saving consistently helps reach big goals sooner.
