We work hard for our money, so why not let our money work for us? The concept of compounding interest can be fascinating to children and can get them excited about saving their money.

Activity 1

Nature is a great way to explain the power of compounding.

  • Explain to your child that if someone gave you one seed and you planted it and cared for it, you could get 50 seeds from one plant.
  • If you then take those 50 seeds and plant each of them and care for them, you could get 1,000 seeds.
  • Continue the examples to demonstrate how quickly the numbers become astronomical. Relate this to compound interest on saved money.

Activity 2

Show your child how compounding interest works using the rule of 72 (72 divided by the rate of return on your investment equals how often your investment will double).

  • Example: 72 ÷ 8% interest = 9 years, meaning that every nine years, if you don't add to or subtract from it, your money will double.
  • Show your child how much $100 invested now can become with 8% growth annually:
    • $100 at 9 years old (for example)
    • $200 at 18 years old
    • $400 at 27 years old
    • $800 at 36 years old
    • $1,600 at 45 years old
    • $3,200 at 54 years old
    • $6,400 at 63 years old
  • Ask them how much of this final figure would be the money he or she originally put in and how much is interest. Ask your child to imagine what would happen if he or she put more than $100 in or if they continued to add to the funds.