Introduction to Compound Interest for Kids and Teens
This video explains the concept of compound interest in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about compounding, or used as a money & personal finance resource by parents and teachers as part of a Financial Literacy course or K-12 curriculum.
Suitable for students from grade levels:
- Elementary School
- Middle School
- High School
The topics covered are:
- What is Compound Interest
- An Example of the Power of Compounding
- Does a bank account give compound interest
Howdy Wall Street Willy. I have a really big question for you.
What is compound interest?
Compound interest is interest on interest.
What do you mean by interest on interest?
If you have $100 in the bank and has 10% rate of interest, on the first year, it’ll be $10 in interest because 10% of $100 is $10. But in the second year, the interest will be $11 because the interest for a $100 is $10, and for the extra $10 is another $1. So the total is $11 for the second year, but only $10 for the first year.
Well, but why is that even important? It’s just interest on interest on interest. Who cares?
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An Example of the Power of Compounding
Well then, I really like compound interest. But could you give me a long term example?
Okay. If there’s $100 at a 10% rate of interest, in 10 years it’ll turn into $259. In 20 years, I’ll turn into $673. In 30 years, it’ll turn into $1,745. In 40 years, it’ll turn into $4,526. And in 50 years, it’ll turn into $11,739!!
$100 at a 10% rate of interest
- 10 years: $259
- 20 years: $673
- 30 years: $1,745
- 40 years: $4,526
- 50 years: $11,739
Whoa! That’s so awesome! A $100 at a 10% rate of interest can turn into $11,739. That’s so awesome!!
Yes, it is very awesome. That is why compound interest is very important.
Does my bank account give compound interest?
If you leave the interest that you got in your bank account, then yes, you would receive compound interest.
That’s great! But does my piggy bank give compound interest?
No, it does not even give interest – unless your parents secretly sneak money into it!
Thank you very much for teaching me about compound interest, Wall Street Willy.
You’re welcome. Remember, finance is your friend!