How To Explain the Concept to Your Children:
Interest is a payment in exchange for the use of money over a period of time. You can earn interest by lending your money to a bank. Conversely, you pay interest when you borrow money from a bank.
To understand how interest helps you quickly grow your fiances, you’ll want to better understand compound interest. Compound interest is interest from one month that is added to the total principal amount of the loan and is accumulated (accrued) in the following month. In other words, it builds with each passing calculation period.
How to Teach Your Children:
- Give your child a small sweet (or another favorite treat) and ask them how long they think they could save it for before eating it.
- Offer to give them an additional small sweet (or another favorite treat) for every day that they can keep their small sweet (or another favorite treat) uneaten.
This will help them understand the value of accruing interest. Bonus if you want to give them more each day over time to teach them about compound interest - however we might suggest using a healthy snack instead for this!
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