Activities to Teach Students Compound Interest

Compound interest is an important topic in finance and a fundamental concept in mathematics. It plays a crucial role in the financial decisions that people make daily such as savings, investments, loans, and mortgages. Teaching students about compound interest is essential as it helps them to appreciate the value of money, make informed financial decisions and avoid financial pitfalls in the future.

Here are some engaging activities to teach students about compound interest:

1. The Candy Jar Activity

In this activity, the teacher can start by placing some candies in a jar and telling the students that they can earn interest on their candies if they leave them in the jar for a specific period. For instance, if a student deposits five candies in the jar for one week, the teacher can offer to add one more candy as interest. At the end of the period, students can count their candies and calculate how much interest they earned. Through this activity, students can understand the concept of compound interest and its effect on their savings.

2. The Investment Challenge

The investment challenge is an excellent way to engage students in learning about compound interest. The teacher can offer the students an investment challenge where they have to invest a certain amount of money and monitor how their investments grow over time. The students can use real-life investment tools such as online investment calculators or stock simulators to track their investments. Through this challenge, the students will learn the principles of compounding and understand how small investments can grow into substantial amounts over a long period of time.

3. The Credit Card Activity

This activity involves using a credit card and asking the students to work in small groups to analyze the terms and conditions of the credit card. The students will calculate the interest rate charged on the credit card and compute the interest owed on a sample credit card balance. Through this activity, students can understand the importance of paying off credit card balances on time and avoiding high-interest rates.

4. The Mortgage Activity

The mortgage activity involves discussing the concept of mortgages and how they work. The teacher can provide the students with a sample mortgage contract and have them calculate the interest charged on the mortgage over the entire loan term. Students can also calculate the total amount paid on the mortgage over its term. Through this activity, students can understand the impact of interest rates over a long term and appreciate the importance of finding the best mortgage rates for their future houses.

In conclusion, there are innumerable activities to teach students about compound interest, but these four activities are engaging and can help make the concept of compound interest clearer and more accessible. By participating in these activities, students will gain valuable financial literacy skills that will serve them well on their journey to financial freedom.    

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