How to teach your kids about saving money and earning interest

Ever wonder how to teach children about the power of earning interest? This article gives a simple technique that worked really well with my children.

Instructions

Difficulty: Moderately Easy

Things You’ll Need:

• two dollars
• two dimes
• additional dollars and coins each week
• several months

1. Sit down with your child or children. Children should be at least six or seven years old.
2. Show them two dollar bills and talk about what you can buy for two dollars. Explain to them than if you don't spend the money, there is a way for it to "grow!"
3. Show them two dimes. Explain that two dimes are ten percent of the two dollars.
4. Each week give them an additional two dollars. At the end of each month, have them count all of the dollars. Give them ten percent as interest. For example: 2 dollars gets 20 cents; 4 dollars gets 40 cents; 8 dollars gets 80 cents. $8.80 gets 88 cents, etc. Each month, if they don't spend any money, the total will grow.

Tips & Warnings

• Of course you can use different sums of money or different currencies. We started with only two dollars because the goal was to understand how interest works not to get a lot of money.