Tuesday, March 21, 2023

Teacher Tuesday - Simple and Compound Interest


Today is kind of a "niche" post but I always get asked for more teacher content so here we go!  I teach simple and compound interest to my 7th grade classes and spend day 1 teaching simple interest, talking ab out how interest "works both ways" (as in something you can earn but also how it's something you can have to pay on a loan) and we go into credit REALLY briefly.  

I typically pick a student and say something like "Sarah got $100 for her birthday and she doesn't need it right now so she decides to give it to the Bank of Mrs. McAnally and if she leaves it with me for 1 month at the end of the month I'll pay her 5% interest.  In the meantime, Joe really wants a scooter and doesn't want to wait until he gets paid next weekend so he comes to The Bank of Mrs. McAnally to borrow $100.  I tell him that's fine, but I'm going to charge him 10% simple interest.  At the end of the month Joe comes back in and pays me $110 and then Sarah shows up to get her $100 and she gets $105" 

Students quickly see that I (the bank) made $5 and we talk about how this happens all the time on a much bigger scale, how banks decide how much interest to charge/pay and what happens if you don't pay your loan back on time.  They are typically super engaged in this discussion because it's interesting and after the lecture and talk I teach them the simple interest formula and we do some guided and then independent practice. 

On Day 2 I like to introduce Compound Interest but want to make sure that they REALLY grasp what makes compound interest so powerful... that the interest earned "compounds" and becomes part of the principal each period.  The best way I've found to really illustrate this is using two jars and some real cash.

I give each of them a "simple vs compound interest sheet" and we start off with $1 in the principal jar and then each period we find 50% interest of that dollar and fill out the left side ending with a balance of $5.50.  This hammers home the fact that the principal doesn't change and that each period they're earning the same amount of interest.  The original $1 in the principal jar never changes or moves.

Next, we start with $1 in our principal jar and they calculate 50% interest of that $1 (50 cents) but THEN we take that 50 cents from the interest earned jar and pour it INTO the principal jar so they can see that the interest earned compounds and becomes part of the principal.

It doesn't take too many periods for them to realize how quickly the money is growing and WHY which is always my goal. You wouldn't have to complete this many lines in the chart for them to get the point but I love doing it this many times because they can see how quickly it escalates.  

Sometimes I'll have kids gather around and we'll sit on the floor and do this, sometimes I'll have a kid hold each of the jars at the front of the room, sometimes I just demonstrate from the front.  It just depends on the class, the kids, etc. 

They all get SUPER excited about compound interest and start talking about how they want to open accounts that earn compound interest and then I get to hit them with the credit card talk about how it can be hard to EARN compound interest but that often when you owe interest that compounds monthly and they really can see how quickly that can get crazy

On the days that I do this I will typically have the money counted out and in envelopes or baggies ready to go so I'm not counting out coins and the illustration goes quicker but I LOVE how this illustrates in such a clear and simple way WHY and HOW compound interest works and how it differs from simple interest.

If you aren't a teacher this may come in handy as you introduce some financial literacy topics with your kids (or young adults venturing into the real world of credit!) and I'd love to hear your feedback if you use it in your classroom or your home. 

HAPPY Tuesday, friends!!!

PS - if you want this simple/compound interest chart shoot me an email (momfessionals@gmail.com) and I'll send it your way!


  1. This is SUCH a good illustration! And I'd have been SO engaged if I was in your class!

  2. Love this so much, and I'm so happy that you're teaching kids lessons that are so valuable to them in the real world! There are plenty of adults who could learn a lot from this presentation. I'm a CPA and I may need to use this with some of my clients. :D

  3. This is a great exercise (and a great refresher/reminder too!). I absolutely loved middle school math. If I were a student in your class, this would have been so much fun! You're an awesome teacher :)

  4. You are a ROCK STAR, Mrs. McAnally!!!

  5. This is a great lesson and one that all kids should be taught! This is a great lesson for adults too. Once again, I wish all kids had amazing teachers like you!!


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