Basic Interest Calculations
Learn how interest makes your money grow when you save, and costs you money when you borrow. It's like having your money work for you! 💰
What is Interest? 🤔
Interest is money that grows on top of money you save, or extra money you pay when you borrow.
When You Save
The bank pays YOU interest for keeping your money there. Your money grows! 🌱
When You Borrow
YOU pay the bank interest for borrowing their money. You pay back more! 💸
The Simple Interest Formula 📝
Real-Life Examples You'll Love! 🎉
Your Piggy Bank Savings 🐷
See how your birthday money can grow!
📖 The Story:
You got $100 for your birthday and put it in a savings account. The bank gives you 5% interest per year. How much extra money will you have after 1 year?
🧮 Let's Calculate!
Final Result!
📊 Watch Your Money Grow!
Saving for a Video Game Console 🎮
Plan your savings with interest!
📖 The Challenge:
You want to buy a game console that costs $500. You save $400 in a special savings account that pays 6% interest per year. How long until you have enough money?
🧮 Let's Calculate Year by Year!
You could wait just 5 years for the interest to grow to $120 (total $520), OR you could add just $4 more after 4 years to reach your goal sooner! 🎉
When You Borrow Money 💳
Understanding the cost of borrowing
📖 Important Lesson:
Your older sibling borrows $200 from a friend to buy a bike. They agree to pay 10% interest after 1 year. How much will they have to pay back?
🧮 The Math:
Total Cost to Pay Back:
📊 Saving vs. Borrowing Comparison:
Saving $200 @ 5%
Borrowing $200 @ 10%
Your Weekly Allowance Plan 💵
Make your allowance work harder!
📖 Smart Saving Strategy:
You get $10 allowance every week. Instead of spending it all, you decide to save $500 in a savings account that pays 4% interest per year. How much extra will you earn in one year?
🧮 The Calculation:
Your Reward for Saving:
Wait, There's More! 🚀
What we learned today is called Simple Interest
Simple Interest
Interest is calculated only on your original amount (principal). This is what we learned today! ✅
Interest = $100 × 0.05 × 3 = $15
Compound Interest
Interest earns interest too! Your money grows FASTER because you earn interest on your interest. Mind-blowing! 🤯
Interest = approximately $15.76
✨ More money with compound!
Coming Soon: We'll have a whole lesson on Compound Interest and how it can make you REALLY rich over time! 💰🌟
Test Your Interest Knowledge! 🧠
1️⃣ You have $50 in a savings account with 6% interest. How much interest will you earn in 2 years?
Answer: $6
Interest = P × R × T = $50 × 0.06 × 2 = $6
Total amount = $50 + $6 = $56 🎉
2️⃣ Your friend borrows $150 and pays 8% interest for 1 year. How much total will they pay back?
Answer: $162
Interest = $150 × 0.08 × 1 = $12
Total to pay back = $150 + $12 = $162 💸
3️⃣ You save $300 at 5% interest. How many years until you earn $45 in interest?
Answer: 3 years
We know: Interest = P × R × T
$45 = $300 × 0.05 × T
$45 = $15 × T
T = $45 ÷ $15 = 3 years ⏰
4️⃣ Which is better: Saving $200 at 5% for 2 years OR borrowing $200 at 10% for 1 year?
Answer: Saving is MUCH better!
Saving: You EARN $200 × 0.05 × 2 = $20 ✅
Borrowing: You PAY $200 × 0.10 × 1 = $20 ❌
That's a $40 difference! Always save when you can! 🌟
Key Things to Remember! 🎯
The Big Ideas:
- Interest is extra money that grows on savings or costs when borrowing
- Formula: I = P × R × T (Principal × Rate × Time)
- The longer you save, the more interest you earn!
- Higher interest rates mean more growth (or more cost)
- Simple interest only calculates on the original amount
Smart Money Tips:
- Saving is winning: You earn interest for free! 🎉
- Borrowing costs more: You pay extra on top of what you borrowed 💸
- Start saving early to earn more interest over time
- Look for accounts with higher interest rates for your savings
- Even small amounts can grow big with time and interest! 🌱
Where You'll See Interest in Real Life 🌍
Savings Accounts
Banks pay you interest to keep your money safe with them. Your money grows while you sleep! 😴💰
College Savings
Parents use special accounts that earn interest to save for your college education. Start early, save more! 🎓
Credit Cards
When adults don't pay their credit card bills on time, they pay HIGH interest. That's why it's expensive! 💳😰
Home Loans
Most people borrow money to buy a house. They pay interest over many years—sometimes 30 years! 🏠
Car Loans
People pay interest when they borrow money to buy a car. Lower interest = cheaper car overall! 🚗
Investments
Some investments earn interest or returns. This is how people grow wealth over time! 📈💎
Continue Your Learning Journey! 🚀
Ready to Start Your Savings Journey? 🌟
Now that you understand how interest works, let's help your family create a smart savings plan that will grow your money over time!
Get Started Today