Compound Interest — slides
Financial Literacy Club
Money Fundamentals · Lesson 7
Compound Interest
Interest on your interest — the most powerful idea in personal finance, and why time is your advantage.
15-minute lesson · learnwithflc.org
Compound Interest · 1 / 23
Financial Literacy Club
Money Fundamentals · Lesson 7
Compound Interest
Interest on your interest — the most powerful idea in personal finance, and why time is your advantage.
15-minute lesson · learnwithflc.org
Today's goals
By the end of class, you'll be able to…
- Explain compound interest as interest earned on interest
- Use the Rule of 72 to estimate how long money takes to double
- Compare the effect of starting early with contributing more later
Warm-up
Would you rather have $1 million today, or a penny that doubles every day for 30 days? Decide before you calculate.
Think, then write your answer.
The big idea
Compound Interest
Interest on your interest — the most powerful idea in personal finance, and why time is your advantage.
Money Fundamentals · Lesson 7
Interest is the price of using money. When you save, the bank pays you interest. When you borrow, you pay interest to the lender.
Money Fundamentals · Lesson 7
Simple interest is paid only on the money you started with. Compound interest is paid on the money you started with plus the interest you've already earned. In other words: you earn interest on your interest.
Money Fundamentals · Lesson 7
Here's $1,000 growing at 10% a year (a round number to keep the math easy):
- Year 1: 10% of $1,000 = $100 → $1,100
- Year 2: 10% of $1,100 = $110 → $1,210
- Year 3: 10% of $1,210 = $121 → $1,331
Money Fundamentals · Lesson 7
Each year's interest is bigger than the last, because it's calculated on a bigger balance. With simple interest, you'd have $1,300 after three years. The gap looks tiny at first — then it gets huge.
Money Fundamentals · Lesson 7
Three things drive compound growth: how much you put in, the rate, and time. As a student, time is the one you have the most of.
Money Fundamentals · Lesson 7
The Rule of 72
Divide 72 by the yearly rate to estimate how many years it takes money to double. At 6%, that's about 72 ÷ 6 = 12 years. At 9%, about 8 years.
Money Fundamentals · Lesson 7
It works against you too
Debt compounds the same way. An unpaid credit card balance grows interest on top of interest — which is why high-interest debt is so hard to escape.
See it
Simple interest grows $1,000 by the same $100 every year, reaching $4,000 after 30 years. Compound interest reaches $17,449 after 30 years.
- Simple interest
- Compound interest
Year 1
Year 3
Year 10
Year 20
Year 30
Real example
Alex starts early. Jamie starts later.
Two people each invest $50 a month and earn the same hypothetical 7% a year.
- Alex invests from age 15 to 25 — ten years — then stops adding money and lets it grow. Total put in: $6,000.
- Jamie starts at 25 and invests every month until 65 — forty years. Total put in: $24,000.
At 65, Alex has about $141,163. Jamie has about $131,241. Alex put in a quarter as much money and still ends up with more — because Alex's money had ten extra years to compound.
Hypothetical example. Real investment returns go up and down and are never guaranteed. This example uses a steady 7% to show how compounding works — not to predict any real result.
Try it together
Try it: compound growth calculator
Start with $1,000, add $50 a month for 10 years at a hypothetical 7% return — then change the numbers and watch the growth.
Your numbers
Real returns vary year to year and can be negative.
Results
Hypothetical balance after 10 years
$10,664
Compounded monthly at a constant 7% a year
You contributed
$7,000
Hypothetical growth
$3,664
Growth share
34%
of the final balance
- Your contributions
- Hypothetical growth
Show year-by-year tableHide table
| Year | Contributed | Growth | Balance |
|---|---|---|---|
| 1 | $1,600 | $92 | $1,692 |
| 2 | $2,200 | $234 | $2,434 |
| 3 | $2,800 | $429 | $3,229 |
| 4 | $3,400 | $683 | $4,083 |
| 5 | $4,000 | $997 | $4,997 |
| 6 | $4,600 | $1,378 | $5,978 |
| 7 | $5,200 | $1,830 | $7,030 |
| 8 | $5,800 | $2,358 | $8,158 |
| 9 | $6,400 | $2,967 | $9,367 |
| 10 | $7,000 | $3,664 | $10,664 |
Educational calculator, not financial advice. Results are hypothetical estimates based on the numbers you enter.
Activity · pairs · 10 min
Race to 65
- Saver A invests $100 a month from age 18 to 28, then stops adding money. Saver B invests $100 a month from 28 to 65.
- Pairs predict who has more at 65 at a hypothetical 7% a year, and why.
- Project the compound growth calculator and test both savers together.
- Pairs write one sentence explaining the result using the word “time.”
Check for understanding · 1 of 4
Two friends each put $1,000 into accounts earning the same hypothetical 6% a year, compounded. One leaves it for 10 years; the other leaves it for 30.
Why does the 30-year balance end up more than three times the 10-year balance?
- AInterest rates rise the longer you save.
- BLater years earn interest on a much bigger balance, including all past interest.
- CBanks pay loyalty bonuses after 20 years.
- DIt doesn't — it's exactly three times.
B. Later years earn interest on a much bigger balance, including all past interest.
Growth accelerates because each year's interest is calculated on everything earned so far. At 6%, $1,000 grows to about $1,791 in 10 years but about $5,743 in 30.
Check for understanding · 2 of 4
Using the Rule of 72, about how long does it take money to double at 8% a year?
- AAbout 6 years
- BAbout 12 years
- CAbout 9 years
- DAbout 72 years
C. About 9 years
72 ÷ 8 = 9 years. It's an estimate, but a surprisingly accurate one for typical rates.
Check for understanding · 3 of 4
Compound interest only helps you — it can't work against you.
- True
- False
False
Debt compounds too. Unpaid credit card interest gets added to your balance, and then you're charged interest on that interest.
Check for understanding · 4 of 4
Which factor in compound growth does a 16-year-old have that someone starting at 40 can't get back?
- ATime
- BHigher interest rates
- CA bigger paycheck
- DGuaranteed returns
A. Time
Rates and income can change, but years can't be added back. Starting early — even with small amounts — gives compounding the most time to work.
Remember
Key takeaways
- Compound interest = interest on your interest.
- Growth depends on amount, rate, and time. Time is your biggest advantage.
- Rule of 72: 72 ÷ rate ≈ years to double.
- Compounding makes debt grow too.
- Calculators show hypothetical scenarios. Real returns vary and aren't guaranteed.
Discuss
Talk it over
- Alex put in $6,000 and Jamie put in $24,000. Does it feel fair that Alex ends up with more? What does that tell you about time?
- How could compound interest explain why some people get stuck in credit card debt?
Exit ticket
What three things decide how much compound growth you get? Which one does a teenager have the most of?
Answer on your exit ticket before you leave.
Nice work today.
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