Compound interest. When your money earns compound interest in a bank or investment account, you’re paid a percentage of the balance in your account, including what you’ve deposited, plus any interest you have earned in the past. So not only does your money earn interest, your interest earns interest, too.

2. Now want to write up on the chalkboard an example of compound interest like this one:

You have $100 in your savings account and your interest rate is 5%.

If your interest is compounded monthly then…

DATE	ACTIVITY	BALANCE
Month 1:	$100 balance + $5 interest	= $105
Month 2:	$105 balance + $5.25 interest	= $110.25
Month 3:	$110.25 balance + $5.51 interest	= $115.76
Month 4:	$115.76 balance + $5.79 interest	= $121.55
Etc etc etc………..

Help them understand that $5.00 is 5% interest on $100, that $5.25 is 5% interest on $105, etc. They don’t need to understand the math at this point. All they need to see is that:

   - their money is making money (interest)
   - compound interest means they are making money on their money plus their interest

3. Tell them that their Economis accounts are set up to pay them compound interest in their savings accounts. However, money in their checking accounts will not earn them any interest. Now explain that an advantage of their checking account is that they can access that money right away using their debit card. If they go to your ministry’s store they can use their debit card to pay for their purchases. However, an advantage of them keeping money in their savings account is that it will earn them interest – more money! So, what is the best way for them to maximize the different benefits of their savings and checking accounts? [Keep most of their money in their savings account and leave enough in their checking account to make the purchases they desire. They can also keep most money in their savings but then transfer money from their savings into their checking just prior to visiting your store, so that they will have funds available.]

4. Make sure they understand that their debit card is linked ONLY to their checking account in Economis, not to their savings account. This means that if they have transferred all but a little currency into their savings account, and then go to use their debit card to purchase something, the card may be rejected (because of insufficient funds in their checking account). A kid might say: “What do you mean I don’t have enough money to pay for these snacks? I have $50 in my savings account?!!” But that money doesn’t count – the debit card is only actively linked to what is in their checking account.

5. If you are doing this lesson off-line, skip now to the concluding activity of playing the Piggy Bank Tag game. If you are teaching this on-line in a computer lab, have kids log into their Economis accounts and go to “Online Finances.” Remind the students that they each have a savings account as part of Economis. They earn 3.5% interest on the money they put into their savings accounts.

6. Explain that they can transfer “credits” (whatever your currency is called) from their checking account to their savings accounts by using the “Transfer [your currency’s name]” function. (The exact wording will depend on the name of your currency.) They simply select to move credits FROM their checking account TO their saving account, using the drop down menu, and then they type in the amount of currency they want to transfer (e.g., $100). They can also transfer money from the savings account back into their checking accounts.

7. Encourage any students that want to, to go ahead and transfer some credits from their checking account to their savings account. Remind them that they can transfer the money back into their checking account at any time. Emphasize that it is smarter for them to put most of their money into their savings accounts rather than accumulating it in their checking accounts, because their money earns interest in their saving account but not in their checking account.

8. Have the students log out of their Economis accounts.

Concluding Activity Ideas

• If doing the lesson on-line and mostly with younger kids (1-2 graders), then have them play Ed’s Bank game for 5 minutes. URL: http://www.practicalmoneyskills.com/english/pop/games/p_ed_bank.html (This game is very self-explanatory. However, if you need further information or instructions, review the Ed’s Bank Game Overview).
  
• If doing the lesson on-line and mostly with older kids (3-4 graders), have the students log into Planet Orange at this link: http://www.orangekids.com/cedric/save_st_001.htm This puts everyone on the “Saving Trail” page of this website (which is about financial literacy). This page includes a little demonstration of different types of savings plans a youth could implement – save a little over a long time, or save a higher amount each week over a shorter time—to reach a particular goal. In this case, the saver wants to save enough to purchase a snowboard. Have the students click on the orange “Click here to learn more about savings strategies” link. This will produce a short demonstration, with the guide “saying” certain things (which the students read) and the character climbing and snowboarding the mountain. The demo ends when the guide says: “No matter what your goal is, there’s no better time than now to start saving towards it.”
  
• If doing the lesson off-line, you can conclude the lesson by taking the class outside or to a gym or large room and have them play Piggy Bank Tag. (Click here for instructions.) Actually – this game is a lot of fun, and so you can also use it even if you have done this lesson on-line!