How To Teach Kids About Compound Interest (Easy)

A compound interest graphic with a bunch of hundred dollar bills

Most adults learn about compound interest way too late—after they’ve already made money mistakes. We want our kids to understand it before that happens.

Compound interest can either make you wealthy or keep you in debt depending on how you use it. The earlier kids understand this, the better their future will be.

The good news? You don’t need to be a math expert to teach it. In this post, we’ll break it down in simple terms and give you quick activities you can do with your kids today so it finally makes sense.

1. What Compound Interest Really Means

Here’s the easiest way to explain it to kids:

Simple interest means you only earn money on what you first put in.
Compound interest means you earn money on what you put in and on the interest it earns.

Example with small numbers:

  • Start with $100.

  • Earn 10% interest. After one year, you have $110.

  • Next year, you earn 10% on the $110 (not just the original $100).

  • Now you have $121.

Each year, the amount you earn gets bigger because the pile of money keeps growing. That’s compound interest at work.

The Power of Compound Interest in Action

How $100 Grows at 10% Interest

If you put $100 in an account earning 10% interest and never added another dollar, here’s what happens:

  • 10 years: $259 (You put in $100, interest earned: $159)

  • 20 years: $673 (Interest earned: $573)

  • 30 years: $1,745 (Interest earned: $1,645)

  • 40 years: $4,526 (Interest earned: $4,426)

  • 50 years: $11,739 (Interest earned: $11,639)

  • 60 years: $30,448 (Interest earned: $30,348)

Your original $100 turns into $30,448 just by leaving it alone and letting interest compound.


How $100/Month Grows at 10% Interest

If you start with $100 and add $100 every month into an account earning 10% interest, here’s what happens:

  • 10 years:

    • Total contributed: $12,100

    • Interest earned: $8,808

    • Final balance: $20,908

  • 20 years:

    • Total contributed: $24,100

    • Interest earned: $69,646

    • Final balance: $93,746

  • 30 years:

    • Total contributed: $36,100

    • Interest earned: $228,922

    • Final balance: $265,022

  • 40 years:

    • Total contributed: $48,100

    • Interest earned: $590,636

    • Final balance: $638,736

  • 50 years:

    • Total contributed: $60,100

    • Interest earned: $1,445,943

    • Final balance: $1,506,043

  • 60 years:

    • Total contributed: $72,100

    • Interest earned: $3,068,221

    • Final balance: $3,140,321

That’s the power of starting early and letting compound interest work for you.

2. Try A Simple Visual or Activity

Talking about compound interest is one thing. Seeing it happen makes it real.

Here’s a super simple way to show kids how it works:

  • Start with the $100 example:
    Write “$100 at 10%” on a piece of paper or a whiteboard. Each year, write the new total after interest. Watching the numbers grow each year drives the point home.

  • Use fake money or a spreadsheet:
    If you have play money, stack it up for each year’s balance. Or open a simple spreadsheet and let your teen enter the numbers so they see it grow.

  • Show the “Rule of 72”:
    This is a quick trick: 72 ÷ interest rate = how many years it takes to double your money. At 10%, money doubles about every 7 years. Kids usually love this part because it feels like a secret shortcut.

The goal isn’t to give them a math lecture…it’s to help them see how their money can multiply over time if they start early and let it grow.

3. Make It Real for Your Teen

Numbers are good, but teens pay more attention when they can connect money to something real in their lives.

Here are a few simple ways to make compound interest click:

Compare Two Teens

Teen A starts saving $10/week at age 15 and keeps going until age 65.
Teen B waits until age 35 to start saving the same $10/week.

Here’s where they end up by age 65 at 10% annual growth:

  • Teen A (Starts at 15):

    • Years contributing: 50

    • Total contributed: $26,000

    • Total interest earned: $579,232

    • Final balance at 65: $605,232

  • Teen B (Starts at 35):

    • Years contributing: 30

    • Total contributed: $15,600

    • Total interest earned: $69,937

    • Final balance at 65: $85,537

Teen A ended up with $519,695 more than Teen B even though Teen A only contributed $10,400 more!

Takeaway:
Starting 20 years earlier turns the same $10/week into ~7x more by age 65. That’s compound interest doing the heavy lifting.

Connect it to things they care about

Show how a small weekly habit could pay for:

  • A first car

  • College savings

  • Future travel or even part of a home down payment

Use real numbers from your family

If you’re comfortable, let your kids see what you’d have today if you had started earlier. It makes the future feel real…not just like a math problem in a textbook.

The goal: for your teen to see that every dollar saved now can have a real impact on their future.

4. Debt Works the Same Way (But Against You)

Compound interest can build wealth.
But if you’re in debt, it works against you just as fast.

Here’s a quick example to show your kids:

  • $1,000 on a credit card at 20% interest.

  • No payments for a year = $1,200 owed.

  • After 5 years = $2,488 owed.

The same concept that grows savings can grow debt into a mountain if you’re not careful (I know from personal experience).

This is why we teach our kids: Interest can be your best friend or your worst enemy…it depends on which side you’re on.

5. Quick Ways to Take Action Now

Learning about compound interest is good. Seeing it work in real life is even better.

Here are a few simple ways to start:

  • Open a HYSA savings account together: Many banks offer teen or joint accounts with no fees. Let them watch the balance grow over time.

  • Open up a custodial brokerage account (or Roth IRA if they have earned income): You open the account in the teen’s name. You control it until your teen turns 18 or 21 (depends on the state). Your kid owns the money, and it can be invested in stocks, ETFs, mutual funds, or index funds so it actually grows over time.

  • Set up small automatic deposits: Even $5–$10 per week adds up fast. The key is consistency, not big amounts.

  • Use a compound interest calculator: Free tools online let kids plug in numbers and see how their money could grow.

  • Check the account monthly: Make it a quick family habit to see how much interest was earned.

  • Celebrate milestones: When the balance hits $100, $500, or $1,000, acknowledge it. Kids stay motivated when they see progress.

The goal isn’t to make them financial experts overnight. It’s to start small, start early, and build the habit of letting money work for them instead of against them.

Final Thoughts

Compound interest isn’t complicated…it’s just money earning money over time. The earlier kids understand this, the better prepared they’ll be to save, invest, and avoid debt traps later on.

Start small. Open an account. Show them how it grows. A few simple lessons now can change their entire financial future.

Previous
Previous

How to Teach Teens the Basics of Goal-Setting Without Overwhelm

Next
Next

The Moving Out Checklist Every Parent Needs to See