Teach and explain compounding to a grade 3 student
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Let's learn about compounding! Imagine you have 10 dollars in a special piggy bank. Compounding is like magic that makes your money grow faster and faster over time. It's when your money earns more money, and then that new money also earns even more money!
Let's compare simple interest and compound interest. With simple interest, you only earn extra money based on your original amount. But with compound interest, you earn money on both your original amount AND on the extra money you've already earned! This is what makes compound interest so powerful!
Let's see how compounding works! You start with 10 dollars. After one year, you earn 1 dollar in interest. That's 10 percent of your money. So now you have 11 dollars in total. This interest is like a reward for keeping your money in the piggy bank!
Now for Year 2! You start with 11 dollars. This time, you earn interest on ALL your money, including the 1 dollar of interest from last year. So you get 10 percent of 11 dollars, which is 1 dollar and 10 cents. That makes your new total 12 dollars and 10 cents. The amazing thing is that you earned an extra 10 cents because of compounding!
To summarize what we've learned: Compounding is when your money earns more money, and then that new money also earns more money! With simple interest, you only earn money on your original amount. But with compound interest, you earn money on your original amount AND on the interest you already earned. The longer you save, the more powerful compounding becomes! That's why starting to save early is so important.
Let's compare simple interest and compound interest. With simple interest, you only earn extra money based on your original amount. But with compound interest, you earn money on both your original amount AND on the extra money you've already earned! This is what makes compound interest so powerful!
Let's see how compounding works! You start with 10 dollars. After one year, you earn 1 dollar in interest. That's 10 percent of your money. So now you have 11 dollars in total. This interest is like a reward for keeping your money in the piggy bank!
Now for Year 2! You start with 11 dollars. This time, you earn interest on ALL your money, including the 1 dollar of interest from last year. So you get 10 percent of 11 dollars, which is 1 dollar and 10 cents. That makes your new total 12 dollars and 10 cents. The amazing thing is that you earned an extra 10 cents because of compounding!
To summarize what we've learned: Compounding is when your money earns more money, and then that new money also earns more money! With simple interest, you only earn money on your original amount. But with compound interest, you earn money on your original amount AND on the interest you already earned. The longer you save, the more powerful compounding becomes! That's why starting to save early is so important.