Compound interest and exponential growth

Ages 13 to 17 Read alone · about 40 minutes

Read together

With compound interest, you earn interest on your interest. A balance grows by multiplying each year.

Debt grows the same way, which is why high-interest borrowing can trap people.

Do it

1. Start with 100 and grow it by 5 percent a year. Make a table for 10 years: multiply by 1.05 each time.
2. Compare with simple interest of 5 each year. Which is larger after 10 years?
3. Graph both. What shape is each?
4. Try 20 percent on a debt and see how fast it grows.

Talk about it

• Why does compound growth speed up?
• What does this say about borrowing?

For the grown-up

Compound growth explains saving, debt and many natural processes. Several Christian traditions have views on lending at interest; share your family's. This is education, not financial advice.

Mark as done

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Where this comes from

• National Governors Association Center for Best Practices and Council of Chief State School Officers, Common Core State Standards for Mathematics (2010), standard HSF-LE.A (linear and exponential models)
• Consumer Financial Protection Bureau, pages on how interest and compounding work

Written with AI assistance and checked against the sources listed. Please read it before sharing it with a child.