Educate your kids on the value of preparing for a healthy financial future!
Teaching kids about money can feel daunting, but if there’s one lesson that can have a huge impact on their financial future, it’s understanding compound interest. Why? Because compound interest is like planting a money seed that keeps growing. Once they get the concept, they’ll realise they can make their money work for them—and that’s a powerful idea for anyone, no matter their age!
So, how can we explain it in a way that’s fun and easy to understand? Here’s my approach to making compound interest come alive for your kids, plus a few great apps that can show them their money growing right before their eyes.
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1. Start with a Story: The Money Tree
Kids love stories, so start with something relatable: imagine a magical tree that grows money instead of fruit. Tell them that every dollar they put on this tree grows a little bit every day, but here’s the real magic: it doesn’t just grow the original dollar. It grows what was added the day before, too. So, over time, the tree doesn’t just have a few dollars hanging from its branches; it’s bursting with money! Compound interest works like that magical money tree—it grows on what you start with, but it also grows on what it’s already grown.
2. Show the Power of “Doubling”.
A fun way to illustrate compound growth is with a classic doubling example. Ask your kids: would they rather have $100 today or just 10 cents that doubles every day for a month? Then explain that if they chose the 10 cents, by the end of the month, they’d have over $5 million! It’s a mind-blowing example that shows just how powerful compounding can be over time.
3. Make It Real with Apps
Now that they understand the concept, show them how compound interest can work for them personally. Here are five fantastic Australian apps that help kids explore investing and see their money grow over time:
- Spriggy Invest: With as little as $50, Spriggy Invest helps families start investing in diversified portfolios, perfect for kids to see how their money grows. This app is a fantastic way to get your kids excited about saving for the future by showing them the growth of each dollar they save. (spriggyinvest.com.au)
- Superhero Minor Account: Superhero allows parents to set up minor accounts and invest in shares for their kids. With low brokerage fees, kids can watch their investments grow, seeing first-hand how small investments in the right companies can compound into something meaningful. (superhero.com.au)
- Pearler Headstart: This app is designed for consistent investing with managed funds. Parents can help kids set up small, regular investments, reinforcing the power of compounding over time. (pearler.com)
- Stockspot Kids Account: Offering no management fees for balances under $10,000, Stockspot helps kids build diversified portfolios through a mix of stocks and bonds. It’s an affordable way to make compounding real and easy to understand. (canstar.com.au)
- Raiz Kids: With a popular round-up feature that invests spare change, Raiz Kids lets kids see how even small contributions can grow into something bigger through compound interest. (canstar.com.au)
Wrapping Up
Teaching compound interest doesn’t have to be complicated. By starting with stories, real-life examples, and interactive tools, you’re not only explaining how money grows—you’re sparking an interest that could set them up for a brighter financial future. With compound interest, every dollar saved today is a step toward their dreams tomorrow!
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