I've tried to explain compound interest to my eight - year - old daughter. When I have finished it, she summarizes back to me, "So, you are saying if I put $ 100 in the bank, when I turn sixteen the bank will give me $ 200?" She has already grasped more of the concept than I understood at her age, but she couldn't clearly understand that until she sees them in action. One day I gave her a Ziploc bag with a handful of pennies and told her over the course of a week I wanted her to give me a penny a day. I would deposit the penny in " The Bank of Dad" and compound interest would begin to accumulate the day she deposited the penny. At the end of the week we would check her bank balance. Each day my daughter handed over one penny at the breakfast table and I deposited it in her bank. I gave her a "receipt" for her deposit and explained that she needed to keep up with the receipts to see how much money she had added to her account. In an effort to make this a little more realistic, I deposited a penny from my own piggy bank every other day to give her an additional four pennies at the end of the week. On Sunday evening we gathered receipts and confirmed she had deposited seven pennies in "The Bank of Dad. " Then I opened the old film container and counted out its contents--all eleven pennies. "Hey, there are four extra pennies in there!" I explained that her original seven pennies had grown to eleven pennies because every couple days the bank paid her a penny for letting them use her money--that's interest. She paused and asked, "Dad, what would happen if you deposited like a hundred million pennies in the bank? What can we infer from the passage?
"The Bank of Dad" paid the girl a penny each day as interest. The father used a good way to show his daughter about interest. There were eleven pennies in the old film container in total. The writer's daughter was very puzzled with compound interest.