Introducing the marvels of compound interest to kids with a hands-on activity | Hacker News Reader

Introducing the marvels of compound interest to kids with a hands-on activity

tendollaradventure.com

6 pointsdskhatri6 comments

Compounding and the time value of money are critical ideas that even most adults don't understand. Awesome idea to teach kids about the exponential concepts! Reminds me of the story of a pauper who doubled his rice grains every day for a month, but this is much more practical to grasp and implement!

The bank will pay the student $1 per day for each dollar stored there.

Your teaching approach involves banks paying an APR of 36500% to depositors, but the price of the bike stays stable? You have a more realistic chance of growing your own unicorn. This isn't education, it's propaganda.

The idea is to teach the concept of compound interest. Having anything other than 100% interest probably will make the exercise more arduous and less interesting for the target age. The worksheet shows that a learner would only need to know addition and subtraction for the exercise. The lesson plan does call for a discussion, with an older cohort, about what typical interest rates look like and that 100% is unrealistic.

As for propaganda, I assume that was in jest.

I'm not jesting at all. Compound interest is a social phenomenon rather than a natural one. While rentier capitalism is the dominant economic paradigm in most of the world at present, it's not exactly problem-free.

I think it's propagandistic to speak of the 'magic' on compound interest at all; it reminds of the 'magic' of Ponzi schemes. Consider that if you changed the perspective in the example game while keeping other conditions the same, it could just as easily be a lesson about the 'magic' of debt slavery, in which a kid borrows money to buy a bicycle but is then unable to ever pay off the loan - which might cause a lot of the young participants to question the value of a system that arguably entraps far more people than it empowers.

The massively unrealistic payouts and artificial conditions (like the bike vendor holding the price steady for the customer, instead of just selling the bike and sticking the $1000 in the bank to double every day) strikes me as a fairy story. It's not just because of the exaggerated interest rate (which only going to lead to disappoint immediately afterward) but because it implicitly posits two different sets of rules: one for the depositor who is enjoying both free money and cartoonishly accelerated benefits, and a different one for the shop owner who is somehow disconnected from this inflationary financial environment.

To be clear, I think teaching kids financial literacy early on is a good thing, but that this isn't a good way to instil the lesson.

The point of teaching kids about compound interest with exaggerated interest rates is so their attention doesn’t wander before they can learn the math lesson. If they had to save up $1,000 by working, then wait a month for $3 of interest to credit, and then another month for $3.01 to credit they will probably ask who cares about the extra cent? (If the Federal Reserve ever does ZIRP again they will be waiting a long time for any interest to be credited on a $1,000 balance). This is like frictionless spherical cows in physics class. It’s not realistic. It’s a teaching model.

Compound growth exists in nature. A few bugs can quickly multiply into a swarm.

the story about the grains of rice on the chessboard works equally well.

Compound growth exists in nature. A few bugs can quickly multiply into a swarm.

I think a more effective kind of financial literacy would convey that any time you see wild overshoots in growth it tends to have devastating local effects followed by a crash.

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