In this guide, we’ll unravel the intriguing world of compound growth and how you can share this essential monetary concept with your youngsters.
What is compound growth?
Compound growth isn’t just a fancy term – it’s a cornerstone of long-term savings and a fundamental understanding of it is a passport to financial stability. Some people find this concept a bit confusing, but once you’ve got a firm grip on it, you’re setting yourself and your family on the path to a secure financial future.
Before we leap into the thick of things, let’s take a moment to shine a light on what compound growth really is. Compound growth is the magic of your money multiplying over time – a little like earning interest-on-interest.
Your initial investment, or principal, earns interest, and then that combined amount earns interest and so on. This snowballing effect leads to your investment growing at an increasing rate. It’s a simple yet powerful concept that’s at the heart of smart investing.
With that crucial context set, let’s dive into a couple of interactive, straightforward games to help your kids get to grips with this concept.
Play this financial game with your kids
Our first game is an exercise in choice and patience, particularly suitable for the younger ones. Here’s how it goes: present your child with a small reward – it could be a favourite treat, a small amount of pocket money, or extra playtime. Then give them an option: they can have that reward right away, or they can wait until tomorrow and get a bigger reward.
Here’s where it gets interesting: the reward doubles each day they decide to hold off. This visual and tangible demonstration shows how waiting can make their reward (or money) grow, imprinting the principle of compound growth. For example, they can have a reward of $1 today or $16 if they had instead waited four days.
And play this financial game
Our second game is designed with older kids in mind. Choose a chore that your child will do every day for a fortnight. Then they face a decision: they can receive a lump sum payment for the chore immediately, or they can opt for a smaller amount that doubles each day.
The instant gratification of the lump sum might be appealing, but once they see how the second option leads to significant growth over time, they’ll get a clear understanding of compound growth in action. For example, they have a reward today of $100 for doing the chore, or they can instead receive 50 cents (which doubles daily), for two weeks. This 50 cents would be worth $8,192.
The ultimate aim of these games is not just entertainment, but education. They showcase the power of compound growth in a tangible, relatable way and underline the value of patience. These games aren’t just play – they’re practical life lessons. They’re stepping stones towards instilling a mindset of regular saving and long-term financial planning, paving the way for smarter money decisions in the future.
“It’s never too early to start teaching your kids about money.
The key to understanding these games and lessons is consistency. Make them a regular part of your family’s routine and use them as a springboard for conversations about their choices.
This regular interaction helps to instil savvy financial habits from a tender age. Understanding compound growth and appreciating the significance of habitual saving doesn’t just equip them for a class test – it sets them on track for a financially secure future.
And remember, it’s never too early to start teaching your kids about money. Laying a foundation of understanding around compound growth today provides them with a robust financial toolkit they can use tomorrow and well into their adult lives.