Students explore the concept of interest by means of two activities. The first, a simple activity with jellybeans, introduces the concept of interest accruement, and the second, a practical, “real world” activity, reinforces the concept and places it into a larger context.
Banks are places where people save their money. Just like a piggy bank at home, a bank keeps your money all in one place and keeps it safe. Banks do something else though, something your piggy bank doesn’t do. Banks actually PAY you to save your money with them. They pay you a little bit for each day you keep your money in their bank in a savings account. And, the more you put into your account, the more they pay you. This extra money the bank pays you is called “interest.” Getting more money just for saving – sounds like a pretty good deal, doesn’t it? Do we have your “interest”? In a way, interest is a payment the bank gives you for not spending your money right away.
Introduce these questions to the students as a discussion.
[Begin a discussion of the concept of interest–what it is, why banks pay it, etc. The detail with which you choose to address these questions is at your own discretion. (Basically, banks use the funds in savings accounts to make money, by investing it or by loaning it to other customers who themselves pay interest to the bank in return for the loan.) It would also be helpful for your students to have a basic understanding of savings accounts, a common vehicle by which interest is earned. You may wish to stimulate a discussion of the reasons for opening a savings account: security, facilitation of saving money for future purposes, etc., or you may wish to focus more closely on the concept of earning interest.]
Activity One
Distribute 15 jellybeans to each student.
Each of you has 15 jellybeans. This is your “savings account.” You are free to “spend” (in this case, to eat!) your jellybeans if you want. But wait – if you save them, you will earn more jellybeans. [Inform the students of the interest rate. A suggested rate would be 1 jellybean added to each account for every 5 they have, per unit of time (compounding per hour would work well, in which case this activity would best be started at the beginning of the school day). This rate will produce tangible increases that the student can easily perceive. Further calculations are not possible with jellybeans; thus, you will likely have to establish the rule that each 5 jellybeans saved gets 1 in interest, but 4 or fewer will get nothing.]
Later in the Day
Your jellybean account has been growing all day. On a piece of paper, write down answers to the following questions:
[Assist students in understanding the interest rate and making their calculations. Don’t forget about compounding (as interest is paid, it becomes a part of the principal, and each future interest calculation is based upon that new principal). What if you never eat any of your jellybeans? principal will grow faster. However, money (or in this case, a jellybean) serves a purpose. Stimulate a brief discussion – does simple accumulation for its own sake make sense? Should not some jellybeans be eaten/money be spent?]
Activity Two
1. The students will choose a job they think they might like to do.
2. The students will use the https://swz.salary.com/SalaryWizard/LayoutScripts/Swzl_NewSearch.aspx to figure out how much that job pays for a year’s work. [Salary.com’s calculator is quite intuitive and user friendly, but you may need to offer some assistance.]
3. The students will use the Interactive Interest Calculator to figure out how much interest they would earn on that salary. They will experiment with different interest rates and amounts of time to see how they affect how much their money grows.
The students are using the Interest Calculator to determine interest accruement on a hypothetical salary. However, basing calculations on the full amount of the yearly salary does not take into account money spent on consumption or surrendered in taxes. Some students may know about this. To encourage and enhance this understanding, ask leading questions. Ask students to determine a hypothetical net salary (after consumption and taxes) and to use the flash tool to determine the interest earned on that amount. Have them experiment with lower and higher percentages of taxes and consumption to produce different net salaries, and then have them test each one with the Interest Calculator.
[NOTE: You may wish to challenge some of your more advanced students by having them calculate principal growth (or jellybean accruement) compounded daily, weekly, and monthly for an entire year.]
If you wish to engage in a more elaborate exploration of the process of earning interest in savings accounts, try adding an interest-bearing component to the role-playing activity found in the EconEdLink lesson “Banks, Bankers, Banking.”
In order better to assess the students’ understanding, pose the following question: “What happens if you save and never spend? [The principal cannot be eaten, but money can be converted into tomorrow’s goodies.]”
Jellybeans: Assess students’ calculations of interest (jellybean) accruement over various periods of time. Note any immediate recognition of the complexities associated with compounding.
Salaries: In Activity Two, students used the Interactive Interest Calculator to determine interest accruement on several hypothetical salaries. Initially, this activity does not suggest the notion of taking NET salary (after taxes and consumption) into account. Note any awareness of this. Encourage sensible estimation of net salaries and observe and assess these estimations and any conclusions students may draw from them, especially, but not limited to: the value of saving, the need for a certain measure of consumption, and the effect that tax rates have on one’s ability to accumulate savings.
In order to assess the students’ understanding, pose the following question: “What happens if you save and never spend? [The principal cannot be eaten, but money can be converted into tomorrow’s goodies.]
Grades 9-12
Grades 6-8, 9-12
Grades 6-8
Grades 9-12
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