Discussion
Why Isn't This Taught Earlier?
Who benefits from people not understanding compound interest? Students look up the gap between typical credit card rates and savings account rates and consider what it reveals.
Why do you think compound interest isn't taught more prominently, or earlier, in school?
- —Who benefits when people don't understand compound interest?
- —Who benefits when they do?
- —If you were going to explain this equation to a younger sibling — or to a parent who'd never seen it — how would you describe it in plain language?
Look up two numbers: the current average interest rate on a credit card in the U.S., and the current average interest rate on a savings account at a major bank. Compare them.
- —What does the gap between these two rates tell you about how the financial system is structured?
- —The formula assumes a fixed interest rate, which is a simplification. Does that change the argument for long-term investing? Does it strengthen or weaken it?