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Cashing In Q&A columns

5 lessons to teach kids how interest works

While your kids may readily grasp the concept of putting money aside for a rainy day, getting them to understand how interest can add to their wealth or leave them drowning in debt may require more novel explanations.

Try comparing interest to the idea of renting, suggests Elisabeth Donati, owner of Creative Wealth International, a Santa Barbara, Calif., company that holds financial summer camps for children. The next time you rent a movie tell them, “we had to pay a rental fee in order to use this video. When you put your money in the bank, the bank pays you a rental fee to use your money,” Donati explains. Here are five exercises you can use to make the concept more real for your kids (click through each lesson).

See related:6 tools to help parents teach kids about money, Teaching kids good money habits by example, Preparing kids for credit card management

 

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Published: April 22, 2011

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