### What is Compound Interest and How to Calculate Lesson

A lesson for students on the transformative power of compound interest. It provides a deep understanding of both simple and compound interest, illuminating the ways money can accrue over time. The lesson explains the core distinctions between the two interest types, emphasizing the superior potential of compound interest for optimizing returns.

Through practical examples, the video clarifies the “interest on interest” concept, highlighting how investments, when compounded, can grow exponentially over time. There’s also a detailed breakdown of the formula for better comprehension. The significance of starting investments early is accentuated, focusing on the potential for savings to multiply over the years. The lesson concludes by spotlighting the dual nature of compound interest. While it can significantly enhance savings, it can also intensify debts, underscoring the importance of using it judiciously.

#### CONCEPTS

Use this video lesson on the topic of compound interest basics. Learn related concepts of:

• Simple Interest
• Savings
• Investing
• Debt Management
• Financial Planning
• Long-term Growth
• Financial Responsibility
• Planning and Money Management
• Saving and Investing
• Credit and Debt
• Financial Decision Making
• Interest Comprehension
• Money Management

#### TIME REQUIRED

45-60 minutes. It may be necessary to adjust the lesson plan and allocate more or less time to certain topics, depending on the needs and interests of the students.

#### PROCEDURE

Hand out the worksheet below (see the GET LESSON button near the bottom of the page).

Show students the video and have and have them complete the worksheet.  Review the questions on the worksheet.  A more comprehensive and detailed lesson plan can be accessed below for further instruction and study.

What is Compound Interest? How to Calculate

After watching the video, have students tell what the most important things they learned from the video.

#### Lesson Plan: Understanding Compound Interest

Objective:

By the end of the lesson, students will understand the concept of compound interest, differentiate it from simple interest, and compute it using the formula. They should also grasp the long-term effects of compound interest on savings and loans.

Materials:

• Video titled “What is Compound Interest”
• Calculator
• Whiteboard & markers
• Student notebooks
• Computers/tablets for AI chatbot activity

Introduction (10 minutes):

1. Engagement Question: “Would you rather have \$100 today or \$105 a year from now? What about in two years?”
2. Transition with, “The power of waiting and letting your money grow is rooted in the concept of compound interest.”
3. Play the video titled “What is Compound Interest”.

Discussion Questions (15 minutes):

1. How do you differentiate between compound and simple interest?
2. Explain the concept of “interest on interest” as highlighted in the video.
3. What are the long-term implications of compound interest on savings?
4. How does the frequency of interest compounding (e.g., daily vs. yearly) influence the growth?
5. Why is it advised to start investing early, especially when leveraging compound interest?

Activities (25 minutes):

1. Compound Interest Calculator Exercise (15 minutes):
• Students use calculators to determine how different amounts grow with compound interest over time.
• Provide different scenarios (e.g., varying interest rates, compounding frequencies, initial amounts, and durations).
2. Compound vs. Simple Interest Chart (10 minutes):
• Students create a side-by-side chart comparing the growth of an investment using both compound and simple interest over a set period.
• They should discuss their observations with peers.

AI Chatbot Activity with “MI Chat chatbot” (20 minutes):

1. Introduction to MI Chat chatbot (5 minutes):
• Introduce the “MI Chat chatbot” as an AI-powered tool designed to question and reinforce compound interest concepts.
2. Interact with the Chatbot (10 minutes):
• In pairs, students will engage with the chatbot, answering questions and gaining feedback about compound interest.
3. Debrief (5 minutes):
• Discuss the questions posed by the chatbot, clarifying misunderstandings and highlighting key takeaways.

Quiz (15 minutes):

1. Distribute a quiz covering concepts from the video and the subsequent discussion.
2. The quiz should test student understanding of compound interest, its differentiation from simple interest, its calculation, and its implications.

Conclusion (5 minutes):

1. Recap the importance of understanding compound interest for financial growth and decision-making.
2. Highlight the two-sided nature of compound interest: beneficial in savings but potentially harmful with compounded debts.

Homework/Extension:

Students should research a financial product (e.g., a savings account, credit card, or loan) and write a brief report on how compound interest affects that product, either positively or negatively.

#### MI Chat Chatbot Tool

• What is compound interest questions with MI Chat chatbot – Use the MI Chat chatbot to test your students’ understanding of the lesson. The MI Chat chatbot is an interactive platform designed to deepen understanding, aligning with specific queries and thoughts. Offering personalized insights, it directs users toward a clearer grasp of topics, ensuring they match their learning pace, knowledge level, and cognitive goals.

#### LESSON CATEGORIES

For additional related lessons, explore our main category pages:

Categories Banking, Borrowing Money, Money Math, Saving & Investing,