Topic: Teaching children how the application of Interest works... (Read 841 times)

Debt was a simple lesson for me. From a young age, I was taught:

1. debt is bad (being in the minus/red... or below $0)
2. if you can't afford something, don't buy it

Those are two very simple lessons that can be taught. Even if a kid does not understand what it means, get them to remember it and they will be set for life.

A simple lesson in interest: I remember seeing an example on a childrens TV show that taught pre-schoolers about numbers. The two scenarios they had were to gain more sweets. This was a game between two children.

Child 1. They told him that he could take 1 sweet and for each turn take 10 sweets more then the last turn. On his second go he would have 10+1 sweets, on his third, 20+11, on his fourth, 30+31
Child 2. They told her that she could take 1 sweet and for each turn, take twice the number of sweets as her last go. Then on her next turn take 2 sweets, next turn take 4, then take 8, then take 16.

The rest of the children were then asked which child would end up with more sweets if they took one go at a time at taking sweets.

Child 1, looks like he's benefiting more, however Child 2 will ultimately end up with more sweets.

Lesson 1: Child 1 will be able to reap the benefits of being smart and saving.
Lesson 2: Child 2 will show the benefits of what it is like to understand 200% interest and compounding at the same time.

I think an alternate would be to have something the kids want (the sort after prise or a teacher forfeit)
First describe interest and what it is:
Then tell them you will sell the "sort after prise" to the first person to pay you 6 tokens. Let the kids know that they will not be able to buy the prise if they can first pay for living expenses for 2 months. So after they have paid for 2 months of expenses listed on the board they can buy the prise. Then give each kid 5 blue tokens per month (represent Labour). 

 Offer to lend them as many tokens as they want from a bowl on your desk, let them borrow as many red tokens as they like (represents debt), BUT they have to show you how many they have taken and they have to give you back the exact number of tokens at the end of the lesson (keep a record).

Let the smartest kids go first, to mitigate the needless hording of debt money.

After all the red coins are distributed, remind the kids that they will not be able to buy the prise if they can't afford it.

Remind them that they have to pay the red tokens they took back to the bowl. 

5 categories of expenses on the board:  2 columns:
Expense:    (month 1)    (month 2)
Interest 50%    (1)       (1)
Food                (1)       (1)
House              (1)       (1)
Car                  (1)       (1)
Clothes            (1)       (1)

Month 1

Collect: 1 for Food, then House, then Car and finally Clothes. 
Then collect the interest: Have them count the red tokens (take 1 blue toke for every 2 red tokens)

As they realise they may have too many reds ask them if any want to pay back red tokens early, adjust the total (update the records).

Month 2
Collect: 1 for Food, then House, then Car and finally Clothes. 
Then collect the interest: Have them count the red tokens (take 1 blue toke for every 2 red tokens)

Now ask who can afford to buy the "sort after prise" (sell someone the prise.) then ask them to repay the red tokens to the bowl, reclaim and repeat until everyone is broke.

Play again, this time tell them they can work in groups of 3, but change the interest to 100% and (the prise is or isn't available depending on the forfeit.) 

Only groups of 3 that don't borrow money will afford the prise. If no one gets it in the second round show them how to succeed, or analyse the strategy of the winner. 

We even had a few "fights"!!! 

Interesting.

I have used a similar exercise to practically show the fiat monetary system flaw to some friends. I had to do it more than one time and some months had to pass for them to trust their own eyes and logic, the difficulty coming from them being grown people who are very well trained to trust their daily grind with fiat money.

It worked though and now it's...their secret.

I have been conscious of teaching the "principal" of saving or deferred consumption as opposed to saving.
3rd graders if introduced to money, see $10 as $10, (the concept of inflation is complicated) earning interest is viewed as getting money for nothing, and implies success. While maintaining value relative to inflation is what makes for an effective saver.  - Ironically I don't know how to do that in the current economic climate.

Teaching the kids the implications of going into debt and paying interest I think is a valuable start. 

There are some inspirational kids out there,
I came across this a few days ago.

http://www.youtube.com/watch?v=Bx5Sc3vWefE

I was in a bank and this teenager was there with his parents. One of the bank ladies was pushing him to get a credit card or debit card (ever since the bank became Wells Fargo they have been pushing credit cards hard). He said he just uses cash. She talked about how he could lose his cash or it could get stolen and if it was a credit card the bank would be able to get his money back if it was stolen.

Pretty sad really...like tobacco sales marketing towards kids.

These are all great suggestions, and I'll follow up with some teacher friends on how to do this. Ideally, I want to make this as-simple-as-possible for people to understand what is really going on with the units that represent interest NEVER being created. How that really means just more debt to pay off the previous debt. But I want to keep it really really simple so that a 3rd grader gets it and so does grand-ma.

So, perhaps I'll break it down into explaining how the application of interest works first and then perhaps go also into gratitude-chip (income) redistribution.

I'll update this thread on how this goes.

Thanks for all the suggestions.

Good on you, as a generation, we need to educate our younger peers the lessons of good personal financial management.

If I were you, I'd teach them as young as possible about debt and how interest applies to it as well.

Then teach them compounding and watch them become the next Warren Buffet. 

I'd really like to see the results of this experiment. What a glorious thought exercise.

So are you a teacher or something?

Then tell them that all grades will be distributed evenly to all kids. If 10 kids get an A and 10 kids get a B and 10 kids get a C, then everyone will get a B. If only 5 kids get an A, 10 kids get a B and 15 kids get a C then everyone will get a B-.

See how long those A students will continue to study and work hard.

yes do this

Slowly and surely begin taking everything they have, make the most innocent of action odd and harshly punished.

Your story is a simple way to explain to anyone the flaw in the fiat monetary system.  If you aren't constantly printing/creating new monetary units to pay the interest owed on the old ones then the system goes bankrupt.  Not remotely sustainable.

Perhaps, some of you teacher types could help with this. I would like to see some you-tube videos showing something similar that I can link to this blog.

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Here’s an interesting exercise teachers could do with their students. They can play a game called giving-gratitude. All kids are given 10 blue chips and asked for a minute to go around and hand everyone they would like to thank someone for helping them in some way, or just feeling like they were an awesome person and they just wanted to let the other person know by handing these blue chips.

Now play the same game with red chips, except this time after the minute is over, you have to return all the red chips to the teacher. And since each student got 10 chips, the teacher would like to see 11 chips back for each 10 that he lent. Say there are 40 students, there were 400 chips distributed but the teacher is asking back for 440.

10% Interest!

The problem arises because those 40 chips were never created. The teacher didn’t have them. No one has them. Its impossible for ANYONE to come up with that 1 extra chip unless they take it from someone else. As George Carlin would say, “the game is rigged”.

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More here:

http://swatopia.org/blog/2013/05/28/it-gets-interesting/