Explaining personal finance to kids can be very challenging, especially when it comes to the logic around compounding.
Here’s a simple way to explain the power of compounding with your kids. Here’s how the conversation would be like between me and my imaginary son, Tom.
Mickey: Tom, what would you rather have, $100,000 or a 10 cent coin that magically doubles its value every day for 30 days?
Tom: $100,000, of course!
Let the magic begin
Now let’s show Tom the difference between the 2 choices.
Here’s how the first 10 days would look like:
Day 1: $0.10
Day 2: $0.20
Day 3: $0.40
Day 4: $0.80
Day 5: $1.60
Day 6: $3.20
Day 7: $6.40
Day 8: $12.80
Day 9: $25.60
Day 10: $51.20
Oh boy we that 10 cent coin was only slightly over $50 after 10 days.
Day 11: $102.40
Day 12: $204.80
Day 13: $409.60
Day 14: $819.20
Day 15: $1,638.40
Day 16: $3,276.80
Day 17: $6,553.60
Day 18: $13,107.20
Day 19: $26,214.40
Day 20: $52,428.80
Halfway there! Our 10 cent coin has grown to $52,428.80.
Day 21: $104,857.60
Day 22: $209,715.20
Day 23: $419,430.40
Day 24: $838,860.80
Day 25: $1,677,721.60
Day 26: $3,355,443.20
Day 27: $6,710,886.40
Day 28: $13,421,772.80
Day 29: $26,843,545.60
Day 30: $53,687,091.20
Here’s where things get crazy. Our 10 cent coin has bloomed into $53,687,091.20! ......
