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My Five Cents: What is compound interest?

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My Five Cents: What is compound interest?

SUBJECTS:  Economics, Maths

YEARS:  9–10


Compound interest will be one of the most important things you ever learn.

Don't believe it? Gen Fricker will explain why. Learn how compound interest works, and why saving now can help you later. Game changer!

Then test yourself with ASIC Moneysmart's "Things to think about" classroom exercises.


Things to think about

  1. 1.Reflect on the following questions: (a) How can money work for you? (b) What is the difference between simple interest and compound interest?
  2. 2.List the terms that stand out to you as you watch the video. For example: compound interest, compounding, financial funds, superannuation, retirement. Are there any terms from above that are unclear and need to be investigated further?
  3. 3.

    Use the ASIC Moneysmart Compound interest calculator to complete these exercises.

    Q1: In the video, after 10 years, Romesh has $13,439 while Lucia has $27,196. (a) Romesh begins to deposit $100 monthly into the account. How much does he accumulate after 12 years? (b) Lucia stops depositing $100 monthly after 10 years. How much does she accumulate after 12 years? (c) How much should Romesh deposit every month in those 12 years to exceed Lucia's amount at the end of 12 years?

    Q2: Imagine you received $10 000 to put into a savings account with interest of 2% p.a, compounded annually for 10 years. Investigate the impact the following monthly deposits have on the final amount. (a) Deposit nothing per month (b) Deposit $10.00 per month (c) Deposit $20.00 per month (d) Deposit $50.00 per month

    Q3: Using the same conditions as Q2, which is better: depositing $10.00 per week, depositing $20.00 per fortnight, or depositing $50.00 per month? Explain your reasoning using your calculations on the Compound Interest Calculator. Think of your own circumstances, how much would you be able to put into a savings account? How much would that accumulate over 10 years?


Teachers

ASIC Moneysmart Teaching:


Acknowledgements

The learning materials provided with this video were created by ASIC Moneysmart.


Production Date: 2019


Copyright

Metadata © Australian Broadcasting Corporation 2020 (except where otherwise indicated). Digital content © Australian Broadcasting Corporation (except where otherwise indicated). Video © Australian Broadcasting Corporation (except where otherwise indicated). All images copyright their respective owners. Text © Australian Broadcasting Corporation and ASIC.

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