This activity will help students explore the power of exponential growth as they compare simple interest vs. compound interest.
This activity has three components.
The first component will have students calculate interest earned and new balance using simple interest over the course of four years. It then has students calculate the new balance, year by year, if using compound interest.
The second component introduces the compound interest formula (students will love not having to calculate interest year by year like we did in Component One). Students will need a scientific calculator for this activity. Students will pretend they are saving $20,000 that they made mowing lawns in high school. They will calculate the return they will receive on their investment if they start saving at age 18, and then again at ages 28, 38, 48, and 58. The results will show the power of exponential growth!
The third component will have students use Microsoft Excel or Google Sheets to graph the data found in Component Two vs the data had they used simple interest. This activity will give a strong illustration to prove once and for all how powerful exponential growth can be. It is also a great opportunity to bring technology into the classroom.
I even provide a few links on how students can start their own Roth IRA.