Wednesday, April 14, 2010

MAM Day 14: Savings accounts & interest

Lets stop talking about spending money and buying things when I don't have money. The better idea is to not buy things, even if they're on sale, but I don't have that sort of self control.

Money doesn't grow on trees!

Today's math awareness is how to save money. How can we get the most out of a savings account? My experience with saving money is having a savings account that's separate from my checking account. However, I don't know what kind of interest I'm getting on that savings account. I have heard of better interest banks for savings accounts, but I don't know for sure.

This first exercise is balancing your checkbook and working out bills and your salary. Some older students might appreciate doing this exercise to understand how a paycheck can disappear so quickly.

This exercise starts going into savings accounts and how simple interest and compound interest work. This page has links to outside websites that explain other banking terms and finance terms.

A diagram of the difference

What's the difference between simple and compound interest? Well, this site sums it up quite well - "simple interest grows slowly, compounding speeds up the process." For those of you who understand math jargon, it's the difference between a linear growth and quadratic growth.

Simple interest is adding only more interest on the original amount you deposited. Compound interest is adding interest on the amount you currently have, this includes any new interest you may have accumulated.

Now, the other side of the coin is if you were to be in debt. Suppose you have some credit card debt, or student loan debts. More often than not, these debts accumulate compound interest, which means in the long run, you end up paying way more than you originally borrowed.

This article is one strategy for minimizing student debt

This cartoon sums up my relationship with my dad and our understanding of life, education and careers.


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