Kids: What Is Interest?

It is two days after Halloween and you have been really enjoying all of the candy you collected trick or treating. You've eaten chocolate, gummy bears, peanut butter cups, and all other kinds of candy, but your favorite is suckers. Cherry, watermelon, green apple, blue raspberry, and grape; they are so delicious. But there is a problem. A really big problem! You only have 10 suckers left!

You decide that you want to make them last so you'll only eat one sucker a day. At that rate you'll be able to eat suckers for 10 whole days. You'd like to be able to eat suckers for longer than that, but you only have 10 left.

As you were putting your suckers in a jar to put them up on the shelf your friend knocked on the door.

"Hi William" you say.

Without even saying hi back your friend says "Guess what!?" He is clearly excited.

You start to get excited too and ask "what is it?"

"James from down the street is tired of making suckers and is willing to trade me his sucker making machine for twenty suckers". William's face turns from excited to sad "but I only have 10 suckers left"

You tell William, "I only have 10 suckers left too".

You start rubbing your chin and William starts scratching his head. Pretty soon William's eyes get really big and he says "Wait a minute, I think I have an idea! If you give me your 10 suckers and I use my 10 suckers then I'll have 20 suckers and I can trade James for the sucker making machine".

"But I already made a plan William, I am going to eat one sucker each day for the next 10 days. If I give you my suckers I won't have any suckers for myself."

William thought about the problem for a little bit then said "What if you loan me your suckers and I'll pay you interest?"

"Interest, what does that mean?"

William started to get excited again and began to explain "Here's my plan. You give me your 10 suckers on loan. I will trade James our 20 suckers for the sucker making machine. I'll make a few suckers every day and I'll bring you one each day until I pay you back".

"Good thinking William. That would let you buy the sucker making machine and I would still get to have a sucker every day. But I have one question. How long would it take you to pay me back?"

"Well I could give you two suckers every day, one for interest and 1 to pay you back."

You look shocked, "1? You have to pay me back 10 suckers"

William says "Yes I know, but I will do that for 10 days. After 10 days you will have back your 10 suckers, plus 10 more suckers for interest."

"Deal!" you scream.

You give William your 10 suckers and he trades all of the suckers for the sucker making machine. Over the next 10 days he works hard making suckers and comes over every day to pay you your two suckers. After 10 days he has paid you back fully and you now have 20 suckers without having to do any work yourself.

Well... you would have had 20 suckers but you ate one each day so you now only have 10 suckers left. But without making a deal with William to loan out your suckers and earn interest on them you would have zero suckers now.

Adults earn interest on money they save at the bank and with other kinds of investing. They also have to pay interest when they borrow money to buy things like houses and cars.

Ask the adults in your family if they make any interest on anything.

Ask them if they pay interest on anything.