Grades 9-12

Students explore the concept of interest by means of two activities. The first, a simple activity with jellybeans, introduces the concept of interest accruement, and the second, a practical, “real world” activity, reinforces the concept and places it into a larger context.

### Introduction

Banks are places where people save their money. Just like a piggy bank at home, a bank keeps your money all in one place and keeps it safe. Banks do something else though, something your piggy bank doesn’t do. Banks actually PAY you to save your money with them. They pay you a little bit for each day you keep your money in their bank in a savings account. And, the more you put into your account, the more they pay you. This extra money the bank pays you is called “interest.” Getting more money just for saving – sounds like a pretty good deal, doesn’t it? Do we have your “interest”? In a way, interest is a payment the bank gives you for not spending your money right away.

### Learning Objectives

- Explore the basics of earning interest by means of an interest-bearing jellybean account.
- Attain a basic understanding of the reasons banks pay interest, the value of saving, and the effect that savings decisions can have on principal growth.
- Enhance their practical understanding of interest by making calculations of principal growth.

### Resource List

- Interactive Activity: Students will use this interest calculator to find out the growth rate of their jellybean account in activity one.

Interest Calculator - “Salary Calculator”: Students will use this web site to figure out how much that job pays for a year’s work in activity two. [Salary.com’s calculator is quite intuitive and user friendly, but you may need to offer some assistance.]

https://swz.salary.com/SalaryWizard/LayoutScripts/Swzl_NewSearch.aspx - Data Retrieval Chart: Use this chart for recording results during activity one.

Data Retrieval Chart - Banks, Bankers, Banking:This is a great EconEdLink lesson teachers can use to extend this lesson.

www.econedlink.org/lessons/index.php

### Process

Introduce these questions to the students as a discussion.

- What would you do if you were given some jellybeans?
- Would you eat them all right away or save some for later?
- What if you found that by saving some, you would actually get more?
- Would that change the number of jellybeans you are planning to save?

*[Begin a discussion of the concept of interest–what it is, why banks pay it, etc. The detail with which you choose to address these questions is at your own discretion. (Basically, banks use the funds in savings accounts to make money, by investing it or by loaning it to other customers who themselves pay interest to the bank in return for the loan.) It would also be helpful for your students to have a basic understanding of savings accounts, a common vehicle by which interest is earned. You may wish to stimulate a discussion of the reasons for opening a savings account: security, facilitation of saving money for future purposes, etc., or you may wish to focus more closely on the concept of earning interest.]*

**Activity One**

Distribute 15 jellybeans to each student.

Each of you has 15 jellybeans. This is your “savings account.” You are free to “spend” (in this case, to eat!) your jellybeans if you want. But wait – if you save them, you will earn more jellybeans. [Inform the students of the interest rate. A suggested rate would be 1 jellybean added to each account for every 5 they have, per unit of time (compounding per hour would work well, in which case this activity would best be started at the beginning of the school day). This rate will produce tangible increases that the student can easily perceive. Further calculations are not possible with jellybeans; thus, you will likely have to establish the rule that each 5 jellybeans saved gets 1 in interest, but 4 or fewer will get nothing.]

- How many will you save?
- How many will you eat?
- Write your answers down on the data retrieval chart. If you eat any throughout the day, make sure to write down how many.

**Later in the Day**

Your jellybean account has been growing all day. On a piece of paper, write down answers to the following questions:

- How many jellybeans did you start with?
- How many did you eat?
- How many did you save?
- How many do you have now?
- Do you know how you got the number that you did?
- Based on the interest rate, how many will you have at the end of two days?
- How about at the end of the week?
- At the end of the month?
- What if you never eat any of your jellybeans?
- Pretend your jellybeans are worth one dollar each. Use the Interactive Interest Calculator to determine the growth rate of your jellybean account in Activity One.
*[NOTE: The interest rate of one jellybean for each 5 of principle is 20%]*

*[Assist students in understanding the interest rate and making their calculations. Don’t forget about compounding (as interest is paid, it becomes a part of the principal**, and each future interest calculation is based upon that new **principal**). What if you never eat any of your jellybeans? **principal** will grow faster. However, money (or in this case, a jellybean) serves a purpose. Stimulate a brief discussion – does simple accumulation for its own sake make sense? Should not some jellybeans be eaten/money be spent?]*

**Activity Two**

** **1. The students will choose a job they think they might like to do.

2. The students will use the https://swz.salary.com/SalaryWizard/LayoutScripts/Swzl_NewSearch.aspx to figure out how much that job pays for a year’s work. [Salary.com’s calculator is quite intuitive and user friendly, but you may need to offer some assistance.]

3. The students will use the Interactive Interest Calculator to figure out how much interest they would earn on that salary. They will experiment with different interest rates and amounts of time to see how they affect how much their money grows.

The students are using the Interest Calculator to determine interest accruement on a hypothetical salary. However, basing calculations on the full amount of the yearly salary does not take into account money spent on consumption or surrendered in taxes. Some students may know about this. To encourage and enhance this understanding, ask leading questions. Ask students to determine a hypothetical net salary (after consumption and taxes) and to use the flash tool to determine the interest earned on that amount. Have them experiment with lower and higher percentages of taxes and consumption to produce different net salaries, and then have them test each one with the Interest Calculator.

*[NOTE: You may wish to challenge some of your more advanced students by having them calculate **principal **growth (or jellybean accruement) compounded daily, weekly, and monthly for an entire year.]*

### Conclusion

- Why do we put money into savings accounts?
- What is interest? What is the interest rate?
- What happens if you spend all your money and never save any?
- What happens if you save and never spend?

### Extension Activity

If you wish to engage in a more elaborate exploration of the process of earning interest in savings accounts, try adding an interest-bearing component to the role-playing activity found in the EconEdLink lesson “Banks, Bankers, Banking.”

### Assessment

In order better to assess the students’ understanding, pose the following question: “What happens if you save and never spend? [The principal cannot be eaten, but money can be converted into tomorrow’s goodies.]”

Jellybeans: Assess students’ calculations of interest (jellybean) accruement over various periods of time. Note any immediate recognition of the complexities associated with compounding.

Salaries: In Activity Two, students used the Interactive Interest Calculator to determine interest accruement on several hypothetical salaries. Initially, this activity does not suggest the notion of taking NET salary (after taxes and consumption) into account. Note any awareness of this. Encourage sensible estimation of net salaries and observe and assess these estimations and any conclusions students may draw from them, especially, but not limited to: the value of saving, the need for a certain measure of consumption, and the effect that tax rates have on one’s ability to accumulate savings.

In order to assess the students’ understanding, pose the following question: “What happens if you save and never spend? [The principal cannot be eaten, but money can be converted into tomorrow’s goodies.]

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