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Real Stories

How Your Money Grows

Materials Needed: "Power of Compounding"

The facilitator should begin this activity by:
Distributing charts to participants. Allow participants time to examine the chart, focusing on one column at a time. Direct them to see how in each column, the numbers increase at the same rate. Ask them to draw conclusions about why the totals at the bottom are so different.

After this discussion the facilitator should ask:

  1. Why might someone start investing and then stop after a few years?
  2. Why might some people delay investing for retirement?
  3. Why is it important to leave your money invested as opposed to borrowing or withdrawing it?
  4. Why is it a good idea to begin investing early?
  5. What might be a reasonable amount (or percentage of your income) to save for retirement? Might you want to change this amount during your earning life?

The facilitator should conclude this activity with the following question:
Why is compounding defined as "interest on your interest?" (The chart used in this activity illustrates the principle, using a 10% rate of return, a rate that is usually associated with the stock market.)