Jason Alderman of Visa posted a very simple explanation of compound interest on the Practical Money Skills for Life site this week. Here's an excerpt:
"What is compounding? Basically, it's where you put aside money – whether in savings, a retirement account or the stock market – and then essentially leave it alone. As your account earns interest or dividends, you continually reinvest those profits, generating (compounding) additional earnings at an accelerated rate."
Although compound interest is not an easy concept to grasp, it's not a bad idea to get the concept into your child's head early. The earlier they get it, the better off they'll be.
Click on the title link to read the entire article.