Lesson 4: Lesson 4: Introduction to Interest (Simple vs. Compound)
Duration of Days: 4
Lesson Objective
Students will be able to calculate total earned asset balances using both the simple interest formula ($I = Prt$) and the compound interest formula.
Students will be able to argue, in writing, the long-term wealth benefits of compounding interest over simple interest, using data evidence from a 30-year projections table.
How can money grow over time on its own, and why does time matter more than the amount you start with?
What is the mathematically hazardous side of compound interest when you are the borrower instead of the saver?
Principal,
Interest Rate,
Simple Interest,
Compound Interest,
Time Horizon.
Connecticut Social Studies Standards: K.Eco.9.a (Role of banks in saving and lending), 3.Eco.9.a (Role of financial institutions), and 8.Inq.4.b (Construct explanations using reasoning, examples, and data).
This topic bridges the gap to the Heart of Algebra and Passport to Advanced Math sections of the SAT. Students will explicitly work with linear models (simple interest) versus exponential growth models (compound interest) and interpret word problems to construct these algebraic functions.
Students will trace a hypothetical deposit of $1,000 over a long timeframe to compare simple growth against exponential compounding growth. They will calculate balances manually for the first few intervals to understand the math, then transition to graphing the divergent growth paths using spreadsheets or graphing calculators. Students will analyze SAT-style math word problems to practice isolating the key financial variables.
Over the course of 3 days, students will practice calculating simple interest and compound interest situations, and will also be able to utilize sheets/excel to input the data.
The lesson demonstrates the immense mathematical power of saving early, while setting up the foundation for retirement concepts later in the course. DOK Level: 3 (Strategic Thinking).
Students will analyze real marketing promotions from online high-yield savings accounts (HYSAs) or trendy fintech apps to evaluate if the advertised rates are worth it.
Many students assume that interest is only calculated on the original deposit amount forever, failing to understand that compounding means you earn additional interest on top of your previously accumulated interest.
Provide a math equation breakdown mat that explicitly color-codes each variable ($P$ = Green, $r$ = Red, etc.) matching the values in the text prompt to reduce cognitive load during formula setup.
A comparative math and writing problem sheet where students calculate the growth of a fund under both interest systems over 20 years, and write a 3-sentence summary explaining which option is superior and why.
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Available online resources