1-877-744-3436 Apply Now

Compound Interest – What You Need To Teach Your Child About.

By | Blog, Home Equity Loan, How To.... | No Comments

What Is the Greatest Mathematical Discovery of All Time?

Albert Einstein said, “The greatest mathematical discovery of all time”  is compound interest. This is mostly due to the principal can be applied to everyone’s everyday life.

mortgage broker blog bcThe Concept of Compounding Interest.

 

The concept of compound interest is very simple; interest is added back to the principal sum so that interest is earned on that added interest during the next compounding period.

Mortgage BrokerHow Can Compound Interest work against you?

 

One of the biggest financial threats to most Canadian’s is the amount of consumer debt they carry. A lot of this consumer debt is carried in the form of high interest credit cards.

If you only make a partial payment (like the cards minimum payment due) the credit card company starts charging the interest back at the date you charged the purchased item. These cards interest rates are very high, making the balance owing increase very quickly. If payments are missed, you will be paying interest on your interest and can find yourself in financial trouble quickly.

Mortgage BrokerWhat is Benefits of Compound Interest?

 

The benefit of compounding interest is that the maximum amount of interest is applied to your investment. There are two types of interest:

  1. Simple Interest
  2. Compound Interest

Simple interest is only paid on the money you have saved or invested.

Compound Interest is paid on the principle plus ++++ on the interest you have already earned.

When should the concept of money & interest be taught to your children?

As soon as a child can count introduce them to money. Repetition & observation are the two method that children learn by.

mortgage broker blog bcTips:

 

  1. Talking about money and bills as children grow gives them a conscious knowledge of the value of money and wise ways of pending it.
  2. Learn the difference between needs and wants. Not everyone’s bank account is built the same. Preparing children to make good spending decisions can save them and you a lot of grief in the future.
  3. Setting financial goals is a concept to help the young learn the value of money and how hard it is to save. If you don’t make a financial plan at any age you are rarely going to financially see results.
  4. Show children the concept of saving instead of the consumer society culture. Showing a child the power of compound interest can open a new world for them and their future family.
  5. When giving out allowance or chore money use small denominations. If you give $5 give it in coins giving the child the ability to make choices.
  6. Open up a tax free savings account or a RESP in the name of your child. Encourage them to save as well as your contributions.
  7. Have your child open up a savings account. Allow them to add to the savings account & withdrawal. Spending or wasting money is an important step in learning financial success.
  8. Keep a record of money saved, invested or spent. These are primary skills young people must learn.
  9. One of the first financial experiences a young child has is spending money at the grocery store. Since a third of most take home pay is spent on household items or grocery’s this is a great place to start a child involvement in household expenses.
  10. Plan your purchase out prior to going into retail stores with your child. Show the research that is needed prior to purchasing a product. This will cut down on the impulse purchase.
  11. Making good & bad spending decisions is an essential aspect in learning financial responsibility. Teach children how to employ common sense practices like researching products waiting for the correct time of year to purchase. As well as spending by choice technique, where the purchaser selects three items money could be spent on. After decision is made a purchase of one of those items occur.
  12. Teach your child about advertising and promises made in advertising. Teach them to break down commercials to the products benefits and cost savings to come to conclusions about products true value.
  13. Show children the dangers of borrowing & paying interest. Give your child a small loan and charge interest at a credit card rate. Break down for them the monthly payment and work out the total interest charged for a 1 year term.
  14. When charging dinners to credit cards show your child how to verify the charge and calculate a tip.
  15. Youth & credit cards should come with extreme caution. The credit cards come with a message to spend and our culture has embraced this dangerous practice.

Mortgage Broker VancouverWhen home owners are dealing with debts outside of their control it is a good idea to discuss financial options with your BC Mortgage Broker to determine refinance options that might include home equity loans or second mortgages to help with debt consolidation. This practice can help lower your monthly payments and assist home owners that are facing the possibility of bad credit.

[note color=”#FCfCfC”]Home Equity Loan service areas in  British Columbia (BC) Canada’s Lower Mainland of: Surrey BC , Vancouver BC, Richmond BC, Burnaby BC, Abbotsford BC, Chilliwack BC, Coquitlam BC, Port Coquitlam BC, Pitt Meadows BC, Maple Ridge BC, West Vancouver BC, North Vancouver BC, Port Moody BC, New Westminster BC, Delta BC, Surrey BC, White Rock BC, Langley BC, Coquitlam BC, Mission BC, Or in the BC Okanagan  Armstrong BC, Chase BC, Penticton BC, Revelstoke BC, Kamloops BC, Kelowna BC, Merrit BC, Salmon Arm, Vernon BC, As well as on Vancouver Isalnd: Victoria BC, Saanich, Esquimalt, Oak Bay, Colwood, Langford, Sooke, Campbell River, Chemainus, Comox, Courtenay, Cumberland, Duncan, Ladysmith, Lake Cowichan, Nanaimo, Parksville, Port Alberni, Qualicum, Sidney, Cranbrook, Kimberley, Nelson, Castelgar, Trail, Revelstoke.[/note]