How to talk to children about interest

Chapter 01

Why talking about interest is useful?

It can be tricky getting kids to think long term when it comes to money, as opposed to immediate reward! Getting their heads around the idea of interest can really jump start your child’s enthusiasm for saving and help avoid running up debts in later life.

Chapter 02

What is interest?

Ah interest! A simple concept, but a powerful one.

Put simply: interest is the reward for saving – and the cost of borrowing.

Put money in a savings account, and you get paid extra money on top, known as ‘interest’. That’s because the bank pays you interest for allowing them to use your cash.

Interest is paid as a percentage of the money you put in the account. So for example, if the interest on your £100 savings is 4%, you will get £4 added. That percentage is known as the interest rate, and the longer you leave money in your account, the more interest you earn. Good times!

However, interest works both ways. It’s great when you’re saving, but not so great if you’re borrowing, because then you have to pay someone interest for using their money.

Fun Fact

Interest existed before money did. Thousands of years ago, farmers who borrowed seeds had to pay back extra seeds after the harvest.

Chapter 03

Talking to your kids about Interest

We love a good chat at NatWest Rooster Money, so here are some easy ideas to kick start conversations about Interest:

1

Add your own interest

Start by asking your child what they want, and what they’re prepared to save up for. If it’s worth £50, agree that if they save £40 by a certain point, you’ll chip in the remaining £10 to help them reach their goal quicker. Explain that this reward is called ‘interest’.

2

Analyse ads

When you’re out and about, point out those bank posters on billboards and bus stops that have big percentage signs on them. Use it as a way to start chatting, or ask if they remember the concept if you’ve discussed it before.

3

Good or bad?

Talk about the difference between earning interest on savings, and paying interest on borrowing - when is a bigger number better?

Did you know?

The average interest rate set by parents using Rooster Money with their kids is a generous 9%

Expert View
“Teaching our kids that their savings will grow faster the longer they leave them alone is a worthy lesson. I’ve explained to my daughter that interest is what a bank pays you to keep your money there. The longer the money stays in the bank, the more money you earn!”

Kara GammellMother of one and money blogger at Your Best Friend’s Guide to Cash

Chapter 04

Having some fun with it

We all learn best by doing, so here are some fun activities you can try:

1

Saving for sweets

For younger kids, give them some sweets and explain that if they can refrain from eating any until after lunch they’ll get 5 more to add to their stash. The concept of being rewarded for saving will soon sink in!

2

Make saving pay

Try the activity above with real money when they’re older. Ask how long they think they can go without spending that week’s pocket money, then offer to give them an extra 10p or 10% for every day they succeed.

3

Spot the best savings

Put older children to work. Suggest they search online, check comparison tables of children’s savings accounts, and find an account paying the highest interest. Spot any pesky small print – do they have to pay in a regular amount each month? How many times can they take money out? Incentivise them to find a suitable account by promising some cash to open it.

Expert View
"I took my kids to open accounts at our local building society, so they could pay in part of their pocket money and cash presents. They love seeing how the total tots up in their passbooks, and I point out any interest added."

Faith ArcherMother and money blogger at 'Much More With Less'

Talking About Interest