Browse Tag: math

National Bank of Mom The Rule of 72

The Rule of 72 and Exponential Growth

Have you heard of the Rule of 72? (It sounds boring, doesn’t it? I promise you, it’s not.)

The Rule of 72 is a quick way to determine how many years it will take for money to double with a given interest rate. Divide the interest rate into 72 and get the approximate number of years.

For example, at 8% interest, money will take about 9 years to double.

72 / 8 = 9

So let’s say that you have $100. In 9 years, you’ll have about $200.

When I was a kid, my dad would drill me on the Rule of 72 — mainly in the car on long trips. At the time, it wasn’t very interesting. So what if I’d have $200 in 9 years? (Actually, it seemed terrible. I’d have to wait 9 years to have a measly $200? Why was that worth talking about?)

The key, though, that makes this concept REALLY powerful is…

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National Bank of Mom Calculate the Tip

Teach Your 8-Year-Old to Calculate the Tip

Calculating the tip is a great way to practice percentages. These days, I don’t think many people do much math with a pencil and paper. We rely on technology for almost everything — even things as simple as calculating the tip at a restaurant are now done with a tablet on the table or an app on your phone.

I think it’s important, however, to put the technology aside for a bit and work through a problem by yourself. That’s what we’ve been doing here for awhile — by keeping account registers, learning how to calculate percentages, practicing those calculations, and even tracking our spending on vacation. All with pencil and paper. Old school.

My favorite lessons are those that he can practice himself (hands-on!), that make sense in the real-world (are meaningful, relatable and useful), appropriate for his age and are interesting and even fun. (I realize I may be stretching the definition of fun.)

In that vein, I taught J how to calculate a 20% tip at a restaurant.

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Tracking Our Spending on an Awesome Weekend Road Trip

Awhile back I came upon a question on Reddit — “What did your family teach you about money and finance?” I love these types of topics (almost as much as I love topics like, “Besides your main job, what additional income streams do you have?”). There is always a wealth of information, and it’s a great opportunity to pick up a new idea to try.

One Redditor mentioned that his family did driving vacations almost exclusively. By the time he and his brother were 10 or so, they were responsible for keeping track of the “trip binder” where they logged expenses into categories and maintained receipts. Their mom wanted them to appreciate how much things cost and think critically about if they felt things were worth the price.

What a great idea! I bookmarked it for the next time we took a trip, which was this past weekend. We went to Brooklyn for a family birthday party and to the Statue of Liberty the next day.

Trip Log

I put together a basic log and organized our preliminary expenses — the Airbnb that we prepaid for as well as the tickets for the Statue of Liberty. I knew we would be traveling on toll roads, so I even tried to research which tolls we’d incur (based on what roads we planned to travel).

All grand plans!

And it didn’t work at all.

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How National Bank of Mom Rewards Savings

By this time, you already know that we subscribe to a three-envelope system (complete with registers) for savings, spending and giving. At times, we also use an additional envelope for short-term savings — when J is saving for a larger purchase a few months in advance.

The first stop in our banking process (and the reason for the name of this blog) centers around the savings envelope.

Every month on the 9th, I pay interest on the total in J’s savings envelope. To make it enough that he can see a tangible result (and earn more than the few cents he would at a bank), I pay 3% monthly.

I create a bank statement, give him a printout and also email him a copy. He writes the interest amount in his savings register to balance the account.

I developed a spreadsheet to calculate the amount and format a nice-looking statement for him. (Download a copy of the spreadsheet.) Fill in the sections in blue on the first sheet. Each month, enter the deposits made in the appropriate section, and the interest and totals will recalculate. Print a copy or save as a PDF and email away.

What is interest?

When borrowing money, interest is the money that you pay on top of what you borrow. Borrow money, pay it back AND extra.

When saving money, interest is the money that you earn. The bank “borrows” money from you and gives you a percentage of that money (for the privilege of using it). Put money in and get that amount back PLUS more.

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Practice Makes Perfect

Last month we started talking about percentages in the 10-10-80 savings plan with our focus on the 10% that goes to savings. I want J to save at least 10% of all money he receives, so we’re working on how to calculate 10% of any amount.

I showed him two ways to calculate 10% last time:

  • Use the 100-grid and divide the amount into 10 equal parts. $3.00 divided into 10 equal parts gives you 30 cents in each 10-block
  • Move the decimal one place to the left to find 10%. $3.00 becomes $.300 or 30 cents

J got a calculator for Christmas, so we integrated it into our practice. I showed him how to find the decimal equivalent of a percentage by moving the decimal point two places to the left (10% becomes .10). Continue Reading