The Compound Interest is the Most Underrated Concept in High School Mathematics
Finance Should Be a Course Taught in the Junior and Senior Year of High School
Compound interest is a topic math teachers in Algebra 2 and Precalculus cover every year; the mathematics of compound interest is simple, but it could have life-lasting financial value to someone.
I know two people who applied this concept and have reaped the benefits of their consistency in saving for retirement; one of them was a counselor at my school, and the other was a teacher at a private school; both of them are friends of mine.
If you can save early, the money saved with compound interest adds up over time; you have probably heard this saying, which would you rather have, $1,000,000 or the result of doubling a penny each day for 30 days?
f(x) = (2)^(30) = 1,073,741,824 cents = $10,737,418.24
Upon inspection, which option would you choose?
That is the power of compound interest.
My former colleague, now retired, took 40 years as an educator, with frugal spending and consistency in saving, retired in teaching with a retirement portfolio of about $315,000.
The amount saved also depends on the market because, with a recession, the value would lower.
With discipline, he managed to save $315,000 when he retired several years before the pandemic started. Another friend saved his money and will have nearly $315,000 when he retires from teaching; However, I am more of a risk-taker.
I have failed at several e-commerce businesses; I have always wanted to build a business from side gigs that would generate income exceeding my teaching salary; I paid the price, and I had to start again.
Concepts in High School Mathematics Does Work
I would like to see a change in the high school curriculum. Design another course with the same credit value as Algebra 2 and call it “Everything You Need to Know About Finance to Save for Your Future.”
Every time I teach this section in Precalculus, I tell my students the most important formula you need to know after you leave high school is the compound interest formula.
I remember bringing it up to multiple administrations, and it was always, “you could still teach finance in the context of the curriculum.”
You could introduce the topic in the context of Precalculus, but can you imagine how much more the students will learn in finance if it was a course?
f(x)=ab^x, where b>1, and a is the amount saved per year
Example: f(x)=3000(1.125)^x
The graph of f(x) is an exponential function representing money saved at 12.5% for x years.
At 30 years, a person will save $102,729.91 at 12.5% if the person saves $3000 per year.
However, the compound interest formula is even better; it states if you make an initial investment at the start and leave it alone, after 30 years, that is the amount you will have in your retirement portfolio.
But, this would only happen if the annual interest remains at 12.5% for 30 years. That is never the case.
Takeaway
I’m not sure why the top brass in education cannot understand a course in finance will have a profound impact on a lot of people. My only thought is that maybe they want to keep people in status quo limbo.
Creating a course in finance in high school sounds too simple and filled with too much common sense.
Teaching finance to students in high school would wake up too many students to the realization that most if not all of what they are learning in high school will never be used again after graduating high school.
Final Thought
I have been advocating for a finance course that teaches practical skills for students to use after high school graduation. Administrators would always say, “you can teach concepts of compound interest, finance, and stocks in Algebra 2 and Precalculus.”
One of the most valuable formulas a student will ever learn in a math class is the compound interest formula; the concept of compound interest can be impactful decades after high school.
It is one concept I take extra time with when I get to the section; since finance is not a class, compound interest is worth spending a few more days on the content.
Don Sabado
Teacher | Author | Writer
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