My main objective as a personal finance teacher is empowering students to make short-term decisions that result in long-term benefits. We know that investing early and often leads to positive results. But what does that look like? The power of compound interest and spreadsheets allows students to see how numbers change.

A spreadsheet allows me and my students to see the amounts change. The time horizon, interest rate, type of investment, principal, and future contributions impact the results.

We can use the formula for future value, FV, where PV is the present value.

Here is the template I use with my students.

They can define the time, and the original amount and use real interest rates without fear. It also allows us to explore more realistic questions, since most people use dollar cost averaging (making the same investment at a set interval over time) to build wealth.

Check out NGPF’s Analyze: Dollar Cost Averaging Activity to learn more.

I ask my students, “How much money could they part with a month, $25? 50? 100?”  What would you give up to be able to invest that money? A daily coffee from Starbucks? Eating out one less time a month?  A video game subscription?  Now we can explore the power of compound interest.

“What would $25 a month earning 6% in an S&P 500 fund be at the end of 30 years?”

Using a spreadsheet, our time is by months, adding $25 each month, and dividing the interest rate by 12 allows us to find the answer. It is much easier than altering the compound interest formula.

We can find that you will have $23,622.82 and have contributed $9,000. 

Quickly students want to contribute $50 a month and begin to talk about what they would give up to be able to start investing.

Now you may be thinking, “an online calculator will do this calculation.” My response is that, in life, we often change our contributions over time.

What if every year you contributed $25 more a month until you contribute $300 a month for 30 years? We can use the same spreadsheet to see how that results in $192,363.35.

Using a spreadsheet allows students to explore more real-world questions.

How much would I have to invest now to $20,000 in 5 years?  What would my monthly payment be for a $30,000 car paid back over 36 months? The permutations of compounding are endless just as the variety of students we teach.

Giving them the power to problem-solve using a spreadsheet and the compounding concept empowers them to explore on their own.

Does this method give you an exact answer based on amortization and changing interest rates? No!

However, can students make decisions based on the result knowing the consequences? I think the answer is yes. It also allows them to enter into loans, investments, and financial decisions empowered by their knowledge.

About the Author

Brett Shifrin

Brett Shifrin is an NGPF Ambassador and a teacher at Gould Academy in Bethel, Maine. He has been an educator for 31 years and currently teaches Personal Finance, Honors Algebra 2, and Calculus.