Personal Financial Literacy for Teens

  What Is Compound Interest Compound interest is one of the most powerful ideas in finance because it allows money to grow over time at an increasing rate. Unlike simple interest, which only earns interest on the original amount of money invested, compound interest earns interest on both the original investment and the interest that has already been earned. This means that over time, your money begins to grow faster and faster. The longer money remains invested, the greater the impact of compounding. How Compound Interest Works Imagine investing one thousand dollars with an annual return of eight percent. After the first year, you would earn eighty dollars in interest, bringing the total value of your investment to one thousand eighty dollars. In the second year, the eight percent return would apply to the entire one thousand eighty dollars rather than just the original thousand. This means you earn interest on the interest you previously earned. As the years pass, the growth ...

  What Is a Credit Score A credit score is a number that shows lenders how trustworthy you are when borrowing money. Banks, credit card companies, and lenders use this number to decide whether they should lend you money and what interest rate they should offer. In the United States, credit scores usually range from 300 to 850. A higher score means lenders see you as less risky and more reliable. Credit scores are important because they affect many financial opportunities. A strong credit score can help someone qualify for lower interest rates on loans, better credit cards, and even certain housing opportunities. On the other hand, a low credit score can make borrowing money more difficult and more expensive. What Factors Affect Your Credit Score Several factors determine a credit score. The most important factor is payment history. Lenders want to see that borrowers consistently pay their bills on time. Late payments or missed payments can quickly lower a credit score because t...