Math Story : Introduction To Simple Interest

Mr Bank And Interest

“Uncle Bad is running out of money. He might rob us. We should be extra careful”, says Uncle Science over the phone. “He needs a lot of money. Robbing us will not help him. He must be planning something else”, analyses Uncle Math. Will he be able to decode Uncle Bad’s next step?

Thinking hard for a while, something clicks to Uncle Math. “Oh no! This means Uncle Bad will attack Bank planet and loot all our money. I need to do something”, he says to himself and runs to call somebody. But who?

“Listen to me carefully. You both need to go to Bank planet and protect the people there. Uncle Bad might attack them. I will stay here and protect Samper town in case he attacks”, explains Uncle Math to Triho and Squarho. Uncle Math is sending both of them on a mission.

“Bank planet has a special building called Mr Bank where all the money is stored safely. It is a special building because anyone can borrow or lend money here. Thus it acts as a business of holding, borrowing or exchanging money”, explains Uncle Math.

“Take these 1,000 fun coins. You might need it. Either you can spend it or grow it. It is your money and it is up to you. Remember
this”, says Uncle Math. Triho and Squarho understand everything clearly and are ready to leave.

Swoosh! Triho and Squarho land on Bank planet.

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“Welcome to Bank planet! I am the Mr Bank Manager responsible for managing the transactions and operations in Mr Bank. How can I help you?” says a new voice. Triho and Squarho are excited to meet him. They explain to him the rationale behind their visit. Mr Bank Manager is relieved and glad to help them.

Mr Bank Manager, Triho and Squarho decide to set up watchtowers to keep a close eye on the movements in and around the planet. They also increase the security of Mr Bank. Now all they have to do is wait for Uncle Bad and his army.

Soon, a couple of days pass, but there is no trace of Uncle Bad. Squarho has started to lose patience. “Hey! Uncle Math has given us some money. Come, let us go shopping. We can eat outside, watch a movie and have so much fun”, he says.

“Why waste your valuable money? Instead, you can put this money into Mr Bank and it will increase your money and give it back to you. But you will have to wait patiently for a few years”, says Mr Bank Manager. Squarho being impatient denies waiting. “I would rather enjoy today than save for tomorrow”, he says proudly.

“I will put the money in Mr Bank and let it grow. I do not need this money as of now”, says Triho and hands over his 1,000 fun coins to Mr Bank Manager. He is proud of his decision and deposits his money in Mr Bank.

Soon one year passes on Bank planet. There is no trace of Uncle Bad or his gang. Squarho has spent his 500 fun coins already, whereas Triho’s money is in Mr Bank. Will his money grow?

Soon another year passed. Yet, there is no trace of Uncle Bad or his gang. Squarho has spent all his 1,000 fun coins, whereas Triho’s money is in Mr Bank. Will his money really grow?

Suddenly, Squarho spots someone behind the bushes. “Acirho Boss? He is running towards Mr Bank”, he says.

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As Acirho Boss gets closer to Mr Bank, Triho runs to stop him from entering it. Bam! He jumps on them with all his energy. The villains run away.

“You are so brave. Thanks for saving us”, says Mr Bank Manager. Triho and Squarho can head home now.

“Triho, here is your money. You had deposited 1,000 fun coins in Mr Bank which is now equal to 1,200 fun coins. Take this”, says Mr Bank Manager and hands over the amount to him. Triho is delighted to see his money grow. Whereas Squarho is disappointed.

Soon Triho and Squarho leave for Samper town.

“I am so glad to see you both after two months”, says Uncle Math and hugs them. “What? 2 months? But we were there on Bank planet for two years”, corrects Squarho.

“Haha! One year on Bank planet is equal to one month on Earth. Thus two years are equal to two months on earth”, explains Uncle Math. “Oh! That means my 1,000 fun coins was deposited in Mr Bank for two years making it 1,200 fun coins”, says Triho. He is surprised to notice that he did not spend any money for two years and saved it all. Whereas Squarho spent all his money.

“But how did Mr Bank increase my money? Does he know any trick?” asks Triho. “Haha! No dear! Mr Bank is a special building where you deposit your money and it pays you interest for depositing. It also takes interest from you if you borrow money from Mr Bank”, explains Uncle Math.

“But how can I calculate interest?” asks Triho. “The method to calculate the amount of interest charged on a given amount at
a given rate and for a given time is called Simple Interest. The formula to calculate interest is Simple Interest (S.I.) = Principal
(P) × Rate of Interest (R) × Time (T) / 100”, he says.

“The amount we deposit in Mr Bank is called the principal. Rate is the rate of interest at which the principal amount is given to someone for a certain time. The rate of interest is always in percentage (%) for example 10%, 20% etc. Higher the rate of interest, the better the return when you lend money to the bank. Whereas lower the rate of interest, better for you when you borrow money from the bank”, explains Uncle Math.

“Oh, I get it now. In my case P = 1,000, R = 10% and T = 2 years. So simple interest will be 200 fun coins. But I got 1,200 fun coins from Mr Bank. Why so?” asks Triho.

“Because the interest is always paid on the principal. We always add the interest and principal together to find out the final amount (A) to be received. That is why you got 1,200 fun coins from Mr Bank”, explains Uncle Math.

“Oh wow! Mr Bank pays me interest because I lent my money. This is amazing. I can grow my money without doing anything with the help of Mr Bank”, says Triho. “Exactly! But you should always deposit the money after understanding the rate of interest”, says Uncle Math.

Meanwhile, Squarho realizes his mistake and he is disappointed. “I should not have wasted my money”, he says. “Do not worry! From now on, you can stop wasting money and think of how to grow it instead”, says Triho. They decide to be extra careful with their money from now on. Given a chance would you deposit your money like Triho or spend like Squarho?

We Learnt That…

  • The bank acts as a business for holding, borrowing or exchanging money.
  • The bank manager manages the entire operations of the bank.
  • Interest is nothing but a borrower pays to the lender for lending money.
  • When we borrow money from the bank, we pay interest to the bank. When we deposit money in the bank, the bank pays us interest.
  • The method to calculate the amount of interest charged on a given amount at a given rate and for a given time is called Simple Interest.
  • The formula to calculate interest is Simple Interest = Principal (P) × Rate of Interest (R) × Time (T)
  • To find the total amount to be received after the time period is over, we add principal and interest, i.e. Amount = Principal + Simple Interest.
  • We should spend our money wisely and save as much as we can.

Let’s Discuss

  • Where were we going?
  • Who is Mr Bank Manager?
  • Why did my money grow when deposited in Mr Bank?
  • What is simple interest? How to calculate it?
  • Have you visited a bank with your parents? Next time you visit a bank, don’t forget to understand the rate of interest and its purpose.

Please refer this guide by Fun2Do Labs for teaching simple interest to kids :