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Economics

Brian, Ryan, and Diane Learn About Opportunity Cost

Brian, Ryan, and Diane Learn About Opportunity Cost
Reading Level
     edHelper's suggested reading level:   grades 6 to 8
     Flesch-Kincaid grade level:   7.61

Vocabulary
     challenging words:    versus, earning, income, allowance, invest, loss, aside, receive, financial, account, total, consider, compare, however, choice, decision
     content words:    By August, In August, While Brian

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Brian, Ryan, and Diane Learn About Opportunity Cost
By Cindy Grigg 		  
1     Brian, Ryan, and Diane are triplets. They each get an allowance of $10 each month. Their parents are planning on a big vacation to Florida in August. They are planning to save their allowances until then so they will have spending money on vacation. Right now, they are spending Christmas break with their grandma. Their grandma has suggested that they give her their allowances for safekeeping until the trip. She agreed to pay them 20% per month interest on their allowances for eight months. They will not be able to get any of their money back from their grandma until vacation time after they begin "depositing" it with her. She has left it up to each of the triplets to decide what to do with the interest.
 
2     A common decision people must make is how to invest their money. Depositing money in a savings account is a common financial decision. There are two main types of savings accounts. Some accounts earn simple interest. These accounts pay the interest earned to the account depositor who can use the money right away for needs or wants. Some accounts earn compound interest. These accounts leave the interest earned in the account. The depositor will then earn interest on the interest, which is called compounding. The interest earned is called compound interest.
 
3     As usual, each of the triplets wants to do things a little differently. Brian wants his grandma to give him the interest each month so that he can have a little spending money until August. By August, he will have $80 saved for vacation. He will have $72 to spend between now and August. His money will earn simple interest. In August, his account will have the sum of his deposits and nothing more.

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