Double $ Trouble

By Sheila C. Bair
Illustrated by Nathan Walker

When I was eight, I wanted a Super Sleuth Utility Belt more than anything else in the world. It had a see-in-the-dark collapsible telescope. It also had an invisible- ink pen, a voice scrambler, a fingerprint kit, a magnifying glass, and a decoder—all attached to a shiny black plastic belt. I just had to have one.

I needed $10 to buy it, but, as usual, I was broke. I decided to ask my 11-year-old sister, Kathleen, for a loan. (She always had money.) I went to her room, fell to my knees, and begged her for the cash. Laughing, she agreed to lend me the money, but then she said, “I’m going to charge you 10 percent compound interest every month until you pay me back.”

“Compound interest—what’s that?” I asked.

“Well, interest is what you call the extra money borrowers have to pay back on a loan,” she explained. “Compound interest means that the interest payments get bigger and bigger the longer you take to pay back the loan.”

She pulled a pencil and tablet out of her dresser and settled down next to me on her bed.

“Look. I’m going to charge you 10 percent interest on the amount you owe me every month.” She scribbled on her tablet. “Figuring 10 percent of $10 is easy. Just move the decimal over one place to the left.

“Now, add that to the $10 I’m lending you. To repay the loan, you will need to give me $11 after one month.”

“OK,” I said. That seemed simple enough.


“If you wait two months to pay me back, your debt will grow from $10 to $11. So I’ll be charging you interest on $11.

“Then I will add that interest to the $11 you already owe me, for a total of $12.10. That’s what you’ll owe after two months.”

“Sure. I get it,” I said, though truthfully, I was getting confused.

“I want to make sure you do get it, Sheila,” she said, pointing at her tablet. “After three months, it’s going to get worse. I will be charging you 10 percent interest on $12.10.

“Then I will add that interest to the $12.10 you already owe me, for a total of $13.31.”

“All right, already!” I said. “Look, my birthday is in a month, and I always get money for my birthday. I’ll pay you back $11 in a month. OK?”

“I hope you do,” said my sister.

Kathleen lent me the money, and I bought the utility belt. My birthday came a month later. Sure enough, my Grandma Bair gave me $10 and my Grandma Brenneman gave me $5. Unfortunately, that $15 was just the amount I needed to buy a Super Sleuth Lie Detector Kit with fingertip sensors to go with my utility belt.

I put off paying my sister for a month. After another month, I forgot about the loan.

Several months later, on Christmas morning, my sister and I were rooting around in our Christmas stockings to see what Santa had left us. We each found a $20 bill stuffed in the toes.

I was just tucking the crisp green bill into my pajama pocket when Kathleen tapped me on the shoulder.

“Sorry, kiddo. That’s mine. I’m collecting on your debt.”

“Huh?” I said. Then I remembered the loan. “Hey! How can it be that much? I only borrowed $10.”

“True,” she said, “but interest has been compounding for eight months. Now you owe me $21.43.” She paused, then added, “You can pay me the $1.43 out of your next allowance.”

I refused to believe that a $10 loan could more than double so quickly. Much to my annoyance, my sister got her pencil and tablet again, and showed me exactly how it all added up.

My head hurt as I tried to keep track of Kathleen’s calculations, but this time, I got the basic idea. When interest is compounded, the interest payments get bigger and bigger the longer you wait to pay back the loan. I learned the hard way that borrowing money can be “double trouble” in no time at all.