If we start out teaching kids money skills early in life, they may avoid many of adulthood’s financial mistakes. They are thousands of dollars in credit card debt, tens or even hundreds of thousands of dollars in student loan debt, or nearing retirement age with little to no savings. Many people don’t understand financial literacy until it is almost too late. It’s also important to understand that it can be devastating if it works against you think credit cards! Why is it important to talk to your kids about Compound Interest? Just to show you using our previous example of $100 …Ĭompound interest can be your best friend if it is working for you! The true beauty and sheer power of compound interest reveals itself over time. With SIMPLE interest, your balance grows at a constant rate, but with COMPOUNDING interest, your balance is growing at an increasing rate. Beyond the interest rate, the most important. But just as we saw in the small 100 example, it takes time and starts slowly. For this reason, Albert Einstein to call it, The Eighth Wonder of The World. That is interest that compounds annually, in other words, interest on interest, which results in exponential growth over the long term. Now that might not seem like a lot, but again, the accumulation of prior interest causes the rate of return to increase exponentially. We don’t know if Einstein actually said this, but we do appreciate its sentiments. This means that your balance will increase by 5% every year, Compound interest is the eighth wonder of the world, goes a quote oft attributed to Albert Einstein. Example of using a compound interest calculator. Let’s take $100, making simple interest of 5% a year. Albert Einstein famously stated that Compound Interest is the eighth wonder of the world. Compound interest may be compound, but it’s not complex!įirst, let’s take a look at SIMPLE Interest …
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