The 8th Wonder of the World…

Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t , pays it… Albert Einstein

Something else I didn’t get taught anything about in school was something that the great Albert Einstein called ‘The eighth wonder of the world‘…

‘Compound Interest’!

I think I’d have been much more excited about saving my pocket money if I’d been told how it could grow for me when compounded over time, and how, if I’d started saving just 10% of my income from the time I started working (as recommended in The Richest Man in Babylon – available free here) I’d quite likely be living an even more comfortable life now 🙂

When I talk to children in schools these days I usually mention compound interest, and I often tell the story of  ‘a penny doubled‘. It’s an old one, but it always shocks the kids when they hear the end of the story, and how much the penny doubled grows when compounded over time.

Here it is in brief so you can tell it to your children and explain what can happen if they stop thinking about instant gratification and be patient for a while….

Ask them what they would prefer to receive… $1,000,000 today… or one penny today, and have that penny doubled every day for the next month. Most kids will opt for the $1,000,000 today…. but when you show them what will happen if they are prepared to wait, they will be amazed and hopefully it will help them to ‘get’ the power of compounding…

Day 1: $.01
Day 2: $.02
Day 3: $.04
Day 4: $.08
Day 5: $.16
Day 6: $.32
Day 7: $.64
Day 8: $1.28
Day 9: $2.56
Day 10: $5.12
Day 11: $10.24
Day 12: $20.48
Day 13: $40.96
Day 14: $81.92
Day 15: $163.84
Day 16: $327.68
Day 17: $655.36
Day 18: $1,310.72
Day 19: $2,621.44
Day 20: $5,242.88
Day 21: $10,485.76
Day 22: $20,971.52
Day 23: $41,943.04
Day 24: $83,886.08
Day 25: $167,772.16
Day 26: $335,544.32
Day 27: $671,088.64
Day 28: $1,342,177.28
Day 29: $2,684,354.56
Day 30: $5,368,709.12

Half way through the month those who chose the penny are still way behind on $163, but by the end of the month the power of compounding has taken over and they are way in front.  As with most things in life the 80/20 rule comes into play, in this case 80% of your money is earned in the last 20% of the time.

And you may even get luckier and have a 31 day month!

Ps… another good story to explain the power of patience opposed to instant gratification can be found here

Oh yes, one more thing, I just found a really useful compound interest calculating widget that I’ve added to the sidebar on the right! Check it out, it’s fun… and if you want one too you can get the code here

To Your Success,

Mark 🙂

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Leave A Reply (3 comments so far)

  1. Shane
    5 years ago

    Even better than compounding money is compounding time!!!


  2. Sharon
    6 years ago

    I remember doing this in high school math way back in the 80’s *Ahem*

    We’ve done this with our kids too and it’s a perfect lesson. It’s cool to see you posted the actual numbers day by day instead of just giving the total on day 30 🙂



    admin Reply:

    Thanks Sharon! That’s great that some people learned it in school. It’s something they definitely didn’t mention to me!

    Well done for passing the lesson on!


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