By Steve Topper
Growing up many of us heard more than once that the great Albert Einstein once exclaimed that “Compound interest is the eighth wonder of the world.”
Others claim that he called compound interest “the human race’s greatest invention.”
Yet others are sure he referred to it as “the most powerful force in the universe.”
Bottom line – who really cares if he said it, when he said it, where he said it, or why he said it?
Apparently someone said it and it caught on quickly.
Examples like this one helped: $100 deposited in a savings account earning 4.0% interest annually, compounded monthly – after 20 years the balance has grown to $222.26. The smart saver earned $122.26 in interest thanks to the miracle of compounding.
Now imagine the ending balance had the saver added $100 a month into her account.
What’s important is this observation and accompanying examples have been largely responsible for billions of people around the world saving money for the future.
Compound interest provides a very strong incentive to put aside some money each month for future needs. These needs cover everything from buying a car, making a down payment on a home, for vacation travel, paying for the kids’ college educations, and most importantly, having money for retirement.
For as far back as any of us can remember, saving money was seen as a virtue. Within a few years of birth children were given piggy banks and taught the importance of saving money.continue reading »