Saving money is a stepping stone to compound interest
Getting in the habit of saving money is a stepping stone to intelligent investing and accessing compound interest. That is what is important about saving money as it relates to compound interest. Eventually, a person who is in the habit of saving money is likely to ask themselves some important questions, like:
1. What is my saving goal?
2. How much do I need or want to save to reach my goal?
3. How long will I be saving?
4. Where can I earn a reasonable return?
5. How much interest do I need to earn to reach my goal?
Compound interest can be thought of as “interest on interest,” and will make a deposit or loan
grow at a faster rate than simple interest…Investopedia
I strongly recommend everyone get familiar with compound interest and how it works. That includes elementary, middle school , high school, college students, parents, teachers, financial advisors, financial counselors, financial coaches, etc. The more we understand compound interest, the easier it is to talk about it, especially with kids. That is something I also recommend everyone do – talk about compound interest to kids. It is one step we all can take that will help give kids the incentive to develop great money habits, like saving and investing.
Below are a few recent articles worth reading that mention compound interest in one manner or another. I suggest using one or more of them to catalyze a discussion with students, family or friends. I have also included links to a few of my own thoughts on compound interest.
Marketwatch: Robert Powell – Money for life: 3 secrets to financial success
Marketwatch: Paul Merriman – It’s a small world after all: International Small Cap Value
The Street: Jason Notte – How compound interest is making your life and retirement easier
Motley Fool: Anna B. Wroblewska – How sweating the small stuff can help you reach your financial goals
Credit.com: Leslie Tayne – 5 unepxected steps to building wealth
St. Louis Dispatch: Jeff Rose – 3 financial realities new grads have to face
Budgets are $exy: J. Money – The Power of Compounding
I Will Teach You to be Rich: Ramit Sethi – Step #3 to getting rich – make your money earn for you
Creators.com: Carrie Schwab – Helping teens meet the financial literacy challenge
Sam X Renick: The compound interest clock – The one lesson every kid should learn
Sam X Renick: More on compound interest
Sam X Renick: How to teach kids about compound interest
What other great behaviors has getting in the habit of saving money led you and/or your children-students to?
You may want to initiate a group discussion by using our song Anyone Can Be Rich as an ice breaker.