Compound Interest — The Most Powerful Force in Finance

What if you could become wealthier than someone who invests three times more money than you? It sounds impossible, but it’s not. The secret isn’t having more money to start with. The secret is something you have more of than most adults: time.

The most powerful force in finance is called compound interest. Think of it like a snowball rolling downhill. It starts small, but as it rolls, it picks up more snow, getting bigger and faster. Compound interest is when you earn money not just on your original savings, but also on the interest that your savings has already earned.Let's look at a classic example:Person A invests 100 units of currency per month starting at age 18. They stop completely at age 28. They invested for 10 years, for a total of 12,000.Person B starts later, investing 100 units per month from age 28 all the way to age 65. They invested for 37 years, for a total of 44,400.Who has more money at age 65? Person A. Even though they invested less money for fewer years, their money had an extra 10 years to grow. Person A e...

Camila’s teacher put the Person A vs. Person B comparison on the board. At first, the 14-year-old thought it was a trick question. How could the person who invested way less money win? When the teacher revealed the final numbers, Camila was shocked. The first person’s money just had more time to grow, like a small seed planted years earlier. That afternoon, she talked to her dad. "I get a small allowance and some money for babysitting," she said. "Can you help me put aside 25 a month somewhere it can grow?" Her dad smiled. Camila realized her future self would be thanking her for a decision she made today.