AIBU to think compound interest is surprisingly powerful over time?

[shocked2026]

To think that compound interest is WILD? I know it works negatively with mortgages etc but also over time with tiny amounts of money it can grow exponentially. I realise that many people probably know this already but I didn’t realise how much of an effect it can have!

@2thumbs

It's been said that the difference between understanding investment in the stock market or not is the difference between poor and rich.

In the psychology of money book it opens with a neat comparison between a cleaner who amassed a million pound fortune on a small wage obviously through small consistent investing and a tech entrepreneur who wastes all his money .

Id say that's pretty important for all children to learn ?

It's not taught properly because I barely understood what you wrote and I was supposedly in the top 16.67% for ability in maths at my school. Bare also in mind that only the top set took higher paper for maths gcse.

Seriously though should I put some of ds's jisa savings into stocks and shares instead? What accounts should I look at?

If you like, you could put money aside now so that your children can “live life” more in their youth.

The tremendous value of each generation doing that for the one below is that with the same amount saved you have a longer period to invest for, so can take more investment risk and get, say, 5% real not 0% real.

Real maths is hard which why it’s respected as a subject at university. Thinking in the abstract is what differentiates people who have an intuitive grasp of it from those who have simply learned to apply rote process. Compound interest can be understood perfectly well by the latter. R (Covid) weeded out the high percentage of politicians who haven’t even reached this level of basic understanding.

@Nighttimeistherightime what are you invested in and what platform do you use

Given some of the debts people have, very much worth highlighting. Along with exponential growth, a key thing to understand in 2020 as to how Covid spread or could have spread even more.

In the psychology of money book it opens with a neat comparison between a cleaner who amassed a million pound fortune on a small wage obviously through small consistent investing and a tech entrepreneur who wastes all his money

In the real world how often does this happen?

People who have money, own a home, decent jobs etc will more than likely to be saving for their dc & the cycle continues. If you are a cleaner renting it’s very unlikely you will amass a million pounds on a small wage no matter how frugal you are.

You are far more likely to get on the housing ladder if your parents are. I had significant help to buy from my family & in turn I’ve been investing for my dc since birth so they will have help.

There are a lot of people on here getting caught up with the difference between compound interest and compound growth. The point is that either way, you will benefit from growth of the growth meaning that at some point the growth will exceed your contributions. Yes in a savings account at 3% this will be slower because you’re barely beating inflation, but it’s the same principle. If anyone is reading this and leaving long-term savings in a bank account or cash ISA and expecting to get rich, I’m begging you to do a bit of research and start investing. It will quite literally change your life.

But it’s just not true that the average person can grasp compound interest on savings or investing, having only been taught percentages or formulae.

We know this because basically everyone has been taught the latter, yet, for example, only 32% of UK adults who consider themselves financially literate could correctly calculate compound interest on £1,000 at a 5% annual rate. That’s a self-selecting high confidence group.

And on politicians, you are proving my point again. UK politicians are much more highly educated than the UK average. Yet they struggle with practical application of maths (even simple quizzes like what’s the chance of getting two heads in a row with two coin flips).

Teaching the formulas, provably, isn’t enough.

It is taught at school

I saved up for a property deposit

I over paid my mortgage each month, which reduced the amount of years

I started paying into a work pension in my 20s

I pay into ISAs tax free with the best interest rates

Oh I do. But one of the themes of this thread has been why aren’t the young people saving.

It wasn’t explicitly spelled out to me about the doubling of money invested in a tracker fund every seven years until I came across the financial independence retire early movement. Before it was just some wooly ‘save for the future in a pension’ general advice, which obviously in my 20s living in London, wasn’t a priority for me.

Some of my funds in my self invested pension have achieved an average of 10-11% each year over the last decade. I’d have loved to have started earlier, but didn’t really became aware until 30ish. I did have a small pension from my 20’s, which has multiplied.

My kids are preschoolers but I will be teaching them like you are. Also we are saving a little each month into a JISA for them, and my eldest (age 4) has received 40% investment growth over this three years

I do those things too.

But it wasn't taught to me at school. I was at school in the nineties and first half of noughties. When were you there?

Compound interest is taught at school, it’s in GCSE maths.

You don't need to be good at maths at all to understand investing and saying you do is another barrier.

I learned through reading and research my maths skills are non existent

It made sense to me to put any spare money into the best companies in the world .

There is no context at school I wish people would stop saying it's taught !

@FreeCimemacode952 what stocks and shares investments are you in ?

The stark difference came out in some MN threads a few years ago as our DC child trust things started to mature.

People were comparing how much their DC had and what if anything they had been able to contribute.

Even those with low or few contributions were able to give their DC a good amount if it has been invested into decent stocks and shares.

Those who relied on only cash interest rates were far lower.

Agreed!

My SIPP has grown about 80% in 5 years (just investment growth) - and my ISA around 40%.

People need to be taught how to invest money vs keeping it in a bank account.

I was at school in 70s & 80s
Maths was my worst subject
However, I have always paid attention to my finances, wages, spending, savings
Read information about finances

I move my savings frequently to the best rates

No one is saying you have to give up your last penny, this is another bad attitude that is given out when with mention of savings/investing. You are saying young people are broke and cannot afford £10 a month, but said you socialized and went on holidays. I'm sure if you wanted you could have saved a tenner. That's a personal choice of course, not everyone puts importance on saving, but to say you have to lead a miserable life to save £10 is a bit extreme.

@LGBirmingham have a look at index funds, the costs are lower, and they track the market. You can also look at managed funds if you want. My kids are in JPMorgan Nutmeg for ease, set at high risk low management. My pensions are variable, spread across.

I taught this to my Y9 last week. For any Maths teachers on the thread, I do love this lesson, although very few watch Futurama anymore.

https://threeacts.mrmeyer.com/frysbank/

I get them to write down how much they think is in the account after Act 1, then we reveal the amount at the end of the lesson. Most of them have figured it out by then, though!

@january1244 me too ! I have come to this all too little and far too late to be meanginful for me But it's certainly better than nothing ! I'm still very grateful I now have some investments.

The 7 years thing is amazing isn't it !
I also read fire movement stuff and all sorts to understand it. Rebel finance school ,this is money has a good pod cast, all the classic books...rich dad poor dad. Psycology of money ,simple part to wealth.

Of course each child is different and will change at different times in life but I believe I've drummed it in so much that it's part of life for them and one has hit 18 and understands her capital and hasn't blown anything.

i have self-taught myself about investments etc and I have a stocks and shares ISA that is doing extremely well (excluding the current global events). I just wish I had known this earlier as I didn’t realise that small amounts could have such a big effect.

But should that not be the responsibility of parents, rather than schools?

My parents were so shit with money I was determined not to follow their example 😂