Money is on the brain this week. It is official — the early bird does get the worm. I recently came across a Dave Ramsey money article that especially peaked my interest. It basically is the simple truth about money that almost all of us probably know. Yet, the visual he shared just hits you smack in the face.
I do not want to steal the visual from his website, so I will explain and link back to his site for the full picture. Meet Ben and Arthur. Ben starts investing at age 19 and puts $2000 in an account each year for 8 years straight and then does absolutely nothing with the account until he retires at the age of 65. A total investment from the ages of 19-26 of $16,000. A lot of money to put away in those early years of his life. Arthur begins investing $2000 when he is 27 years old and continues to put $2000 away from 27 to when he retires at age 65. Arthur invests a total of $78,000 over 39 years. A difference in $62,000 in the amount that was actually put away between Ben and Arthur.
The result: at age 65 Ben has $2,288,996 and Arthur has $1,532,166. Ben came out $700,000 ahead by starting 8 years earlier and only put away $16,000. Compounding interest is an amazing thing. How do we spread the word? I do not know many 19 year olds that a) care about investing, b) truly understand compounding interest, c) have $2000 a year they can or want to spare.
Why not have a prerequisite that you have to complete a personal finance class to make it out of freshman year of college (no matter what your major). Or maybe it is a class that every high school graduate must take (since many might never go to college). The class could teach many types of life skills, and maybe those that truly understand it might actually decide not to purchase that video game they are dying to have and rather put a bit more into their retirement.
To think that all it took was $16,000 for 8 years, rather than $78,000 for 39 years. If I only knew when I was 19 what I know now, I might have made very different choices, especially thinking of that $700,000 difference at age 65. How do we make compounding interest sexy?
I want to talk about this. I want to talk about this poignant acceptance speech by Ashton Kutcher flying around the Internet and Facebook. You have probably already seen it. I want to say a few things about his speech. Ashton is twice as old as many of the teens watching the Teen Choice Awards. He is also a midwest boy (Iowa) and went through a lot as a kid with his sick twin brother, his parents divorce, and the trouble he got in as a teenager. He is not just Hollywood fluff. He has lived.
I loved what he told teens in 2013. Teens that might be obsessed with those that have money and power. He did not talk about that. Not about all the glam, money, and fame that he has had in his life, but about working hard. That life does not just come to us, that we have to work for it, show up, grow into our next phase. My favorite part is when he said the sexiest thing is being smart. I hope that those teenagers watching understand what he means. Here are a few excerpts, but be sure to also watch the video below:
“And I’ve never had a job in my life that I was better than. I was always just lucky to have a job. And every job I had was a stepping stone to my next job, and I never quit my job until I had my next job. And so opportunities look a lot like work.”
“The sexiest thing in the entire world is being really smart, and being thoughtful, and being generous. Everything else is crap. I promise you…it’s just crap that people try to sell to you to make you feel like less. So don’t buy it. So be smart, be thoughtful, and be generous.”
Build a life:
“Everything around us that we call life, was made up by people that are no smarter than you. You can build your own life that other people can live in. So build a life, don’t live one.”