The Power of Compound Interest: Magic behind the growth of money.

 By: Somuah Francis Kofi

      

Albert Einstein was once asked about the most powerful thing in the world and he said compound interest.

 

On the subject of compound interest, Professor Stephen Adei once said, “it is unfortunate when we are being taught compound interest at school, we had to memorise the formula (A=P (1+r) ^t). It is criminal to teach mathematics that way. If your teacher had taught you that understanding compound interest can help you to become a billionaire, your eyes would have popped with interest.”

  

The story of Manhattan

In the early 1600s, the American Indians sold an island, now called Manhattan in New York, for various beads and trinkets worth about $16. Since Manhattan real estate is now some of the most expensive in the world, it would seem at first glance that the American Indians made a terrible deal. Had the American Indians, however, sold their beads and trinkets, invested their $16 and received 8% compounded annual interest, not only would they have enough money to buy back all of Manhattan, they would still have several hundred million dollars left over. That is the power of compound interest over time.

Taking this concept to small amounts of money in our daily lives can produce significant savings for us over time. For example, let's take the change in our pockets at the end of each day. Let's assume that it adds up to about a cedi a day and you place that into your ‘money box’ or piggy bank. That cedi a day will become ¢7 in a week and ¢30 at the end of the month if you continue to empty your change into your ‘money box’ or piggy bank each day.

At the end of the month, you take this ¢30 and place it into a good investment vehicle which earns averagely 10% a year (some products even return about 40% averagely). That cedi a day will be worth close to ¢68,000 in 30 years and that's just pocket change. Make a few adjustments in your spending habits and look at the results.

The next time you're walking down the street and you see a pesewa on the ground, don't think of it as a pesewa. Pick it up, place it into your ‘money box’ or piggy bank to invest and congratulate yourself for finding money for your future.

The principle of compounding suggests that, we need to start investing early because the longer the time you have to compound, the higher the returns. The best time to begin investing is now!!!.

In his presentation at the 2003 Eagles Camp, Rev. Daniel Ogbarmey Tetteh said, compounding is a very interesting concept since it is the ‘magic’ behind the growth of money.