The 8th Wonder of the World
What this weekly newsletter is all about: Analyzing, discussing, and prescribing best practices for families in both education and youth sports. Please follow, share, or comment. Thank you!
Newsletter content:
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Overview-->?Einstein called compound interest the "8th wonder of the world" because it really is something amazing. It can change our lives if we just give it the slightest of investment of resources, whether that be a portion of our weekly paycheck or the opportunity cost of a more stimulating option, and then let time do its thing.
"Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it."
Compounding is not just for growing money. It can be used to increase any skill that we want to grow, from writing to archery to personal fitness. For example, spend a little bit of time each day practicing an instrument but be consistent and never take a day off. This dedication will lead to an improvement much greater in a year's time than if you had spent the same amount of time but divided across three or four separate marathon days.
Studies have shown that we do not need to exercise for hours a day to see enormous results, both in terms of strength and mental health.
"Exercise found that just under 15 minutes of weightlifting (about 11 minutes) three times per week resulted in a 'chronic increase in energy expenditure.' In simpler terms, that means participants continued burning calories and fat even after they stopped pumping iron."
"We saw a 26% decrease in odds for becoming depressed for each major increase in objectively measured physical activity,"?
Nick Maggiulli breaks it down even simpler in terms of average age of death and "healthspan" in this article on his blog Of Dollars and Data.
"But, what do you have to give up for this additional healthspan? A lot less than you think. Assuming you spent four hours a week exercising, 50 weeks a year for 50 years, that would be 10,000 hours of lifetime exercise. That’s barely over 1 year of time. But, for that one year, you would likely get six to eight additional years of disability-free health. In other words, every hour you spend exercising is likely to give you six to eight hours of additional healthy life."
However, compound interest is like fire. It can keep you warm and cook your food, or burn your house down. What I like most about the "Tweet of the Week" below is that it illuminates what Einstein meant about people who understand compound interest earning interest rather than paying it. Interest is agnostic to whether it is destroying or creating in your life.
Most of us, hopefully, understand the allure and danger of using a credit card. You want something now that you can't currently afford in cash, so you charge it and pay it off over time. But the bank isn't giving you that money now out of the goodness of their heart. They are giving it to you so that THEY can earn interest and compound their own investments.
The double edged sword of interest is present in every aspect of our lives. If you are staying up late eating Fritos, you are essentially taking out a loan that you will have to pay off tomorrow (and beyond). The ramifications of the debt will be feeling exhausted, or at least having your sleep schedule thrown off for a period of days, and you will feel sluggish in the near term with more body fat in the long term.
Or you can delay the gratification and tuck in earlier and eat cleaner, thereby helping your tomorrow self feel fresh and healthy. Simple, but not easy.
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Instrument of the week--> Teaching economics is one of the joys of my life. When young people realize that the concepts we are learning can directly affect their lives in a myriad of ways the class usually becomes a collaborative effort. The students are craving the lessons that are so valuable they seem like "life hacks" that others have used to such great benefit.
The quickest way to get students engaged in economics and to illustrate the concepts of incentives, delayed gratification, and the power of compounding is to have students mess around with this "compound interest calculator" from the SEC. We usually do it on day one.
Give it a go. Notice how much wealth is created as a result of time and compounding. It really is the 8th wonder of the world.
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Article of the week--> "Still the 8th Wonder of the World" by Think Independent.
"Earlier when I said tapping the benefits of compound interest is simple, but unfortunately not easy, I was referring to the need to forgo immediate gratification or consumption.?This has always been hard, but probably no harder than in today’s materialistic, buy now pay later, world."
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Tweet of the week-->
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Exercise of the week-->
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See you next week!