“The safest way to double your money Is to fold it over and put it in your pocket.”
Kin’s trick is the quickest way to double your money too. It’s great advice for kids who are too hasty to pull the trigger on spending.
But what if your kids already got the memo on delaying gratification and investing patiently? They still might be eager to know when that money might double.
That’s when it’s handy to teach your kids the rule of 72.
It’s a simple piece of mental math to estimate how long it will take to double your money when earning compound interest. Just divide 72 by the interest rate.
For example, if your money is earning an 8% annualized return, it will take roughly 9 years to double. That’s because 72 divided by 8 equals 9.
You can also use the rule when you know the desired doubling time but not the interest rate. Just divide 72 by the time instead.
Want to double your money in 6 years? You’ll need to earn roughly 12%. (Because 72 divided by 6 equals 12.)
In other words, when it comes to doubling your money:
Time X Interest = 72
Now, arm your kids with an online interest calculator, and wow them with your mental agility!
“Kids, if you enter $100 for present value, double that — or $200 — for future value, and 10 for the number of years, I bet you’ll need... oh let’s see... thinking, thinking... something close to 7.2% for an interest rate. How’d I do?”
“Wow, that’s really close Dad. It’s 7.18%! I don’t care what Mom says, you’re pretty smart!”
(But beware smarty pants, interest rates in the 6% to 10% range yield the best approximations when using the rule of 72.)
Once your kids are suitably impressed, let them in on your little math trick so they can impress their friends.
Congratulations. You got kids talking about the fundamental math of investing.
Like this tip? Get the next one in your inbox by subscribing here.
Want to turn these tips into action? Check out FamZoo.com.
Post a Comment