Why Compound Interest Is the One Formula Every Teenager Should Know

Albert Einstein reportedly called compound interest the eighth wonder of the world. Whether he actually said it or not, the math backs him up.

Here’s the idea: when you invest money, you don’t just earn returns on what you put in — you earn returns on your returns. Over time, that snowballs.

Take two people. One invests $200 a month starting at age 16. The other starts the same amount at age 26. By the time they’re both 60, the early starter has contributed just $24,000 more but ends up with over $150,000 more, assuming a 7% average annual return. The only difference is time.

A quick shortcut to estimate this yourself is the Rule of 72: divide 72 by your expected annual return, and you get roughly how many years it takes your money to double. At 8% growth, that’s every nine years.

The lesson isn’t “go invest your allowance tomorrow.” It’s that starting early even small matters more than starting big.