Financial Literacy – How Does Compound Interest Work
Today we’re going to be looking at interest in our financial literacy lesson. Specifically, simple interest vs compound interest and how those two affect the final amount of money you’re going to get at the end of the loan. Finally, you're really learning about how to invest.
We’re going to start off with simple interest and the formula for simple interest. Then we will move on to compound interest and using our excel compound interest calculator to show you how easy it is to calculate compound interest. This will really answer questions of "what is compound interest?" and "how does compound interest work?".
Here’s the thing. You need to know your financial basics and cover your financial fundamentals. You CANNOT give money to someone expecting him or her to do the best for you. It’s NOT their money; it’s NOT their future. If your portfolio loses money, it loses money; they are NOT going to lose sleep. But, you certainly are.
However, who is to blame in the situation? The financial advisor? NO! It’s you! If you understood and are learning the financial fundamentals (like you’re doing now), you will be able to understand if the financial investment is good for you.
I have a friend who knows nothing about simple interest vs compound interest. Their way of “being responsible” is saying, “I have a financial advisor that does that all for me”, which is the most irresponsible statement ever. They know nothing about money and are putting blind faith in an advisor they don’t really talk to. That is INCREDIBLY RISKY and my suggestions of learning a little bit more about money are unheeded.
Which leads me to another thing, talk to your financial advisor. I do it ALL the time. Pretty much on a bi-weekly basis. For one thing, I learn a lot about the economy, macro and micro-economics, commodities, and things that I NEVER FOUND interesting, but when I learned a little bit more I was like “Wow! That’s what’s happening? It sounds like a conspiracy, but it makes sense!”
Hope you had fun and learned something today!
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