Skip to main content

My Friend Ryan

The importance of saving is a concept many people struggle with, but the struggle of saving is more prevalent in teenagers of our society. About 57% of Americans have less than $1,000 in their savings accounts, with the average amount of money in a checking account being $4,436. Most teenagers don’t even have anywhere near that kind of money, but they have enough to visit the vending machine one to two times a day. This post is meant to open one’s eyes to the power of compounding. Let’s talk about my friend Ryan.

Ryan visits the vending machine about once a day. With a range of snacks from a Coca-Cola to a Hershey chocolate bars with a low initial cost of $0.75 to $1.50, the vending machines are quite hard to resist. On an average day, Ryan will spend $2.25 on a bag of gummy bears ($1.25) and a Diet Snapple ($1.00). For a midday snack, it isn’t a bad price, but over time it can add up. If Ryan spent $2.25 everyday for two months of school days (40 days) it totals to $90.00. That was a little anticlimactic (I swore it would be a higher total). Even still  with $90.00 you can buy a tablet, Polaroid camera, T.V. monitor or about seven and a half copies of Early Bird: The Power of Investing Young. To make my point even stronger let’s say Ryan bought his favorite snack for the rest of his high school career (4 years). That would total to $2,160, a.k.a. too much money to spend on a vending machine.


I am not bashing Ryan’s snacking, so let’s see how he could put a positive spin by going on a spending diet. Let’s see what happens if he saved on snacks and chowed down on compound interest. Assuming Ryan retires at age 65 and starts investing in a stable company now (age 15) with an annual compound growth rate of 10% his money could grow and grow.

Using Moneychimp’s compound interest calculator, we can see the value of an initial investment of $540.00 (a year’s worth of snacks), compounded over 50 years (about the time it would take him to retire). Ryan’s money would’ve compounded to $63,391.06. I don’t know about Ryan, but I would much rather have $63,391.06 in 50 years than a few snacks today.

Finally if Ryan took the $1.50 he spent on a candy bar and invested it with the same time frame and interest rate, he would make $176.09. Would you rather please your taste buds right now or get an extra $174.59 50 years from now?

Comments

Popular posts from this blog

Monsoon Pabrai Prevailing with Force

Lighthouses in Monsoon’s Words “My lighthouse would be knowing when I am not happy, finding my purpose. When you are not having fun, something is wrong. My family is my lighthouse. They helped me to realize I was not happy and try something else.” Monsoon Pabrai, is like her name: she prevails with force. She was born into the world of finance. Her father, fund manager Mohnish Pabrai, tried to encourage Monsoon and her sister to be as fascinated with investing as he is. She graduated from the University of California Berkeley in 2017, but don’t let her short career fool you. Monsoon is the current marketing and community lead at Coral Labs, a start-up company. Prior to working at Coral Labs, she was an investment analyst intern at the UCLA Foundation and worked as a research analyst for Dalton Investments. During dinner, if her father was excited about a recent investment, he would break it down for Monsoon and her sister. She became curious and wanted to invest on her o

The Bank that Stood the Test of Time and Tides

On December 26th, 1993, Robert Gaughen took over Hingham Institution for Savings as CEO during a tumultuous time for the bank. A former Hingham president was arrested on charges that the illegally approved loans costing the bank millions, and for which he allegedly received $240,000 in illegal payments.  The bank was also underperforming. Non-Performing Assets were $9.4 million in 1992, 6.2% of assets, which were quickly reduced by 90% to $0.9 million, 0.62% of assets, in 1994, and only continued to improve from there. Asset quality is critical to the survival of a bank, and along with these improvements, Hingham began paying a dividend in 1994.  *Source: Hingham Institution for Savings’s 1994 Annual Report  Over the next 26 years, the company’s loan quality improved, its branch network expanded outside of Hingham, Massachusetts, and Book Value per Share grew 14 times. The company’s share price has grown 15.6% per year (including dividends).  *Hingham Institution for Savings’s 2018 Ann

The Power of Investing

Recently I talked at my school about investing. I will be singling out the Humility Curve for an upcoming post if you found that interesting.Scroll down to learn more about kids and investing, the power of investing, and my Brother's Stock Researcher .