Barbara O'Neill, Ph.D., CFP® Extension Specialist in Financial
Resource Management Rutgers Cooperative Extension Want to
convince someone to save money for emergencies (e.g.,
unemployment or car repairs) or to achieve future financial
goals (e.g., a certain nest egg for a child's college education
or retirement)? Teach them about the time value of money and the
awesome impact of compound interest upon the growth of savings
over time. This was the conclusion of a study reported in the
October 2011 issue of the American Association of Individual
Investors' AAII Journal in an article called "Understanding the
Impact of Compounding Increases Savings Rates." The reported
study included samples of college students and employees of a
Fortune 100 company. It found that many respondents did not
understand the exponential growth of compound interest or the
cost of delaying saving for retirement. Respondents severely
underestimated the size of an account balance after a period of
40 years of growth. The median estimate