The ‘Rule of 72′ was developed by Einstein, and says that investing your money at a rate of interest of 10% will allow you to double your investment every 7.2 years. Giving Rule 72 tips can help them make important connections between savings and future financial wellbeing. It is also a great rule of thumb to use when helping you assess the value of various investment strategies, so that they can get great returns on their money.
To quote Einstein, “If people understood the Rule of 72, they would never put their money in banks!” That’s because savings accounts only pay a small percentage of interest. The rule works by the following formula: divide 72 by 10%, and you get 7.2 years – that’s how long it will take you to double your money at that interest rate. To take a bank example, the difference between investing your money at three percent, means that it will take you twenty-four years (72 divided by 3) to double your money. Over a lifetime, by applying Rule 72, means that if they keep doubling their money, then doubling that doubled amount, and so on, as fast as they can, it becomes readily apparent how much more wealth they can accumulate.
Rule 72 tips work great when you make it a visual lesson. Taking a whiteboard, you can start off with an investment that pays 10% on one side, with a bank savings account on the other. Choose an amount to start with, for example $100 or $1000, and keep multiplying it. Stretching that over a lifetime will make a staggering difference to their bottom line. That is a difference they won’t soon forget!
The great thing about Rule 72 is that the younger they start, the more doubling opportunities they will have in their lifetime. Starting a kid off at age 7, versus ages 14-15, means an additional doubling period for their money. There is literally no time like the present to get started on this!
Rule 72 can be achieved by savings directed into higher-yield investment options such as bond issues and stocks. It is a good idea to get your financial portfolios diversified anyways, learning different investing strategies, and open their eyes up to the potential opportunity in the financial markets. They will benefit by learning the terminology, looking at different options, and knowing what they should be basing their decisions on.
Rule 72 will help to become proactive investors and learn how to build savings to provide for their own futures. It is a benchmark that they can use to ensure their money is working for them. By starting their investing activities at a very young age, you could double your money many times over, throughout the course of our lives.
