Stein Rowe Young Investor 6th Annual National Essay Contest

5th & 6th Grade - Answer this question in about 250 words:

"What are the most important lessons you have learned about money and investing? How do you think this knowledge will help you in the future?"

Who Wants to be a Millionaire?

By Peter Olsen, Age 11

Anyone can become a millionaire, and it's easy to do! You don't have to win a game show. The key is in compounding, when it pays to get an early start. Einstein called it the greatest mathematical miracle. And of all the things my dad taught me about money and investing, it makes the most "cents." Compounding means that on top of earning money on your original investment, you also make money on every additional dollar you earn. So the amount multiplies over a period of time just by sitting there.

For example, say Earl E. Bird saves $2,000/year for ten years beginning at age 18. Then he puts his $20,000 in an account with a 10% interest rate. Even if he doesn't deposit any more money after that, it keeps growing as long as he leaves it alone. In just 40 years (age 68), Earl will have more than $1,000,000! This principle works for many types of long-term savings funds.

Meanwhile, Penny Procrastinator finally decides to start saving $2,000/year when she's 28. By the time she has $20,000, she'll be 38. At the same 10% return, even if Penny continues contributing $2000 annually for the next 30 years to make up for her late start, she still won't be able to catch up to Earl. It's true! Find an online compound interest calculator, put in some numbers and see for yourself.

The early bird lays the biggest nest egg! I'm already starting to save my money. Then I'll be sure to reach my goal of having a million dollars. It's never too soon to get a head start. That's my final answer!

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