By Gordon Chavez, financial reporter
In many families, financial conversations focus on working hard, paying bills, and saving what’s left over. Those habits matter. But there’s another concept that can quietly transform a family’s financial future over time: compound interest.
Compound interest means earning interest on both your original money and the interest that money has already earned. Over time, it creates a snowball effect where money begins to grow faster and faster.
As Karlo Salgado, CEO of Innergy Financial and a mentor of mine, explains, “Compound interest turns money from something you spend into something that quietly multiplies while you sleep.”
Many of us were taught to work for money. That’s important. But financial education teaches another idea: money should also work for you. When money is placed in accounts or investments that grow over time, it can begin generating growth on its own.
The rate your money earns makes a huge difference over time. For example, if $1,000 grows for 30 years at different rates, the outcomes can look very different:
- 0.39% (about the average savings account rate)
→ $1,000 grows to about $1,124 - 10% (close to the long-term historical average of the S&P 500)
→ $1,000 grows to about $19,837
This dramatic difference shows how powerful compound growth can be over time. Readers who want to experiment with their own numbers can try online compound interest tools such as the calculator available at NerdWallet.
Another important idea is that money is always moving in one direction or another. If money simply sits in cash—in a pocket, under a mattress, or even in very low-interest accounts—it loses value slowly because of inflation. Inflation, which averages around 3% over time, acts almost like a negative interest rate by reducing purchasing power.
Christopher Parks, Financial Management Coach and another mentor of mine, puts it this way: “Compound interest is the most powerful financial force that most people don’t understand—and it’s costing them every single day.”
When families begin to understand these principles, they start to see money differently—not just as something to earn and spend but as something that can grow and help create opportunities for future generations.
