When you write to me, it is almost always to ask me questions about investments, tell me about profitable changes you have made to your investments, or to tell me that you harass your teenagers or young adults by sending them texts in this section.

Amid this wave of positivity, sometimes a message or two doesn’t sound like the others.

“Hey, big guy,” this type of message typically begins. Well done for saving your money and not having a life. But, explain to me: what’s the point of saving if you can’t take advantage of it? Life is short ! Not everyone wants to deprive themselves. Wake up ! »

These messages make me happy, because they are proof that my work here is not finished. They tell me that at least one citizen of our beautiful province walks, lives his life, raises his children, works, votes and reads the newspaper, all without ever having been struck down on the spot by the absolutely surreal concept that is the power of compound interest.

Secretly, I envy this person. It’s that the moment when we realize 1) that we don’t have to deprive ourselves and 2) that our money can work much harder than us has not yet hit us. Once we experience it, we never look at our dollars the same way again.

To explain it, I would like to present to you a little exercise imagined by the best-selling financial author and former personal finance teacher Andrew Hallam. I repeat it here with his permission.

Everyone can do it. But if you have a teenager at home, you can ask them to stop cleaning their room for a few moments while you calculate the answer.

It could be called “laziness pays off with compound interest.”

Let’s imagine two people, Justin and Emma. They are the same age, have the same studies, and have the same salary during their career.

Justin started saving and investing at the age of 19. He saves and invests $10 per day, which comes to $3,650 per year.

Emma does not save or invest. She wants to enjoy life to the fullest. She tells herself that she will be able to save later, when she earns more money.

Finally, at age 40, Emma decided to give it a try. She begins saving and investing $20,000 per year. Justin continues to save and invest his $10 a day.

At age 65, Justin and Emma decided to retire.

So, my first question. How much has each person saved over their lifetime?

This is where your teen can do the math themselves. Justin saved $3,650 a year for 46 years. The answer: He saved $167,900 of his salary during his lifetime.

Emma saved $20,000 per year for 25 years. She put aside $500,000 of her salary.

Second question: Who was able to enjoy life to the fullest? Who was able to travel more often, eat out more often? Spoil your family and friends more often?

The answer: It’s Justin, of course. Emma saved a lot more money than him. She became more deprived during her life.

Now, my third and final question: Who ends up richer, if they had both earned 9% annual returns on their investments, the long-term return of the Canadian stock market?

Is it Justin, who saved $3,650 a year for 46 years? Or Emma, ​​with her $20,000 a year for 25 years?

To do this calculation, you can use a compound interest calculator like the one on the Moneychimp website.

After entering the amount invested each year, the duration of the investment and its annual return (interest rate), we have the answer.

Justin ends up with $2.3 million. And Emma ends up with $1.8 million.

No, that’s not a mistake.

Again, for those sitting in the back: who got the most out of life? Justin. And who ends up richest? Justin too.

This is the power of compound interest, which is simply yield added to the yield of the previous year which is added to the yield of the year before, and so on.

Our brain is not equipped to represent this growth which accelerates over the years. He sees saving a bit like a piece of cake that you save for later. But in reality, our piece of cake will give us maybe four or five full cakes later.

Contrary to what your brother-in-law and your golf companions believe, investing well does not mean trying to have a sparkling performance in the markets this year. Investing well means being in the markets as early as possible, and for as long as possible. (I gave you the tools to start investing in this text entitled “How to invest in the stock market when you don’t know anything about it”).

If you’re already past the age of 19, don’t be discouraged. A 50-year-old person could still have 45 years in the markets, or even more – my colleague Martin Vallières talks about this today in his text entitled “Without saving at 50… what can you do to save your retirement? “. We don’t stop being an investor because we get older.

“Lazy people start investing as early as possible in life,” concludes Andrew Hallam. They save less than normal people, who wait before starting to invest. But lazy people end up richer. »

In his teaching experience, Mr. Hallam realized that the key was to let teenagers calculate the answers to this exercise on their own. Providing them ready-made, he observed, doesn’t trigger the same click.

“Then you tell them to let you know when they’re ready to invest. And they may be ready now. »