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take advantage of compound interest in your 20s because you'll appreciate it when you're older. You can never start investing early enough!

Every financial expert worth their salt has long ago memorized mantras like, “Pay yourself first,” and, “start savings while your young and watch your money grow.”  In most cases when these testimonials are presented with religious fervor they are accompanied by slick presentations that include multi-coloured bar graphs, arcane mathematical computations (well, arcane if you were educated using today’s public school mathematics curricula anyway, but I digress), and promises of a life of plenty.  The only thing you have to do in order to one day walk in this promise land is start saving a little bit of money, make it automatic, put it in a jar, reinforce frugal habits, something about 10%, no wait 15%, or is it 20%+?  Yes the only thing you have to do is look at the world with the hard-fought wisdom of a forty-year old financial advisor when you are 20.  That shouldn’t be so hard right?

Of course the “eternal optimist” George Bernard Shaw revealed a much more realistic view of young people and personal finance when he stated, “Youth is wasted on the young.”

While the charts and projections that we personal finance know-it-alls love to throw up are statistically true, they fail to take into consideration the most important factor in the equation – humanity.  Sure, logic and reason have their place in the minds of most young adults that I know, but they aren’t the only ones setting up shop there.  In fact, immediate gratification, YOLO-ing, and material satisfaction (Google “flossing”) might have the run of the place as it pertains to most of us.

This represents an unfortunate reality.  You can hardly blame the logical and reason-driven angels on our shoulder for investing their energy into the more important matters like getting an education, pursuing a career, and maybe even finding a long-term mate.  Personal finance often gets delegated to the dark side.  This is how luxury trips abroad get put on credit cards, 3,000 square foot homes get purchased with that maximum amount the bank will give for mortgages, and brand new luxury cars purchased with only “84 monthly payments of $299” end up in garages that have been built with home equity lines of credit (HELOCs).

A Chart by Any Other Name…

It’s too bad really, because the charts do look really pretty.  The whole idea of learning to live below your means when you get your first paycheque and then investing the raises you get as you climb the pay ladder (oh, sorry I read about how that used to be the case in a history textbook somewhere) sounds pretty good.  The nebulous concept of a nest egg gradually growing as those investment returns compound over time is a comforting thought.  Who knows, if you listen to your financial advisor you might even be able to afford the retirement that is routinely show in Cialis and Viagra commercials right? (Judging by the amount of those commercials I’ve seen over the past few years, half of professional sports might now be owned by erectile dysfunction companies).  If only us crazy young people could somehow balance out the billions of dollars’ worth of advertising that is thrown at us along with the perfect picture of consumption-at-all-costs that are parents are so fond of, maybe we could realize the reality that is so vividly shown by those escalating bar graphs titled “Millionaire at 55”.

Stupidity Compounds Too

In all seriousness, it is a little bit sad how this whole thing works.  Compound interest is pretty simple to understand (it was the concept that originally got me interested in learning about personal finance).  It is a basic guarantee to eventual wealth if you begin the process early enough.  The problem is that this sort of planning runs entirely in the face of the new “live for the moment” theme seems to be dominating current Generation Y culture.  Isn’t is possible to live like 97% in the moment, but take roughly 10 minutes out of the month to look at your paycheque(s) and decide where they should go?  Do you have to fly to some exotic place to live in the moment?  Is the moment always better in a bigger house or slightly more luxurious car?

Alas, numbers on a page that get progressively bigger have a certain raw and unyielding beauty.  It is only when humans get a hold of them that the picture begins to transform into the muddied reality of consumer debt and unused RRSP space.  Why do the laws of economics torture us young souls and tempt us with a world we are determined to never explore?

Article comments


If you have get the principle of “compounding is time”. You will surely start investing big or small no matter.

T5_INCOME says:

Not travelling when you are young is like saving up sex for when you are 60.

The nights I have been drunk in a Tokyo nightclub with sexy ladies is worth to me about $2500, but it only cost me $50 because I was young. If you are a 60 year old, you will have to pay to have those girls around

Never forget that gentlemen !

Steve says:

While most investments are a bit of a rollercoaster, the truth is that investing regularly in a declining market is good to do when you’re young. Dollar-cost averaging and whatnot. Just make sure you’re diversified in index funds and not individual stocks that are tanking.

I’m fortunate enough to have low interest rates on my student loans, so I make the minimum payments (~$600/mo.) and with my employer match I can still sock 15% of my pay into my retirement account each month. I should be out of debt by 35 and then I can really start filling up my 401K and IRA. I hope to retire before my hair goes gray.

Kyle says:

Good luck Steve!

Melanie says:

It doesn’t make sense to start investing in your twenties if you have tens of thousands of dollars worth of earning student loans to pay and aren’t earning much at work. Debt interest compounds too. The problem with the charts is that they no longer reflect most twentysomethings’ reality. Besides, there’s nothing irresponsible about making debt reduction and career advancement a priorit, tthen waiting for your thirties to begin significant investments.

thepotatohead says:


But seriously, younger kids should start saving as early as possible. Compounding is great, and like the cliche says, you can’t get those years back. Alot of people I know in their 20’s cant seem to fathom thinking about retirement cause it’s so far away. Soon however they will be in their 30’s and realize that they should have been socking stuff away over the last decade.

is YOLO just a by product of Gen Yers trying to cope with the fact that they will never obtain the wealth levels of the previous generations? Kind of like, “I’m never going to succeed (in my career, at home ownership) so why even try?”

I’m glad I learned about investing at a young age while I’m still young, and I’m hoping to find a balance between experiencing life and being prepared for the future.

Phil says:

It takes as much energy to dream as it does to plan, so plan to realize your dream instead, and live a much healthier life. The problem with most people is the difference between thinking entitlement vs. empowerment. Thinking I want that instead of how do I get that. If we planned things more, and thought more long term most people would probably be much happier over their life time – Cheers.

Brian So says:

The YOLO mentality is why Canadians are living in record household debt levels and are less prepared for retirement than previous generations.

Kyle says:

That might be a slight oversimplification (there are many reasons for the lack of preparedness), but it certainly is a contributing factor right?

Phil says:

Too bad no one could teach the masses the importance of these equations and how they can set you on the path to financial bliss…
To find Given Symbol Equation
P F (P/F,i,N) (1+i)^-N
F P (F/P,i,N) (1+i)^N
P A (P/A,i,N) (((1+i)^N)-1)/(i*((1+I)^N))
A P (A/P,i,N) (i*(1+i)^N)/((1+i)^N)-1)
F A (F/A,i,N) (((1+i)^N)-1)/(i)
A F (A/F,i,N) (i)/(((1+i)^N)-1)
Or how these 2, can plan out your retirement…
F A+P (F/A,i,N) (((1+i)^N)-1)/(i)+((1+i)^N)
F P (F/P,i,N) ((1+i)^N)-P
but alas, I’m am just one of those geek engineers, what would I know – Cheers.

Kyle says:

Ouch… this hurts my head to think about. Instead just use an online calculator! 😉

Phil says:

Me too at first, but being able to retire before my 40th birthday, I have some time to rest it a little now, and my feet too. – Cheers.

Kyle says:

Good point!

Matt says:

I couldn’t help but notice the word “PAIN” in your calculations!

Beautifully written. Anyway, save young and compounding should theoretically work. However, it is not as linear as the charts usually indicate. It is usually something like a gain of 14%, loss of 10%, gain of 16%, 12%, 8%, another loss of 5%, 4%, and 10%, followed by gains of 14% and so on all leading to an average return of 9-10% over a long period of time. Bottom line, invest consistently over time and leave your hands off from it!

krantcents says:

There is another saying too, youth is wasted on the young! Time is the most important commodity we have whether young or old. The most important element in compounding is time. If you understand that principle, you will find ways to invest, however small.

Kyle says:

I actually threw that in there already KC! Thanks for stopping by.