Thanks go out to John Doe who pointed out an error in yesterday’s blog. It has been corrected. But here is some additional insight into the blog. Mr. and Mrs. Teddy Friend Sr., as pointed out, purchased and consumed 50,370 packages of cigarettes over 46 years. That translates into 1,007,400 cigarettes in total. Why did this couple spend so much on cigarettes while they never owned as much as one share of a publicly held corporation? It is easy to say that neither one of them had any formal education. But I would counter that even college graduates do not understand the geometric growth of money.
I once attended an orientation at a large state university for its incoming presidential scholars. All of these young people had the credentials to be admitted to almost any college in America. During the numerous breaks, I asked many of them a simple question: Were you ever taught how to estimate the future value of a dollar invested today? Not one of them answered yes. Yet every one of these students took AP calculus; calculus is the mathematics of change. Unfortunately even our brightest students are not taught how to use mathematics to estimate and appreciate the growth of investment dollars.
No one has a better understanding about how money invested can grow than Warren Buffett. I often cite Robert Miles’ discussion of Mr. Buffett’s philosophy in this regard. Buffett maintains that the Manhattan indians who sold the island in 1626 for $24 actually got the better deal. Compounded at the nominal rate for publicly traded shares the sellers would have nearly $3 trillion in today’s dollars. Perhaps if high schools and colleges were required to include discussions of “the magic of compound interest” in their curriculum there would be a greater number of financially independent households in the future.