2 4 5 G 1 The Rule of

2. 4. 5. G 1 *The Rule of 72 The most important and simple rule to financial success. © Take Charge Today – March 2014 – Rule of 72– Slide 1 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

2. 4. 5. G 1 How are Albert Einstein and the Rule of 72 related? * Albert Einstein © Take Charge Today – March 2014 – Rule of 72– Slide 2 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

2. 4. 5. G 1 T=P(I+I/N)YN Credited for discovering the mathematical equation for compounding interest © Take Charge Today – March 2014 – Rule of 72– Slide 3 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

2. 4. 5. G 1 * The Rule of 72 How long it will take for money to double using compounding interest 72/% = # of years The interest rate an investment must earn to double in a time period How many times money will double in a specified time period © Take Charge Today – March 2014 – Rule of 72– Slide 4 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

2. 4. 5. G 1 * Things to know about the Rule of 72 It’s only an approximation Assumes the interest rate stays constant Does not allow for additional payments to original amount Does not account for taxes © Take Charge Today – March 2014 – Rule of 72– Slide 5 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

2. 4. 5. G 1 Doug’s Certificate of Deposit Doug invested $2, 500 into a Certificate of Deposit earning a 6. 5% interest rate. How long will it take Doug’s investment to double? Invested $2, 500 Interest Rate is 6. 5% 72 = 11 years to double investment 6. 5% © Take Charge Today – March 2014 – Rule of 72– Slide 6 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

2. 4. 5. G 1 Another Example The average stock market return since 1926 has been 11% 72 11% = 6. 5 years to double investment Therefore, every 6. 5 years an individual’s investment in the stock market has doubled © Take Charge Today – March 2014 – Rule of 72– Slide 7 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

* Can the Rule be applied to debt? YES *It can show fast a debt can double *It can show the impact of interest rates on debt © Take Charge Today – March 2014 – Rule of 72– Slide 8 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 2. 4. 5. G 1

2. 4. 5. G 1 Jessica’s Credit Card Debt Jessica has a $2, 200 balance on her credit card with an 18% interest rate. If Jessica chooses to not make any payments and does not receive late charges, how long will it take for her balance to double? $2, 200 balance on credit card 18% interest rate 72 18% = 4 years to double debt © Take Charge Today – March 2014 – Rule of 72– Slide 9 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

2. 4. 5. G 1 Another Example $6, 000 balance on credit card 22% interest rate 72 22% = 3. 3 years to double debt © Take Charge Today – March 2014 – Rule of 72– Slide 10 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

2. 4. 5. G 1 Jacob’s Car Jacob currently has $5, 000 to invest in a car after graduation in 4 years. What interest rate is required for him to double his investment? $5, 000 to invest Wants investment to double in 4 years 72 4 years = 18% interest rate © Take Charge Today – March 2014 – Rule of 72– Slide 11 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

2. 4. 5. G 1 Another Example $3, 000 to invest Wants investment to double in 10 years 72 10 years = 7. 2% interest rate © Take Charge Today – March 2014 – Rule of 72– Slide 12 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

2. 4. 5. G 1 Rhonda’s Treasury Note Rhonda is 22 years old and would like to invest $2, 500 into a U. S. Treasury Note earning 7. 5% interest. How many times will Rhonda’s investment double before she withdraws it at age 70? Investment $2, 500 $5, 000 $10, 000 50. 8 60. 4 70 72 = 9. 6 years 7. 5% to double investment Age 22 31. 6 41. 2 $20, 000 $40, 000 $80, 000 © Take Charge Today – March 2014 – Rule of 72– Slide 13 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

2. 4. 5. G 1 Another Example $500 invested at age 18 7% interest How many times will investment double before age 65? Age Investment 72 = 10. 2 years 18 $500 7% to double 28. 2 $1, 000 investment 38. 4 $2, 000 48. 6 58. 8 69 $4, 000 $8, 000 $16, 000 © Take Charge Today – March 2014 – Rule of 72– Slide 14 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

2. 4. 5. G 1 A person can choose to invest into two types of accounts: Taxed Account – taxes are paid on money before it is invested Tax Deferred Account – taxes are not paid until the individual withdraws the money from the investment © Take Charge Today – March 2014 – Rule of 72– Slide 15 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

2. 4. 5. G 1 *Any questions? © Take Charge Today – March 2014 – Rule of 72– Slide 16 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona