Lesson 1 From the Financial World

Compound Growth is Ridiculously, Mind-blowingly Important

I knew the math, but I also didn’t know the math. For most of my life, I believed my parents knew about how to run a budget and trusted in general that they had taught me well about finances. I don’t know why I believed this when I knew that lots of the things my parents taught me landed somewhere between outright wrong and prejudiced to so twisted as to be wrong even if they were partly right.

For the first few years of my marriage, we were both students. Then I was having children (without medical insurance), five in eight years. I’m not sure that either of those were times when I would judge myself for not making the right financial choices. I was living under the poverty level and any changes I would have made would have been in the direction of medical insurance (which was largely impossible at the time, for a variety of reasons not understood by people who are blessed by the ACA).

But after that, when things had stabilized and I wasn’t on WIC anymore and I was able to make a budget, I wish that I had understood how much small savings could have made a difference with compound growth to my children’s college savings accounts. Or even to my own retirement savings. I had this idea that if I couldn’t put in hundreds or thousands of dollars all at once, then it didn’t matter.

And this is what I think my parents were ignorant of, as well. Because my parents, who grew up during the Depression, never invested in the stock market. I do understand why they didn’t do that. I understand that they lived through a massive cultural trauma and that the stock market was always too risk in their minds. So they put money in the bank instead and got piddly interest that wouldn’t have made that much difference in compound interest over the course of twenty or thirty years.

Now, what I understand is that if I had put just twenty dollars a month in to my children’s college funds, that would have made a meaningful difference (about $15,000) in college money for them. Instead, I was focused on paying my church tithes because my church was extremely effective at telling me that the cost of not paying church tithes (God being angry with me) was a much higher and more immediate risk than the cost of not saving for my children’s college. It turns out that this was a vastly overrated risk (or, you could argue, that it wasn’t exaggerated and all of my problems are because I didn’t fear God enough, but go read another Substack if you believe that).

My church was effective at the campaign of telling me to tithe no matter how poor I was (I once took presents from the tree and returned them so I could pay tithing) and it turns out, my church is also extremely good at understanding the lessons of compound interest because it invests heavily in the stock market, has a massive stock portfolio of more than $100B dollars in assets. I won’t pretend that it’s built in any significant way on my small amount of tithing (compared to other wealthy church goers), but it still bugs me. And my kids, incidentally.

I try to give myself grace. When my kids ask me why I didn’t ever save for college for them, I sort of shrug with an embarrassed look and say that you don’t know what you don’t know. I didn’t know the value of compound interest. I trusted that my parents were giving me good information about managing my finances. And if I’m honest, I did make sure that my kids got good scholarships because I did understand how important those were, and that focused time on things that get scholarships was far more beneficial to their financial futures than was working a job. So I didn’t do everything wrong. Just some really important, basic stuff.