An HBS grad whose company simplifies complicated financial concepts to fit on a napkin shares her favorite one
Courtesy of Tina Hay
Her classmates who came from the world of banking and consulting were acing the coursework without a problem, while she struggled to master the concepts foreign to her liberal arts background.
So, she started to draw.
Today, her business school drawings have turned into something bigger: Napkin Finance, a multimedia company that aims to introduce people to complicated financial concepts through videos, text, and of course ... napkins.
When Business Insider asked Hay which was her favorite napkin the team has produced, she chose the one that breaks down compound interest.
"It was our first one, and the visual of Einstein has been really fun and recurring theme," Hay explained. "I think compound interest is probably the most important financial concept anyone can understand. It relates to everything in your financial portfolio."
She shared that napkin, below:
Compound interest is the idea that the interest earned on your investments earns more interest on itself, which helps money grow exponentially over time.
This concept is particularly useful when it comes to retirement savings. Because money kept in retirement savings vehicles such as IRAs or 401(k)s is invested and earns compound interest, it's to a saver's advantage to "front-load" those accounts by starting to save money early, and letting those funds build on themselves over time.
In fact, delaying savings by 10 years can ultimately reduce your savings by as much as half. Take a look at this chart, from Beth Kobliner's "Get a Financial Life," which illustrates two scenarios:
• You save $1,000 every year from age 25 to age 65 in a retirement account earning 7% a year - a total of $40,000. By the time you turn 65, you'll have $213,610. Or:
• If you save $1,000 every year from age 35 to 65 in a retirement account earning 7% a year - a total of $30,000 - by the time you turn 65, you'll have $101,073.
In both scenarios, the account's returns are 7% (although investment returns are unpredictable, 5-7% is a typical range used in this type of calculation) and contributions are $1,000 per year:
Business Insider / Andy Kiersz
If you wait 10 years, you essentially lose half the amount.
Compound interest: It matters.
Jessica Mai contributed reporting.
- I spent $2,000 for 7 nights in a 179-square-foot room on one of the world's largest cruise ships. Take a look inside my cabin.
- Saudi Arabia wants China to help fund its struggling $500 billion Neom megaproject. Investors may not be too excited.
- Colon cancer rates are rising in young people. If you have two symptoms you should get a colonoscopy, a GI oncologist says.
- 10 Best things to do in India for tourists
- 19,000 school job losers likely to be eligible recruits: Bengal SSC
- Groww receives SEBI approval to launch Nifty non-cyclical consumer index fund
- Retired director of MNC loses ₹25 crore to cyber fraudsters who posed as cops, CBI officers
- Hyundai plans to scale up production capacity, introduce more EVs in India