COMPOUNDING BASED ON TIME AND EDUCATION
An investment of money or in knowledge "compounds" over time. "Compounds" simply means as something accumulates additional interest on top of the original investment, and that additional interest also grows with interest (i.e. an "increase").
A $1 at 10% grows to $1.10 the first year, earning simple interest of $0.10 (a dime). The second year if the interest is not spent, the $0.10 of interest accumulate will earn additional interest of $0.01 (one penny) besides the $0.10 from the original investment. Thus, after 2 years, the person will not just have double the interest (2 x $0.10 = $0.20) of one year, but will have $0.21 of interest accumulated.
After 10 years the interest per year will not be $0.10 but $0.24 more than double.
If a person invests $10,000 at 10%, the following will happen:
Years Total
10 $25,937
20 67,275
30 174,494
40 452,592
50 1,173,909 Grew to 1,174%
That's money, but it is also true in life.
Effect of additional education
If you learn enough to graduate from college compared to high school, you will earn $2.1 million compared to 1.2 million. However, if the college graduate, chose to get a profession degree the total would be $4.4 million.
Comparing just the average high school and college graduates, the latter would have more social security income but would have many times the total investments than the high school graduate. Some people say that isn't fair, just because one is greater than the other and because both are just as nice - or some non-argument with no basis. If you just compare them regardless of race or the level of income of their parents or the part of the country they are in, assuming growth rates on investments of about 6%, the college graduate would have more than
4 years of college = $900,000 extra income, or $225,000 per year. Was the education worth it?
Extra savings accumulation, assuming a high school graduate saves 5% of his income and the college graduate, who has more financial flexibility, saves 10% of his income, at 6% interest, the college graduate will have at least 3 times as much in retirement assets, not due at all to "inequality" but totally due to compounding and natural non-prejudiced economics! There is no validity in blaming some unfair cause. (The actual difference is greater.)
The rich get richer simply because of compounding and pure economics, not because of robbery or misuse of power, but as long as "inequality" is based on anything other than us taking the responsibility for producing better economics there will only be "wrong cause" blamed but not much progress! The underlying factors need to be fixed: education and learning personal responsibility.
Both of those will only be done when there is sufficient realization by "the people" that it is worth the investment (paying for it in taxes) to educate people to be more productive so that they can contribute back in higher economic benefits than the costs of getting those benefits.
THE MARKET WILL CONTINUE TO VALUE KNOWLEDGE MORE AND MORE
Just pure reality causes jobs that can be replaced by technology and machines to drop in value and pay because there will be less demand or too little demand for those with less knowledge and skills. Those people, who are just as valuable in human terms, will not be able to produce as much value economically over time - and the only economic system that has been proven to work can only pay out proportional to the value produced. No economy could survive if the value produced is not greater than the cost. (Duh!)
That's reality. It's neither fair nor unfair. It is just what is so.
KILLING THE GOLDEN GOOSE A LITTLE AT A TIME
If one wants more benefits now, one will partially kill the golden goose that produces the golden eggs. Let's say the golden goose has grown to $100,000 and will produce "interest" of $8,000 a year. It will then accumulate over 30 years to $1,006,000.
If we spend $20,000 of the golden goose now, it will produce 20% less per year, of course, as we killed 20% of its production capacity. In 30 years, the net reduction will be more than $200,000.
If we needed the money, then that is a big problem.
Interestingly enough people who borrow alot are aware it could be a problem, but that understanding does not extend to the government borrowing alot - who owes the money becomes blurry and the idea is that somehow it will not cause a future problem "since we can handle it" - nonsense, of course, as debt is debt and paying it down or just paying the cost will have to be done by future taxpayers: ourselves until we die but mostly our children.
This is not by nature a political issue, it is strictly economics and economic wisdom.
The reality always is:
Yes, investments compound
But it is always also true that problems and debt compound.
I would recommend that you minimize/avoid the latter.
