Start out
with paper and pencil. Don’t use pen,
and don’t use a text editor – use PAPER and PENCIL. “College Ruled” paper works nicely. Also, don’t use a calculator or a spreadsheet
– make all calculations by hand with pencil on scratch paper.

For the
first exercise, in the left-hand column, write the number “18”. This will represent a person’s age.

In the next
column to the right, write the amount $2,000.
This will be the running balance.

In the
column that is farthest to the right, write down the number that represents one
tenth of the value in the middle column (round to the nearest one-hundredth of
a cent). This will represent the amount
of annual interest.

Admittedly,
these values are ‘pulled from air’, but will suffice for purposes of example.

If the
running balance is less than one million, increment the age value by one and
write the new age value in the left column on the next line. For the middle column, add the interest
(right column) from the previous line to the running balance (middle column) of
the previous line; if the age value is less than 28, add an additional
$2,000. The sum gets written in the
middle column of the new line as the new running balance value. In the column that is farthest to the right,
write down the number that represents one tenth of the value in the middle
column (round to the nearest one-hundredth of a cent). Repeat the instructions in this paragraph
until the running balance equals or exceeds one million dollars.

For the
second exercise, in the left-hand column, write the number “28”. This will represent a person’s age.

In the next
column to the right, write the amount $2,000.
This will be the running balance.

In the
column that is farthest to the right, write down the number that represents one
tenth of the value in the middle column (round to the nearest one-hundredth of
a cent). This will represent the amount
of annual interest.

If the
running balance is less than one million, increment the age value by one and
write the new age value in the left column on the next line. For the middle column, add the interest
(right column) from the previous line to the running balance (middle column) of
the previous line, and add an additional $2,000. The sum gets written in the middle column of
the new line as the new running balance value.
In the column that is farthest to the right, write down the number that
represents one tenth of the value in the middle column (round to the nearest
one-hundredth of a cent). Repeat the
instructions in this paragraph until the running balance equals or exceeds one
million dollars.

The first
exercise simulates the effect of saving $2,000 per year at 10% annual interest
for ten years, then letting the saved amount continue to compound for years, without
adding additional capital, until the value reaches one million dollars. The second exercise simulates the effect of
saving $2,000 per year at 10% interest from the age of 28 for every year until
the value reaches one million dollars.

Compare the
two tables and discuss your conclusions.