I'm sure all of you know the power of compound interest. Whenever you add the interest you earn to your principal and let the interest itself earns interest, you have compound interest. The growth on your principal over time is exponential.
What this means is that, if you have a steady growth of 10%, your principal will double in roughly 7.2 years. This is known as the Rule of 72. In order to calculate when your principal will double, take the number 72 and divide it by the interest earn per year.
10% interest per year - 72 / 10 = 7.2 years
7% interest per year - 72 / 7 = 10.28 years
3% interest per year - 72 / 3 = 24 years
If you attempt to calculate how long it will take to double your net worth with the current fixed/term deposit interest rate, you'll find out it takes an awful long amount of time. Most of us will consider 2-3% growth a year to be rather small and at times negligible.
But things are very different when the numbers are much bigger. Take world population as an example. Current population growth rate is around 1%. Total world population now is at 6.8 billion. 1% is equivalent to 68 million.
1% of 6.8 billion = 68 million
1% growth per year means it takes 72 years to double.
In about 3/4 of a century, there will be more than 13 billion of us on this planet
No one can explain the power of exponential growth better than Professor Albert Bartlett (retired Physics prof. at University of Colorado-Boulde). In his presentation titled "Arithmetic, Population, and Energy", he show us what are the consequences of 'steady growth' to population and energy usage.
The greatest shortcoming of the human race is our inability to understand the exponential function. - Professor Albert Bartlett
Set aside 1 hour of your time and watch his presentation on Youtube. It's just simple arithmetic and very easy to follow. It makes you wonder if steady growth is always good and grasp the true meaning of the exponential growth. I've included the first video below for your convenience.