The Power of Compounding: The Earlier You Start, the Bigger the Snowball
2011-06-29
When should children start learning about money? “Money management is part of life — the earlier you start, the stronger the compounding effect,” says veteran columnist Lo Sik. Interest and dividends earned on principal get reinvested with the principal, and wealth snowballs. The concept shows up most clearly in MPF investing.
What is compounding?
Interest earning interest — time is the amplifier. At the same rate of return, starting ten years earlier makes the snowball dramatically bigger. That’s why money habits should start young: not teaching kids to trade stocks, but building the savings habit.
How to harness compounding in MPF
| Move | Why it matters |
|---|---|
| Start contributing early | The longer the time, the mightier the compounding |
| Review your fund mix regularly | Keep the portfolio aligned with your goals and risk appetite |
| Adjust for life stages | Marriage, children and other milestones change retirement needs |
How much will retirement cost? Don’t guess — calculate
Lo recommends the MPFA website’s MPF calculator to estimate future retirement needs, then plan in detail. Retirement isn’t a distant abstraction; it’s a sum to start working on early.
The best financial-education material is parents’ own behaviour. Manage your MPF well, and your children learn to plan for their future. Compare MPF funds’ fees and returns at MPF fund comparison.
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