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© Take Charge Today – March 2014 – Rule of 72– Slide 1Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

*The Rule of 72

The most important and

simple rule to financial

success.

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© Take Charge Today – March 2014 – Rule of 72– Slide 2Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

*Albert Einstein

How are Albert Einstein and the Rule of 72 related?

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© Take Charge Today – March 2014 – Rule of 72– Slide 3Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

T=P(I+I/N)YN

Credited for discovering the mathematical equation for

compounding interest

© Take Charge Today – March 2014 – Rule of 72– Slide 4Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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* The Rule of 72

© Take Charge Today – March 2014 – Rule of 72– Slide 5Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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*Things to know about the Rule of 72

© Take Charge Today – March 2014 – Rule of 72– Slide 6Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Doug’s Certificate of Deposit

Invested $2,500

Interest Rate is 6.5%

72 = 11 years to double investment

6.5%

Doug invested $2,500 into a Certificate of Deposit earning a 6.5% interest rate. How

long will it take Doug’s investment to double?

© Take Charge Today – March 2014 – Rule of 72– Slide 7Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Another ExampleThe average stock market return

since 1926 has been 11%

Therefore, every 6.5 years an individual’s investment in the stock market has doubled

72 = 6.5 years to double investment

11%

© Take Charge Today – March 2014 – Rule of 72– Slide 8Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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*Can the Rule be applied to debt?

*It can show how fast a debt can double

*It can show the impact of interest rates on debt

YES

© Take Charge Today – March 2014 – Rule of 72– Slide 9Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Jessica’s Credit Card Debt

$2,200 balance on credit card

18% interest rate

72 = 4 years to double debt

18%

Jessica has a $2,200 balance on her credit card with an 18% interest rate. If Jessica chooses to not make any payments and does not receive late charges, how long

will it take for her balance to double?

© Take Charge Today – March 2014 – Rule of 72– Slide 10Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Another Example

$6,000 balance on credit card

22% interest rate

72 = 3.3 years to double debt

22%

© Take Charge Today – March 2014 – Rule of 72– Slide 11Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Jacob’s Car

$5,000 to invest

Wants investment to double in 4 years

72 = 18% interest rate

4 years

Jacob currently has $5,000 to invest in a car after graduation in 4 years. What interest

rate is required for him to double his investment?

© Take Charge Today – March 2014 – Rule of 72– Slide 12Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Another Example

$3,000 to invest

Wants investment to double in 10 years

72 = 7.2% interest rate

10 years

© Take Charge Today – March 2014 – Rule of 72– Slide 13Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Rhonda’s Treasury Note

72 = 9.6 years

7.5% to double investment

Age Investment

22 $2,500

31.6 $5,000

41.2 $10,000

50.8 $20,000

60.4 $40,000

70 $80,000

Rhonda is 22 years old and would like to invest $2,500 into a U.S. Treasury Note earning 7.5%

interest. How many times will Rhonda’s investment double before she withdraws it at age 70?

© Take Charge Today – March 2014 – Rule of 72– Slide 14Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Another Example$500 invested at age 18

7% interest

How many times will investment double before age 65?

72 =10.2 years

7% to double investment

Age Investment

18 $500

28.2 $1,000

38.4 $2,000

48.6 $4,000

58.8 $8,000

69 $16,000

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© Take Charge Today – March 2014 – Rule of 72– Slide 15Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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© Take Charge Today – March 2014 – Rule of 72– Slide 16Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

*Any questions?