Bigger than it looks

Suppose 1,000 sits untouched for 30 years and, as an assumption, grows 6% a year. Most people picture 60 a year added thirty times: 1,000 + 30 × 60 = 2,800. That is simple growth, where the growth never grows.

Compound growth adds 6% of whatever is there now, so each year’s step is a little bigger than the last: 1,000 × 1.06, thirty times over, is about 5,743, roughly twice the simple guess.

Economists call the habit of guessing low the exponential growth bias (Stango and Zinman, 2009), and in later studies a simple graph did not cure it. Working the numbers out, as here, is what helps. On Spark & Anvil, MarketQuest’s Compound Growth asks children to guess first, then shows the curve.