2. Interest
When money is invested into an account or trust, the investor
is usually paid interest. Interest is generally measured as a percentage
of the sum invested. A very nice side effect of this is that if the interest
earned remains invested, it compounds. Compound interest can be
calculated using the formula S=P(1+J)^n where S is the final sum, P is
the initial amount, j is the interest rate as a decimal per year and n is
the number of years of investment. For example, if 5 000 dollars were
invested for twenty years at an interest rate of four percent, the final
sum would be equal to 10 955 dollars and sixty two cents. If the same
amount were invested for fifty years, the final sum would be 35 533
dollars and forty to cents. That is over seven times in excess of what
was invested. Imagine the possibilities if the interest rate were higher
than the very conservative four percent rate I picked. Sometimes
interest rates aren’t very inspiring, but sometimes they are. Generally
however, a four to eight percent interest rate is very reasonable for an
account style investment.
3. Scams and Fraud
Young people are highly vulnerable to scams and fraud. A
scam can be defined as a purchase which appears to be a good deal but
turns out to be not as it was advertised. This is a type of fraud. Fraud is
the deliberate deception of an entity in order to secure a gain (usually
monetary) which is either unlawful or unfair. An example of fraud
would be lying about your history when you are applying for a job. Or
someone could write you a bad check. The only absolutely foolproof
way to avoid scams and fraud would be to live in a hovel in the bush
and avoid money. For most, this is not a practical solution to the
problem. To avoid scams when making purchases, attempt to make the
transaction in person. If this is not possible, verify the sellers’ identity,
reputation and return policy. Avoiding fraud is slightly more
complicated but follows many of the same principles, beginning with
trust. If you do not trust somebody, avoid having financial dealings
with them. If you do become a victim of fraud, tell the relevant
authorities, you aren’t in a hopeless situation.