The Power of Compound Interest

The phenomenal growth over the past decade in two of Namibia’s business sub-sectors is impressive measured by any standard: cash loans and gaming, a more polite description of gambling.

These two business-types are now visible in even the smallest villages of Namibia’s 14 administrative regions.

There is a belief that the growth of cash loan entities is due to many Namibians living far above their means.

Seemingly, many Namibians have an insatiable appetite for credit, which is worrisome in an environment where opening an account with furniture, apparel and other retail chains comes with minimal fuss, provided you are in paid employment.

It is said that credit hungry individuals eventually face money problems.

With a large portion of the monthly income of indebted individuals going towards servicing their credit, often little remains to fund emergencies and urgent needs.

Then when there is a requirement to access money quickly, the hassle-free choice is to turn to a cash loan for help.

Loans from such lenders don’t come cheap as interest rates are exorbitant measured against nominal bank lending rates and compound interest that applies when the borrowing is not swiftly discharged.

As for the growth of gambling, published accounts of firms listed on stock exchanges in the hospitality sector who run casinos and online gaming services, reveal that it is a lucrative business.

Probably an equally attractive business for smaller gaming firms too, considering that the gaming house never loses despite claims in adverts of individuals winning big bucks.

Ironically, one never hears of the losses of gamblers, from individuals themselves or the gaming firms, which must amount to substantial amounts.

Entrepreneurs and enterprises engaged in the cash loans or gaming sector are regulated so presumably they are not doing anything wrong, but merely providing a service to fill a need, and the choice to use the service or not rests with an individual.

This brings me to the topic of this week’s column – the power of compound interest.

The saying: “Compound interest is the eighth wonder of the world. He who understands it, earns it and he who does not pays it,” is attributed to Albert Einstein.

Many other of Einstein’s sayings are commonly used and the advice he proffered on an array of topics is taken seriously to this day.
Such as, “anyone who has never made a mistake has never tried anything new,” and “stay away from negative people as they have a problem for every solution.

My personal favourite of Einstein’s pearls of wisdom are: “Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning,” and “I can, is 100 times more important than IQ.”

Albert Einstein was a German-born mathematician and physicist who migrated to the United States.

In 1921, he won the Noble Prize in physics and carved a name for himself in academia with his many articles published.

Over the years, like Einstein, many others have recommended the importance of teaching children the power of compound interest.

I learnt it at an early age and always make it my business to incorporate the power of compound interest when mentoring entrepreneurs.

• * Danny Meyer is reachable at danny@smecompete.com