Start out with paper and pencil. Don’t use pen, and don’t use a text editor – use PAPER and PENCIL. “College Ruled” paper works nicely. Also, don’t use a calculator or a spreadsheet – make all calculations by hand with pencil on scratch paper.

For the first exercise, in the left-hand column, write the number “18”. This will represent a person’s age.

In the next column to the right, write the amount $2,000. This will be the running balance.

In the column that is farthest to the right, write down the number that represents one tenth of the value in the middle column (round to the nearest one-hundredth of a cent). This will represent the amount of annual interest.

Admittedly, these values are ‘pulled from air’, but will suffice for purposes of example.

If the running balance is less than one million, increment the age value by one and write the new age value in the left column on the next line. For the middle column, add the interest (right column) from the previous line to the running balance (middle column) of the previous line; if the age value is less than 28, add an additional $2,000. The sum gets written in the middle column of the new line as the new running balance value. In the column that is farthest to the right, write down the number that represents one tenth of the value in the middle column (round to the nearest one-hundredth of a cent). Repeat the instructions in this paragraph until the running balance equals or exceeds one million dollars.

For the second exercise, in the left-hand column, write the number “28”. This will represent a person’s age.

In the next column to the right, write the amount $2,000. This will be the running balance.

In the column that is farthest to the right, write down the number that represents one tenth of the value in the middle column (round to the nearest one-hundredth of a cent). This will represent the amount of annual interest.

If the running balance is less than one million, increment the age value by one and write the new age value in the left column on the next line. For the middle column, add the interest (right column) from the previous line to the running balance (middle column) of the previous line, and add an additional $2,000. The sum gets written in the middle column of the new line as the new running balance value. In the column that is farthest to the right, write down the number that represents one tenth of the value in the middle column (round to the nearest one-hundredth of a cent). Repeat the instructions in this paragraph until the running balance equals or exceeds one million dollars.

The first exercise simulates the effect of saving $2,000 per year at 10% annual interest for ten years, then letting the saved amount continue to compound for years, without adding additional capital, until the value reaches one million dollars. The second exercise simulates the effect of saving $2,000 per year at 10% interest from the age of 28 for every year until the value reaches one million dollars.

Compare the two tables and discuss your conclusions.