I’m still harping on the virtues of saving that accompanies the good feelings of accomplishment — to the point where some readers won’t want to peruse this week’s read. “Sometimes, your articles make my head hurt,” said one fellow. Another stated that while they were very good — with the caveat — “most of the time — she got a little depressed over the weekend reading them” — so she only read Moneywise when she could absorb the information, like once a month.

Well, I don’t necessarily feel great that some Moneywise topics make people uncomfortable. That’s OK. However, because if nothing else, the message this week is that if you make savings automatic, make it a habit, just like brushing your teeth, or filling up the gas tank, suddenly you’ve accumulated a nest egg. You need to put a little process in place — automatic savings with your employer or even the old-fashioned cookie jar routine. Why you never even know you’ve missed these small amounts.

When you manage to save some of your hard earned dollars, you have a sense of control over your life. You have decided to pass on buying something you wanted — but don’t need — in order to take a successful life step forward.

Saving does not have to be great gobs of money. Rather, saving is the consistent, (emphasis) consistent discipline to put money aside every payday. Every single one — $100 at a time, if you can manage that amount.

Why bother most people would say? $100 barely buys lunch for two in expensive Bermuda — or one bag of groceries. But, it is a small start and it all adds up in the long run. We’ll talk again about how small thing savings add up in a later article.

I’ve also spent considerable time writing about financial literacy and how important it is to your financial success. A tremendous resource in the US (I wish we had it here in Bermuda) is the NFEC — National Financial Educators Council. Every year, the Council runs nationwide literacy tests — that are taken by thousands of individuals, from 15 year olds — to those over 50.

The tests have random math problems that cover the following areas: financial psychology, credit and debt, budgeting, income, business relations, long-term planning, risk management, investments, social and skill growth. You cannot study ahead of time, and you do have time limits. The results are then tabulated. Take a guess as to which group consistently had the highest score.

No, not what you think!

Uh, the oldest group — over 50 — scored by far the highest (75 per cent) right while the 15-18 year olds topped at 60 per cent. What could the reason for that be — given that math is taught consistently to the 15-18 years olds? Well, a number of factors — purely conjecture on my part came to mind. The over-50s have dealt with real finance life for a long time; however, if they are like me they have forgotten some math.

Whatever the reasoning, the absolute power of math compounding can never be denied. The NFEC latest results revealed one real highly missed (and to me crucial because of the savings component) question by all groups. Only 26 per cent had the right answer.

Here it is.

If I invest $100 per month starting at age 21, and that money earns a 7 per cent return, how much will I have after 70 years?”

Multiple choice answers:

A. $138,957.

B. Between $150,000 and $225,000.

C. More than $1.5 million.

D. None of the above.

Answer is C. Now, you can see why the focus on disciplined savings, even very small amounts. How on earth can you end up with over $1.5 million saving such a “piddly” sum each month? Compounding interest rates and consistency.

How do you figure this answer out?

Well the easy way is to just pop it into a calculator that generates a future value number.

Or, you could go to Khan Academy and review how to calculate a future value of a payment. Annuity — future value (monthly savings) at Khan Academy

https://www.youtube.com/watch?v=9Sck-rejNjU

Or, you can do it the way you learnt in school — the LONG way, using multiplication and division.

So, your quiz for this week — is to tell me how this tiny number climbed astronomically to the answer — more than $1.5 million. Hint; part of the solution is understanding the difference between simple and compound interest.

Yes, now the sceptics will jump in and state — “well, you can’t get a 7 per cent return in this low interest environment!” They are right, you can’t, but you might be able to obtain 5 per cent (giving you over $0.75 million) or you could consider feeding your savings into a low-cost index fund that over the same time frame — could generate even more.

The key component here is to start saving. 2 per cent, 3 per cent or 7 per cent of nothing is just that!

Consider that this is the same premise that is used to help working individuals save for retirement. Somehow, though, we working people forget that we can also save on our own — which then added to the pension funds already invested on our behalf will generate — over the long term, a nice tidy retirement sum.

You can do this.

BTW, if you’d like to test your own math skills here is the link to the 30 questions.

http://www.financialeducatorscouncil.org/national-financial-literacy-test/

The answers are provided — see how you stack up against those smarty Americans. Bet you are better than they are. You should be — US people don’t generally have to deal with foreign exchange, different currencies and global investment products.

If you have teenagers, work with them on these questions — see how a combined effort scores. But above all, please consider the first step. Setting up your long-term savings plan!

Martha Harris Myron, CPA PFS CFP JSM, Masters of Law, International Tax and Financial Services, appointed to the Professional Tax Advisory Council, American Citizens Abroad, Geneva, Switzerland. The Pondstraddler Life™ Consultancy providing planning for international tax, immigration, investment, retirement, legacy, and related financial challenges to the lifestyles of internationally mobile individuals and their businesses residing, working, crossing borders, and straddling ponds in the North Atlantic Quadrangle. Specific focus for residents of Bermuda, the premier international finance centre. Contact: martha@pondstraddler.com