Parenting and Compound Interest

Women never disclose their true age, while men never disclose their correct salary. The origins and rationale behind this saying are unknown to me, but it surely throws light upon the evergreen beauty of women and the dominance of men in financial matters in a patriarchal society. Of course, times have changed, and so has parenthood, a related concept in this discussion.

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Why parenthood is important in this context can probably be explained using the argument that a society develops on how well parents up bring their children and make decisions related to their education, cost of living, amenities to provide and of course the number of children per family. The importance a parent attaches to a child’s leisure is probably one of the greatest factor determining whether the kid will grow up to be an independent personality, or whether the parent views their child as an investment who when grows up will give a return to his parents during their old age.

The concept of compound interest here is an important injection to the standard of living (SoL) of a family. If we look at the overall economics or commerce of a country ranging from banks to stock markets, a recurring occurrence is the use of compound interest in calculation and exchange. Likewise, the phenomenon can be induced in a household as well. How? We shall see shortly.

I still remember my mom telling my dad during the penultimate year of my post-grad degree that she has never asked him about his salary, but she wishes to do so in the last month of his retirement, so that her blessings may motivate me to earn, the starting first-month salary of my career equal to my dad’s retirement salary of his last month in office. While I just smiled and went on with my studies at that moment, an important realization struck me not so long ago.

Parents up bring their children surrounding an SoL determined by their income (earned by either one or both parents), which is usually higher than the SoL during the times of grandparents given the high rates of growth across countries. However, nothing hurts the most than a child growing in a given SoL and then not getting the desired job in future such that his SoL becomes lower than what his parents brought him up in.

An individual who lives a life at a lower SoL than what his parents brought him up in will have an adverse psychological effect on future generations since that individual who is now at a lower SoL will value his child’s leisure less and bring him up as an investment for his future self knowing quite well that he has failed in life to improve his SoL.

To put it simply, if A is the grandparent, B is the parent and C is the child, then SoL(A) = 10 units (say) but after B grows up and gets a job then if SoL(B) = 8 units the extra 2 units will be compromised on C where B will pay less value to the leisure/education of C and up bring C like an investment where C getting a job to make up for the 2 units will be more important to B than the dreams or aspirations of C. Faced with a situation of C getting a job that improves SoL(C) by 7 units now and SoL(C) by 14 units after 5 years, B will have a tendency to push C to take the opportunity now rather than wait 5 years. This adversely affects the future of C since 7 units earned by C is still lower than 10 units earned by A. This goes on!

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