Compound Interest
Why aren’t we all getting rich from compound interest?
This article is based on Gary Stevenson’s video “Compound Interest”. It was actually the very first video of his I ever watched — the one that introduced me to his ideas. And honestly, it unlocked so much in how I understand the economy and the world.
✨
Compound interest gets talked about like magic. Scroll through social media and you’ll find financial influencers promising it’s the secret to getting rich, the unstoppable engine of wealth. Albert Einstein is even rumored to have called it “the most powerful force in the universe”.
But here’s the catch: he probably never said that.
And more importantly — if compound interest is so powerful, why isn’t everyone rich?
Let’s strip away the myths and look at what compound interest really is, how it works, and why most people aren’t actually seeing their lives transformed by it.
So, what is compound interest?
At its core, compound interest is growth on top of growth. Each year, you don’t just earn interest on your original money — you also earn interest on the interest you’ve already made. That’s why people get so excited about it: over time, the effect snowballs.
Imagine you invest $1,000 and somehow manage a 10% return — which is very high. In the first year, you make $100, bringing your total to $1,100. In year two, you don’t just earn 10% on the original $1,000. You also earn 10% on the $100 you made last year. That means $110 in growth, for a total of $1,210.
| Year | Investment | Return | Total |
|---|---|---|---|
| 1 | $1,000 | $100 | $1,100 |
| 2 | $1,100 | $110 | $1,210 |
| 3 | $1,210 | $121 | $1,331 |
| ... | ... | ... | to the moon! |
And it basically never stops. Each year, the base you’re earning interest on gets bigger. The bigger it gets, the faster it grows. Instead of your wealth rising in a straight line, it curves upward — slowly at first, then accelerating... to the moon! This is what people mean when they say compound interest grows exponentially.
Why It’s So Appealing
This is why compound interest is so popular. If you keep saving, stay disciplined, eventually your wealth will rocket to the moon. Financial influencers repeat the mantra endlessly — save a little every year, let it compound, and you’ll end up rich. The story is compelling because it feels fair: steady work, steady saving, and a steady path to prosperity.
It’s neat, logical, and deeply attractive. Who wouldn’t want to believe that simply saving year after year is enough to unlock wealth in the long run?
Desert island economy
So why is it even possible to earn growing returns year after year?
Economists often explain it with a simple thought experiment — the desert island economy. Imagine you wash up on a deserted island with nothing. In the first year, your only focus is survival. You set up a small farm so you have enough food. Once that’s done, the next year you’ve freed up a little extra time. You can use it to build a sturdier shelter or better tools. Those tools then make you more productive, which frees up even more resources for the following year.
Step by step, your capacity compounds. Each improvement gives you the time and resources to make the next improvement. Growth builds on growth.
Source: Fortnite
That’s the appeal of compound interest too. The way your savings grow and grow is mirrored by the way societies grow: each year’s output can be reinvested to make the next year even larger.
There’s only one problem with compound interest: it doesn’t work!
Not for individuals, and not for society.
Why It Doesn’t Work for Individuals
On paper, compound interest looks like a rocket ship: save every year, wait long enough, and your wealth soars to the moon. It suggests that by the end of your working life, you’ll be a millionaire.
But here’s the obvious question: if it’s that easy, why aren’t most people millionaires? Are ordinary people just too lazy? Too reckless with spending? Or is the reality much more complicated?
The big problem is that compound interest ignores what economists call the life cycle of savings. Most of us only work for part of our lives. Today, many don’t start earning until their early twenties. Most retire around 60 or 65. That leaves maybe 40–45 working years. And the rest of life? That’s when compounding runs in reverse.
As a student, you’re not earning — you’re paying.
As a young adult, you’re weighed down with debts: student loans, mortgages.
Midlife brings expenses like children and family costs.
In retirement, income dries up while expenses rise — medical bills, carers, end-of-life care.
The result is that your wealth doesn’t trace a perfect exponential curve. It’s messy. You save when you can, then you spend down those savings just to get through retirement. By the end, many people end up back near zero.
This isn’t just theory. In many families grandparents who once owned property and built savings lost it all to the costs of aging. They didn’t ride a rocket of compounding wealth. They simply saved enough to survive until the end.
So what looks like “compound growth” in textbooks is, in reality, just life-cycle saving. Families aren’t steadily climbing to the moon. They’re scraping by, saving when they can, and then spending it down to make it through.
There’s another, even harsher reality: for millions of workers today, there’s nothing left to save in the first place. As rents, food, and energy costs keep rising while wages stagnate, more and more people are left with zero at the end of the month. No surplus, no savings, no chance to even start compounding.
Why It Doesn’t Work for Societies
Just like with individuals, the compound interest story doesn’t work for societies. If economies could compound forever, we’d see booming growth across the world. Instead, most advanced economies struggle to hit even 1% growth.
The reason is simple: we live on a finite planet. The desert island story makes this clear. In the beginning, the land is empty, the resources untouched. Growth is easy. Each improvement creates tools and time for the next one, and expansion snowballs.
But sooner or later, you reach the edge of the island. Everything is built on, everything is owned, every resource is claimed. There’s nowhere new to expand. Growth slows to a crawl.
That’s exactly where much of the world finds itself today. We live on a planet where land, water, energy, and raw materials are already spoken for. Whole economies hit a ceiling, eking out 1% growth at best. And yet the wealth of the richest still compounds at 4 or 5% a year.
So if the fortunes of the rich keep compounding at 5% a year, while whole economies crawl along between 1% and 3%, then we have to ask the obvious question: where is all that extra wealth coming from?
When Growth Hits Its Limits
It’s tempting to believe that when the rich get richer, it’s because they’re building something new — new factories, new technologies, new productive capacity for society. But in reality, that’s not how most great fortunes grow.
Once an economy hits its natural limits, there simply aren’t endless new opportunities to invest in. At that point, wealth keeps compounding in a different way: by cannibalising everyone else.
The rich can buy up existing assets. They can lend money and put others into debt. They can outbid the middle class for land, housing, farmland, and infrastructure. They can monopolise resources that used to be shared — not just physical assets like energy, food, or water, but even ownership of media platforms and the machinery of production itself.
On a finite planet, growth turns into a fight over who controls what already exists. And when that fight begins, the rich almost always win. Their wealth is simply too large, too fast-growing, too powerful. That’s what people mean when they talk about “late-stage capitalism”. Expansion has already happened. There’s no new frontier left to run to. Everything is owned. Which means the game changes: from growing together to fighting over the same limited pie.
And that’s exactly what we’re seeing now. The economy crawls along at 1%, but the fortunes of the wealthy keep surging at 5%. How? By eating your cake. By taking your assets. By squeezing everyone else out.
When the Middle Class Disappears
This is why the assets you hold today may not pass to your children — and almost certainly not to your grandchildren. Compound interest doesn’t just grow fortunes. Left unchecked, it eats away at the middle class.
Here’s how it shows up in real life. When the rich run out of new frontiers to invest in, they turn to buying existing assets. The first sign is rising prices: houses, land, stocks, gold, even collectibles like art or classic cars. At first glance, that looks like good news for the middle class. “My house price is going up — I’m getting richer”.
But it’s an illusion. What’s really happening is dispossession. Rising asset prices don’t mean you’re wealthier. They mean your class — ordinary working and middle-class families — is being priced out. The next generation won’t be able to buy in.
The wealth you hold today is being stripped away from your children and grandchildren, who will own less, live poorer, and face harder lives. Over decades, this dynamic hollows out entire societies. A shrinking middle class means collapsing demand, weaker growth, and declining living standards. We already see what that looks like: in Brazil, in South Africa, in India — places where wealth is concentrated at the top and ordinary people endure fragile, precarious lives.
And if you think it can’t happen in the so-called developed world, just look back a century. Charles Dickens described exactly that world: a society without a secure middle class. It happened before, and without change, it will happen again.
The Hard Truth
Compound interest feels like a ladder out of poverty for everyone. In reality, on a finite planet with stalled growth, it’s the mechanism the richest use to outbid you and your children for everything that matters.
Left unchecked, compound returns at the top don’t lift society — they eat the middle class and push the next generation into debt and poverty.
There’s only one way to end this: change the tax system.
Tax wealth, not work.
We must break the cycle of endless compounding to give society back a future.