If you teach your kids any financial literacy, start with explaining how compound interest works
Young Australians possess something even billionaire Warren Buffett can't buy when it comes to building wealth – but most aren't being taught how to use it, writes finance expert Noel Whittaker.
People are always asking why financial literacy isn’t taught in schools. The usual excuse is that the syllabus is too crowded – yet demand is overwhelming. A survey by Ecstra Foundation found 98 per cent of parents, 95 per cent of teachers and 93 per cent of students want it included.
Maths and physics are important, but financial literacy doesn’t need a semester. I could teach the basics in an hour. Once you’ve got the principles, applying them is simply a matter of staying on course.
This is what I’d say to a class of high school students if given the chance. Welcome to the world of financial independence. Right now you own something Warren Buffett, for all his billions, can never buy: time. Time is your secret weapon. It lets you harness the magic of compound interest, the most powerful wealth-building force, available the moment you start investing.
So how does it work? Compounding means you make an investment, and you don’t spend the earnings – you keep them with the original money, reinvesting them both. Each year your capital base grows, producing even more earnings the next year. Eventually your money is working harder than you ever could, earning interest on interest until it snowballs beyond imagination. That’s the point where money starts working for you, not the other way around.
Think about Kerry and Alex, both aged 15. Kerry gets the message and immediately starts investing $2,000 a year into an index fund, continuing until the age of 30 before stopping to buy a house. Alex delays until 30, then invests $2,000 a year without fail right through to 65.
Who’s better off at 65, with a 9 per cent return? The surprise winner is Kerry, who invested just $30,000 and finished with $1.2 million. Alex contributed more than twice as much – $70,000 – but ended up with only $430,000. That’s the magic of starting early and letting time do the work. So let me ask you: who would you rather be?
Before you can invest, you need to earn. One of the best moves is to get a part-time job early. When you earn your own money, you learn independence, responsibility, and discipline. You discover how to turn up on time, serve customers, and be relied on. You realise money doesn’t just appear — it’s exchanged for effort and skill. The earlier you learn this, the better prepared you’ll be.
Most people who become financially secure follow one golden rule: never spend more than you earn; always save a little. It sounds simple, but the habit is what matters. At first it’s not how much you save, but the discipline of saving something. Habits compound just like money, and over time the saver always beats the spender. That’s why buy-now, pay-later schemes are so dangerous: they mortgage tomorrow’s income for today’s wants. Do you really want to trade your future for something you don’t need right now?
The next principle is to set goals. Without them, it’s easy to drift through life. When you write goals down, you turn vague wishes into concrete plans. Goals give direction, motivation, and purpose. They keep you on track when distractions come, and remind you why you’re putting money aside — whether it’s saving for something special, building a business, or investing.
It doesn’t matter if you’re 15 or 55, there’s always something new to learn. The more skills you gain, the more valuable you become. Your income is the engine that drives wealth. Compounding is powerful, but it’s your ability to earn — and to keep increasing your earnings — that fuels everything else.
So here’s my message to you: first, never spend more than you earn; second, save something from every dollar; third, start investing young and use your greatest asset – time – to make compounding work for you; and fourth, keep learning. Do those four things, and money will give you freedom, security and choice for life.
