Economics · Level 2 · 130 words
The Quiet Power of Compounding
Original passage © Team AM, written for Hone Literacy.
Imagine planting a single coin that grows a little each year, and that the growth itself starts to grow. This is the heart of compound interest. In the first year, you earn a small amount on what you saved. In the second year, you earn money not only on your original savings but also on the interest from the first year. Each round builds on the last.
The surprise is how slow it feels at the start and how fast it becomes later. For a long time the pile barely seems to move. Then, almost without warning, it climbs steeply. People who begin saving early often end up far ahead of those who save more but begin late, because they give the process more time to fold gains upon gains.
Comprehension questions
1. What is the main idea of the passage?
- A Saving money is impossible for most people
- B Compound interest makes savings grow on earlier gains, rewarding time
- C Coins are a poor way to store money
- D Interest rates change every year
Show answer
B. Compound interest makes savings grow on earlier gains, rewarding time
The passage explains that interest is earned on both original savings and prior interest, and that time is the key advantage.
2. Why might an early saver beat a later saver who saves more?
- A Early savers earn higher interest rates
- B More time lets gains keep building on gains
- C Later savers always lose money
- D Banks favor younger customers
Show answer
B. More time lets gains keep building on gains
The text says beginning early gives 'the process more time to fold gains upon gains.'
3. In the passage, 'steeply' most nearly means
- A slowly and evenly
- B sharply and quickly upward
- C downward toward zero
- D in a flat line
Show answer
B. sharply and quickly upward
The pile 'climbs steeply' after a slow start, meaning a sharp, fast rise.
Source: Written for Hone Literacy. Original passage © Team AM, written for Hone Literacy.