Difference in amount of personal wealth

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Reference no: EM131928880

After you studied finance, you realized that there would be significant difference of wealth accumulation even if people receive the same salary.

What would be the difference of personal wealth after 50 years between the two persons who are both 20 years old now, receive exactly the same income but with a slightly different saving habits. Annual return on investment is assumed to be 7.1%, and monthly compounding is assumed.

(A) Receives good income, but tends to spend more than s/he earns by using credit cards, thus cannot afford to set aside any money. Thus (A) cannot afford to put down-payment on a house, and became 70 with no saving.

(B) Receives the same good income, but developed a habit of setting aside $500 every month, even at the expense of looking humble. With the parameters specified above, (B) will accumulate some personal wealth at the age of 70.

What would be the difference in the amount of personal wealth between (A) and (B) after 50 years, while both receive the same salary?

Hint: Difference would be (B) - (A) at 50 years later, and you can assume (A) = 0. You will be (A) or (B) in your life, and your neighbor will be the other. It is up to you to study finance to protect yourself or complain others for a better life.

$1,815, 770

$2,625,275

$2,186,701

$1,479, 555

$2,826,848

$3,681,565

$3,001,889

$1,102,998

$2,423,669

Reference no: EM131928880

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