Benjamin Franklin’s Experiment with Compound Interest Will Astound You

Benjamin Franklin died in 1790, however one year earlier he left the equivalent of $4,400 each to the cities of Boston and Philadelphia in his will, under the condition that the money be loaned and invested to young apprentises that had proven worthy of a loan. He stipulated that the cities would have access to a portion of the funds after 100 years and receive the remaining funds after 200 years. When the cities received their balances after 200 years, the combined bequest had grown to $6.5 million! Yes, $6.5 million… astounding.

This experiment, which is outlined below by Eddie Thompson, and Walt Walker, shows the power of compound interest and the incredible optimism Franklin had for his newly formed country. To capture the magic of compound interest, Money Mastery’s online software (go here for details) has been designed to show an individual exactly how they will remain a slave to debt their whole life or become a millionaire.  Do yourself a favor and take the following introduction to compound interest and personally apply it to your life. Remember…

Those who understand compound interest, earn it. Those who do not, pay it.


REVIEW OF THE MOST OPTIMISTIC STATESMAN IN UNITED STATES HISTORY

(Source: Benjamin Franklin Institute of Technology, Codicil to Benjamin Franklin’s Will, Eddie Thompson & Walt Walker)

In 1785 a French mathematician named Charles Joseph Mathon de la Cour wrote a parody of Benjamin Franklin’s “Poor Richard’s Almanac” in which he mocked the unbearable spirit of American optimism represented by Franklin. The Frenchman fictionalized about “Fortunate Richard” leaving a small sum of money in his will to be used only after it had collected interest for 500 years.

Franklin, who was 79 at the time, wrote back to de la Cour, thanking him for the great idea and telling him that he had decided to leave a bequest to his native Boston and his adopted Philadelphia24773043 (b:w) of 1,000 pounds to each, on the condition that it be placed in a fund that would gather interest and support the public good for the succeeding 200 years.

Franklin’s optimism was not an easy optimism to embrace. Since no nation in the modern world had ever attempted what the American colonies had set out to do, it was appropriately called the “American Experiment.” The future of the new nation was tenuous at best, and no one knew that better than Franklin. Walking out of the Constitutional Convention in 1787, Benjamin Franklin was asked, “What kind of government did you give us?” Franklin replied, “A republic if you can keep it.”

Notwithstanding the perils that lay ahead, Franklin’s irrepressible optimism enabled him to see past the innumerable needs of the moment and uncertainty of the future. Two years later in 1789 he wrote a codicil to his will that provided funds to establish the 200-year endowment.

 

Seeds of Optimism

Benjamin Franklin’s will and codicil are extraordinary documents in the history of endowments. Franklin did not invent the endowment, but true to form, the clever and irrepressibly creative Franklin could not resist tinkering with an idea in order to improve it. In the 1789 codicil to his will, he donated 1,000 pounds to the inhabitants of his native Boston and another 1,000 pounds to his adopted Philadelphia. The condition of the gift to each city was that it be placed in a fund that would gather interest and serve a designated purpose for a period of 200 years.

The purpose of his gift, as with many such gifts, related to his own experience. The young Franklin received his professional training as a printer’s apprentice and got his start in business with a loan from two friends. In the codicil he noted, “(That loan) was the foundation of my fortune and all the utility in life that may be ascribed to me.” So then, it is not surprising that the purpose of his endowment was to help young apprentices.

In 1894, at the end of the first 100 years, the Boston fund had been used as instructed [to aid apprentices] and had grown to 131,000 pounds ($391,000). In the following century the bulk of the proceeds were used to fund public works in Boston. In 1905, $322,490 was used to establish the Franklin Union, a technical school. The remainder of the funds continued to be loaned out for apprentice programs and scholarships.

In 1990, the end of the second century, Franklin’s Boston endowment was worth more than $5,000,000 and the Philadelphia fund about half that. In both cities Franklin’s endowment has been used to help thousands of young people and has served as an enduring testament to philanthropy and community service.