How a Happy Meal Can Cost You Half a Million Dollars

Many of us don't spend much time thinking about retirement planning. We figure that it's something that will happen "one day" in the future, or that it might never happen at all. If you are young, you swear you're never going to get old. If you are old, you swear you're not going to get older. If you're old, you still think you're young, and so on.

But the fact is that you are going to get old. Your back is going to hurt, your medicine cabinet is going to look like a pharmacy, you'll enter into that long second life called "retirement." The only thing worse than being old and sick is to be old, sick and broke. That's where savings comes into play.

One of the things about saving that financial "gurus" usually understand is the magic of compound interest. You see, your money is actually ALIVE. It's as alive as you, your dog or the potted plant in the room. The reason I can say that it's alive is because when you save and invest that money, it's going to be growing. The formulas used to measure the growth of money are not much different from the ones used by the Center for Disease Control to measure growth of bacteria or farm animals. So, as I said before, your money is alive.

Understanding the value of compound interest can not only help you understand why you need to start investing while you're young, but it also helps you to understand why your money grows faster than you think.

Let's use a Happy Meal as an example. The average price of a Happy Meal at McDonald's is about $2.50. Now, assume that you are 25 years old, and you buy a Happy Meal 5 days per week, every week until retirement (without the price changing, which is unrealistic). That is $12.50 per week, or $50 per month that could be put into your retirement account. If someone were to ask you how much money you've lost over time by purchasing a Happy Meal every day, you might be tempted to multiply $50 dollars per month times 480 months (40 years) and say, "$24,000 dollars." WRONG.

Actually, given that your money is alive when invested, you could have taken that money and put it into a diversified stock portfolio, allowing the money to grow. The growth would have likely occurred at the long-term annual growth rate of the stock market, which is 11% per year. That means that the $24,000 dollars you spent on Happy Meals could have become over $450,000, or nearly half a million bucks. That's how skipping just $2.50 per day on spending can add several hundred thousand dollars to your retirement.

Does the Happy Meal taste so good now? I thought not. Simple facts like this remind us why African Americans must not be strict consumers. We also need to be investors, so that our money can come to life. The next time you take your kids to McDonald's, you should think about this article; it might reduce your appetite.

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Dr. Boyce Watkins is a Finance Professor at Syracuse University and author of "Black American Money." To have Dr. Boyce commentary delivered to your email, please click here.