Compound Interest: The Tool 19th-Century Factory Workers Did Not Have—and You Do

Albert Einstein, according to a quote he probably never said but that remains useful, called compound interest “the eighth wonder of the world.” What is true is that the principle behind it is one of the most powerful—and most underestimated—tools in personal finance.

What Compound Interest Is

Simple interest works like this: if you deposit 100,000 pesos at a 5% annual rate, after one year you have 105,000. The following year, you earn another 5,000 on the original 100,000. The same percentage, always applied to the same base.

Compound interest works differently. In the first year, you earn 5,000 in interest. In the second year, the 5% is calculated on 105,000 pesos, not on the original 100,000. That equals 5,250. In the third year, it is 5% on 110,250. And so on. Interest generates interest. Your money works for you.

Time Is Everything

This is where compound interest becomes transformative. The difference between starting at age 25 and starting at age 35 is not ten years—it is hundreds of millions of pesos.

A person who saves 20,000 pesos per month starting at age 25, with a 7% annual return, accumulates approximately 48 million pesos by age 55. Someone who starts at 35, with the same contribution and the same return, accumulates only 24 million. Half the amount—for waiting ten years.

Why 19th-Century Factory Workers Could Not Use It

Factory workers in the 19th century, those who built the mutual aid movement in the late 1800s, did not have access to formal savings instruments. They had no practical access to compound interest as a financial tool because they lacked accessible banking institutions, financial education, and income surpluses to invest. Their only option was organized solidarity: the mutual society.

Today, that barrier no longer exists. There are mutual funds with minimum investments as low as 5,000 Chilean pesos. There are automatic savings applications. There are voluntary savings accounts with tax benefits. Access to compound interest has never been more democratic.

Where to Start

There is no single answer, but there are shared principles: start, even with a small amount; make it automatic so it does not depend on willpower; choose low-cost instruments; and do not touch the money.

The power of compound interest does not require large sums. It requires time and consistency—two things available to anyone who starts today.