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“OK, so, don't quote me on this, Tom, but since Pop-Pop isn't available, I'll try to break down how this whole interest thing works.”
“Vertran, you're nine. I can't quote you in the newspaper without Dad's permission, and he's not giving it, so, just help me understand this.”
Vertran was the businessman brother of the newspaperman brother, and their grandmother, Mrs. Velma Stepforth, enjoyed watching these two serious young people breaking down real-world events as best a nine-year-old and 16-year-old can.
“So, there's like simple interest, and nobody uses it although it's easier to understand. If you give me $100, Tom, and I tell you I'll give you 20 percent interest on simple interest, I'll hand you back your $100 with 20 percent interest – $120.”
“But then there's compound interest, and that stuff compounds every day, but let's just pretend it only compounds every month. $20 a year divided by 12 months is basically $1.67 a month, so on simple interest I'm just adding $1.67 to your $100 a month, but no, it doesn't work like that. What I'm doing in the first month is adding your $1.67, and then calculating twenty percent interest per year on the $101.67 and giving you that in the second month, and that's about $1.70, and then I'm adding that to your $101.67 giving you $103.37 for the third month.”
“Whoa,” Tom said. “Wait a minute – that's going to be more than $120 at the end.”
“Yep, and like I said, it's not compounding every month, but that $20 is being divided out by 366 days this year and the interest is being added every day,” Vertran said.
Tom considered this.
“If you're in front of this, it's great, but if you're behind it, this is really bad,” he said.
“Which is why the richer get richer and the poor get poorer, because where you are on the either side of debt basically makes the difference,” Vertran said. “This is why all our relatives go to Pop-Pop for loans now and he takes care of them for simple interest, because if not, the banks are going to own all the stuff they do because of the interest they gotta pay on loans.”
“I see why Melvin our cousin doesn't even use credit cards for his business,” Tom said. “Everybody who's over 18 is getting all these cards, but sheesh, Vertran!”
“But the nice way of saying this is, I've been telling you that you need to get serious about Hive and get that HBD interest they have going on for the HBD savings and the interest on the Hive Power – learn how compound interest works on the good side for yourself.”
Mrs. Stepforth watched her two grandsons start looking at Tom's computer, and then went to find her husband, Thomas Stepforth Sr., who was just getting off the phone. Her mind went back … he had been born poor and Black in Lofton County, and so had she. His father, Theodore Stepforth, had shrewdly pulled his branch of the family out of poverty, and her father, Valiant Moore, had pulled hers out, but it was never so much that if civil rights had not at last come that they could not have been swiftly thrown back.
Understanding the need to get to the right side of compound interest so that his children and his children's children could never be thrown back … at last she understood it.
“Out of the mouths of our grandbabes,” he said when she shared with him, “but then, I never bothered to explain it, so how could you understand what I was doing and why? I never realized how much my mother did to keep the family budget together with my father, so it never occurred to me that you might have been interested in understanding. I should have been less sexist, and I'm sorry.”
“I didn't understand, Tom, and I'm sorry.”
They embraced in warm forgiveness.
“So how do you keep up with all that compounding in your head?” Mrs. Stepforth said.
“I don't – I have no idea what $1 divided by 366 days is, to say nothing of what I have up on interest. I do what I taught Vertran to do to check my statements every month, and my accountant team does the heavier calculations – once you get to a certain level, compound interest defies the mind.”
“Knowing that,” Mrs. Stepforth said, “you must see the whole question of the wealth gap ever being closed differently.”
“Well, I was raised by Theodore Stepforth so I always had quirky ideas about all that,” he said. “Pop didn't do stats about demographics because he always said, 'That don't make no difference. What God has for me gonna be mine. I ain't gotta be as rich as de white folks 'round here or anywhere – that don't matter. I'mma get all God has for me.' If you don't think of it that way, you will get discouraged when you consider what happens with compound interest when your group is centuries behind.”
“No need for all that – the universe is more abundant than compound interest will ever be,” Mrs. Stepforth said.
“I propose compound interest is the invention of people who are separated from really understanding what you and my dad do,” Mr. Stepforth said, “and this is their substitute, a type of constant growth manifested in money. But, like all wise people say around our newspaper man grandson, don't quote me on that!”