Benjamin Franklin’s Gift

 Yesterday while searching for a graph to illustrate how important time is to compound interest,I came across a wonderful post at http://www.crackerjackgreenback.com/the-basics/compound-interest-a-lesson-from-benjamin-franklin/ .Here it is in full below. 

In 1785, French mathematician Charles-Joseph Mathon de la Cour wrote a parody of Benjamin Franklin’s ‘Poor Richard’s Almanack’. The Frenchman called his parody ‘Fortunate Richard ‘and, attempting to mock the American optimism so well-represented by Franklin, wrote that Fortunate Richard left a small sum of money in his will to be used only after it had collected interest for 500 years.

Mr. Franklin thought the idea was fantastic and wrote back to Monsieur de la Cour thanking him. Franklin decided to leave a bequest of £1,000 (about $4,550 at the time of his death) each to his native hometown of Boston and adopted hometown of Philadelphia on the condition that it gather interest for 200 years. Franklin believed 200 years was the maximum length of time any person should be able to control assets from beyond the grave.

The Strings

In 1789, Benjamin Franklin added a codicil, or supplemental provision, to his will providing about $4,550 each (about $108,000 in 2008 dollars) to Boston and Philadelphia. Mr. Franklin stipulated that the funds should be used to make loans at 5% interest to young craftsmen under the age of 25 to help them set up their businesses. The loans were to be given only to those craftsmen who were married, had completed their apprenticeships, and could obtain two co-signers to vouch for them.

After 100 years, each city was to take 75% of the fund to use for public works (like bridges, pavement, public buildings, and the like). They were to then continue loaning the money for another 100 years. At the end of that 100 years, each city would get about 25% of the money and their respective states would get the rest. Had Boston and Philly followed through with Franklin’s wishes successfully, they would each have had nearly $20,000,000 in their funds at the end of the 200 years. Read more of this post