Final answer:
The rule of 72 can be used to show that saving money in a savings account may not be the best way to save for retirement due to slower growth compared to other investment options.
Step-by-step explanation:
The rule of 72 can be used to convince a friend that putting money into a savings account is not the best way to save for retirement. The rule of 72 is a formula that can estimate the number of years it takes for an investment to double based on a given interest rate. It is calculated by dividing 72 by the interest rate.
For example, if your friend is earning a 1% annual interest rate on their savings account, using the rule of 72, it would take approximately 72 years for their money to double. This means that their savings will grow at a slower rate compared to other investment options.
On the other hand, if they were to invest their money in a well-diversified stock portfolio with an average annual return of 7%, using the rule of 72, their money would double in approximately 10 years. This demonstrates the power of compound interest and the potential for higher returns by investing in other options.