Who Created the Rule of 72? A Look at Its Origins

The Rule of 72 serves as a widely recognized financial heuristic, offering a simple method for estimating the time it takes for an investment to double in value. This practical guideline allows individuals to quickly gauge the potential growth of their savings or investments without complex calculations. Its enduring popularity stems from its straightforward application in various financial planning scenarios.

Understanding the Rule of 72

The Rule of 72 provides a quick approximation of the number of years required for an investment to double at a given annual rate of return. Investors apply this rule by dividing the number 72 by the annual interest rate. For example, an investment earning a 6% annual return would approximately double in 12 years (72 divided by 6). This simple calculation helps individuals understand the power of compounding interest over time.

The rule’s utility extends to various financial contexts beyond just investments. It can also estimate the doubling time for a population, the halving time for inflation’s purchasing power, or the impact of consistent fees on an investment. While an approximation, it offers a valuable mental shortcut for financial decision-making, providing a general sense of growth trajectory.

The Historical Attribution

The concept underlying the Rule of 72 has historical roots that trace back centuries, with the Italian mathematician Luca Pacioli most commonly associated with its earliest known appearance. While not explicitly termed “the Rule of 72” in his original writings, the principle for calculating doubling time was present. Financial mathematics flourished during the Renaissance, driven by the needs of merchants and burgeoning economies, leading to the development of practical tools for understanding interest, profit, and investment growth.

Pacioli’s work provided a foundational text for the commercial practices of his era, spreading knowledge of mathematical concepts that included compound interest. His contribution laid the groundwork for future financial calculations, even if the precise formulation of the Rule of 72 evolved over time. The rule’s simplicity and accuracy for common interest rates contributed to its eventual widespread adoption as a fundamental financial guideline.

Luca Pacioli’s Contribution

Luca Pacioli, often referred to as the “Father of Accounting,” published his seminal work, “Summa de Arithmetica, Geometria, Proportioni et Proportionalita” (Summary of Arithmetic, Geometry, Proportions and Proportionality), in 1494. This comprehensive treatise significantly influenced accounting practices. Within this extensive work, Pacioli presented a table that demonstrated how to calculate the doubling time of an investment.

Although he did not explicitly state it as a “rule,” the mathematical principle was clearly articulated. Pacioli’s publication played a crucial role in disseminating mathematical knowledge and commercial practices throughout Europe, making these financial concepts accessible to a wider audience. His work provided the intellectual lineage for the Rule of 72, cementing his place in its historical narrative.