Social Compound Interest: What Snowballs Can Teach Us About Criminal Justice

Compound interest has been called “the most powerful force in the universe,” a quote often misattributed to Albert Einstein. While he probably never said it, the idea has stuck around for good reason. The core idea—interest earned on top of interest—is familiar on Wall Street, but it also holds profound relevance beyond the world of finance. In a criminal justice context, compound interest explains how small, early investments can yield massive returns in public safety.

The Snowball Effect

Famed investor Warren Buffett describes compound interest as a snowball. As it rolls downhill, the snowball not only gets larger, it also gains momentum. Given enough time, a small initial investment can snowball into a fortune—a $100 stake in Buffett’s firm purchased in 1965 would be worth $5.5 million today.

Smart criminal justice requires the same long-term mindset. Investing in arrest alternatives for youth boosts their social capital—the networks of relationships, resources, and institutions that produce thriving societies. Like money in an index fund, social capital compounds, generating “social compound interest,” a virtuous cycle that produces disproportionate returns over time. As with financial capital, patience is required. But given a long enough horizon, every dollar invested in evidence-based youth programs like drug courts, cognitive behavioral therapy, and functional family therapy produces up to $50 in benefits down the line.

Human Capital Gains

Popularized in the 1990s with the publication of Robert Putnam’s “Bowling Alone: The Collapse and Revival of American Community,” social capital theory draws on a rich intellectual lineage. Social compound interest takes this idea one step further, reframing social capital as a process of exponential change that occurs on both the micro and macro levels. Not only does this process benefit individual human beings, it also benefits society as a whole by turning future tax burdens into future taxpayers.

But here’s the catch: The power of compounding only works when starting early. Time is the key ingredient, because compound interest doesn’t add value linearly—it multiplies it exponentially. For example, even though Buffett purchased his first stock at age 11, 98 percent of his wealth accumulated after he turned 65. If we want similar success, we must invest in youth while they’re still young, before the benefits of rehabilitation begin to fade.

The High Cost of Being Late

All of life’s most significant returns come from compound interest. Anyone who has nurtured a long-term friendship, gotten in shape, or attained an education has experienced this firsthand. A college degree is far more valuable at age 22 than age 52 because knowledge compounds on itself. Each new skill and experience builds upon the foundation laid before, opening up even better opportunities in the future. Like a snowball gathering speed, these nonlinear network effects amplify the benefits of any intervention, even if the short-term effect is too small to notice.

Unfortunately, rather than investing early, we spend most of our justice dollars after the damage is already done. Once a young person becomes entrenched in the justice system, they are much more likely to be convicted of a crime as an adult. Despite billions in federal grants to states, adult recidivism rates in the United States remain stubbornly high. Two-thirds of prisoners are rearrested within three years, and over 80 percent are rearrested within 10 years. These figures have barely budged since the 1970s, suggesting that we still don’t know how to reliably rehabilitate habitual adult offenders.

Thankfully, the literature on juvenile justice interventions is far more promising. Young people have higher neuroplasticity and are more psychologically malleable, making rehabilitation more effective. The prefrontal cortex—responsible for decisions and impulse control—develops rapidly during adolescence. While this makes teens more susceptible to negative influences, it also makes them more responsive to behavioral interventions. For example, when Florida started using civil citations to refer young people to community support in lieu of arrests, juvenile delinquency rates fell. In 2023, only 4 percent of participating youth reoffended within 12 months—a significantly lower rate than those who were formally arrested and charged.

Conclusion

On Wall Street, it’s better to buy early than late. At the doctor’s office, it’s better to catch a problem sooner than later. The same is true in public policy. Every young person ensnared by the system represents direct costs related to prosecution and incarceration as well as the opportunity cost of a life not lived to its fullest. This puts criminal justice policy is at a crossroads: We can continue pouring resources into adult programming that doesn’t work that well, or we can reallocate those funds to youth programs that take advantage of social compound interest.

It’s time to get the snowball rolling.