How To Help Your Kids Build Wealth (how about millions)
It might sound silly but, it’s never to early to teach your kids about the responsibility of saving money. If you don’t teach them who will? This blog will introduce some basic saving concepts for you to implement with your children and set a foundation for setting aside money for the future. It’s a guide for you to help make them self-sufficient at savings and turn them into self-made millionaires. The greatest gift you can give your kids (other than love) is education. Taking the time to explain how money works will help them have a greater appreciation of how it is earned and why it’s important.
Since you’ve read this far let’s establish a little background. Helping save for your kids only makes sense if you have saved for yourself and your finances are stable and secure. Let’s dive into the 1st steps of building wealth for our kids!
How To Save Money
Before we grow the money children need to save and EARN it. Here are some simple growth building ideas and reward building:
- An academic achievement like good grades
- Birthday gifts
- Christmas presents
- Valentine’s day
- Chores
- Personal rewards
- Side jobs, mowing, babysitting, local pool, pet sitting
- Relatives can gift stocks or cash as well for any of these occasions
While gifts are important for special occasions cash or stock purchases are always top of mind. It can range from a $20 stock to a $100 stock. Anywhere is a good start as long as it’s something rather than nothing. Even if you give them cash for any of these – teach them to hold back 25% or $5.00 for every $20.00 into a savings or investment account. This is where the responsibility of saving comes into play – teach them early! Show them the daily, monthly, or quarterly growth in their account. You actually need to open them a bank account or investment account so the money doesn’t get spent on toys, the mall, or at the convenience store – this is real money that won’t be touched. It is a great accomplishment for them to see their hard work and discipline paying off.
Picking Stocks
I found my kids got excited about investing and were more engaged when I asked them for their input. I let them pick their own companies they know, like and understand. Get them involved with the companies backgrounds and CEO names that are common. Make it a game, these people are in the news almost daily like Tim Cook and Jeff Bezos, on magazine covers, and giving interviews. Some of my kids’ favorite stocks are Apple, Starbucks, Amazon, and Microsoft. These are a decade and lifetime/long-term stocks that aren’t going anywhere and growing. Ask them what the best 3 companies are in America and why they think that. See what they say! If they don’t know of any you can always help guide them into companies they know and love like Disney, Netflix, Apple. *It’s also super important you pick stocks that pay dividends – this is the fast track to wealth over time. If you’re not comfortable picking individual stocks, take a look at a mutual fund like VFIAX or something similar that gives a broad approach to investing in the S&P 500 or your financial advisor can also help guide you. There are custodial and educational accounts you can also choose from (you’ll need to do some additional research on your goals and best options)
Children have the luxury of time on their side with “compounding interest”
What Is Compound Interest? Compound interest (or compounding interest) is interest calculated on the initial principal, which also includes all of the accumulated interest of previous periods of a deposit or loan. Compound interest can be thought of as “interest on interest,” and will make a sum grow at a faster rate than simple interest, which is calculated only on the principal amount. https://www.investopedia.com/terms/c/compoundinterest.asp
Keep it Simple
“When it comes to stock-market investments, it’s all about dividends and stock-market returns. That is, if you keep reinvesting your dividends and your gains, those dividends and gains will help to buy more shares, which will produce more dividends and gains, and on it goes. The magic of compounding at work! Most brokerage accounts make it very easy to reinvest dividends. But, to make this work in the stock market, you have to invest for the long-term” term. https://www.nerdwallet.com/community/t/stock-compound-interest/26727
Real Numbers
With a balance of $10,000 at the age of 10 (the importance of setting aside money early) and a monthly contribution of $100 until the age of 21, the balance would grow to $46,000 at an average rate of return of 9%. If from age 21 to 60 no additional money was invested the money would have grown to $1,325,000 by the power of compounding interest in the stock market. Now imagine some 401k investments and additional savings along the way. This amount will easily exceed several million over time and with a good sound investment strategy.
The original amount invested was $23,200 – that’s something to get excited about! The earlier you start educating them and helping them save the better financial future and freedom they will have. Imagine them becoming a young adult just graduating college or developing a specialized skill with a salary of $50,000 or even $100,000 with the tools they’ve learned from you over the last decade – you just created a future multi-millionaire to be responsible with their money. Here is a kids YouTube channel I recommend to start getting the kids involved. Learn about Stocks, Finance, building a Successful Business and Advice from Warren Buffett. https://www.youtube.com/user/SecretMillionaires
As with anything seek professional advice for the best account products for a minor account, saving each month and how to ultimately pass this account into your child’s name. I’m not a financial advisor, hold no financial license, and your own research should be done before picking individual stocks.
Written By: Steve Head / Top Producing Loan Officer
