When our generation was growing up, we were taught about Social Security, and many of us had grandparents who were reasonably comfortable with a combination of their investment income and their government checks.
Today, not so much.
Personal savings will need to replace Social Security and pensions for our children if they want to retire at 65. The earlier they start saving and planning, the better their chances of reaching that goal. That’s because time is the most important word in the investment vocabulary of young people.
Parents can help their kids safeguard their retirement by putting the powerful force of compound interest to work for them as soon as possible. One of the most important things to teach your child is the value of savings. Parents should start saving for them until they begin earning their own money. Then, they should insist on having them save something from every dollar they earn. By the time they are out on their own, they should have learned this important habit.
Too many people grew up without any financial guidance. They never learned to save and instead used credit cards to get the things they wanted. They never learned to budget, and so they spent more than they earned. This generation of kids can learn from those mistakes. Parents should teach their children how to save and help them get started, so they can build a nest egg worth millions instead of thousands.
Here are some ways to get your kids started:
- Start at birth – Just $100 per month growing at 8% from birth will accumulate to $48,000 by the time the child reaches age 18. If they never save another penny from that time on, the $48,000 will grow to $1.7 million when they reach age 65..
- Pay yourself first – A minimum goal should be to save 10 percent of every dollar earned, from their first lawn mowing job on. Parents should insist on saving before spending.
- Parents, control your spending – Most parents today spend too much on gift giving. Start by taking half of what you have been spending on gifts (toys, games, etc.) and invest it in a mutual fund for your child.
- Gift registry – It is fairly common to get invited to a birthday or wedding and find the honoree has set up a gift registry at a store. Why not do the same thing with a mutual fund for your child? Encourage friends and relatives to contribute to the mutual fund account you’ve started instead of buying gifts for birthdays and holidays.
- The habit is more important than the amount – Contributing small amounts on a regular basis are a better strategy than waiting to accumulate a larger sum. Get in the habit of saving something regularly.
“It doesn’t take a lot to give your kids long-term security when you start early. Let the magic of compounded interest do most of the heavy lifting. Make sure you’ve taken care of your own finances, so you don’t become a burden to them in your senior years. Start early and save often.”
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