People who start investing in their 40s wish they had started in their 30s. And those who did start in their 30s, wish they started in their 20s. The longer timeframe you create to contribute a portion of your income to investments, the more it will be worth when you need it. The power of compound interest will grow your wealth exponentially. So, giving your nest egg 40 years to grow instead of 25 can often add hundreds of thousands of extra dollars. When you start a family, one of your first thoughts is probably “How can I afford this?” You’re not alone. Raising children is an expensive task, no matter how you slice it.
Investing for your kids isn’t only about stashing money aside, though. It’s about giving them a small step up and teaching important financial literacy lessons. Even if you’re not investing for your kids' retirement, you can be investing for things like their college education.
On average, the stock market posts an annual return of over 10%. That adds up in a big way. Let’s take a look at some numbers. Suppose you contribute $1,000 a year to an EFT, index fund, or mutual fund on behalf of your child. After 10 years you'll have $15,937; after 20 years it will be $57,275; in 50 years you will have $1,163,908.
Regularly investing is an important piece of financial literacy that your child can make a part of their life forever.
You can teach this lesson without an investment account. For example, every time your child gets some money for their birthday or Christmas (or whatever), have a brief talk with them about it. Let’s say they get $50 from a grandparent on their birthday. The average 8-year-old will want to spend it immediately — probably on cheap plastic toys or junk food. We have a better suggestion.