Forget the Piggy Bank, Here's How to Really Get Your Kid Saving Moneymandycheney
What can you buy for $25? A few drive-thru meals, movie tickets and popcorn, a new toy for your kids or eye cream perhaps? How about a jump-start to your child’s financial future or a portion of their college tuition? Those probably didn’t immediately come to mind.
Being a parent comes with an overwhelming list of responsibilities. It’s a juggling act. We are all juggling different balls and dealing with distinct circumstances. But I think we all feel the weight of our responsibility and do the very best we can. A big part of that responsibility revolves around money.
I’m number 5 of 6 kids. When I graduated from High School, I desperately wanted to go to college. I had big dreams. I wanted Lobster Tail with a shrimp cocktail budget. There was no money for college and I didn’t qualify for grants or loans at the time. I needed the cash. So college was put on hold until I had enough to get started. I finally saved enough to enroll and then worked 2 jobs along side a full load of classes. I’m not complaining, but a jump start (a little extra cash) and financial knowledge would have made that transition easier. Why wasn’t I taught more about finances in all those years of school (or why didn’t I pay closer attention)? I’ll admit, I knew very little.
My husband, on the other hand, learned early on about saving money and investing it. He worked hard, stashed away what he had and let it grow. When it was time for him to go to college, he transitioned quite easily. The money was there, thanks to time and compound interest. Putting a little away each month and letting the interest compound was his saving grace.
So, now I have young kids and I’m very interested in their financial future. And I’m especially interested in their knowing more than I did. Ahhhh, to be responsible and have money for them to go to college! Not easy to do these days. But it can be done!
There’s no right way to do it, and there’s lots of options, and different opinions about each. So, here’s one way to help save up some money for your little ones…
1. Instead of a piggy bank, open up a brokerage account (using ETRADE or a professional such as Charles Schwab) for your child. That’s not a bank account, it’s an investment account. When they get extra money from Grandma, put it in their “account” and show them how it can grow. Choose stocks you think they would be interested in and keep them involved every step of the way. Teach them what you are doing. And don’t be intimidated by stocks, bonds and fancy Wall Street mumbo-jumbo! Now is a good time to talk about stocks and investing, since Facebook just announced they’re filing to go public with an IPO (Initial Public Offering) later in 2012. What does that mean? It means you can have ownership in the company. Hey, I use Facebook, so this interests me. Also the fact that this is estimated to be the largest IPO EVER raises an eyebrow. Thought Google was big? Think again.
2. Learn about compound interest. Let’s say your child is 5 years old. And let’s also say that you decide to put $25 a month away for that child, so it can grow. When they are 18 years old, they will have approximately $9,000 (based on the average rate of return of 10%). If you put $100 away a month, it would grow to approximately $37,000 by the time they’re 18. Click here for a compound interest calculator. It’s a lot easier to come up with a small sum of money each month than scramble for $37,000 all at once.
3. Decide how much you can put away each month and set up an auto draft so you don’t even see that money.
4. Let it grow. You know, trees need water, sunlight and time. So does our financial future. Invest a little here and there and let that money tree grow.
Now, I’m just scratching the surface here. If you’d like to learn more about the benefits of teaching your children to invest and getting them started early, this website is very helpful.
Are you currently saving money for your kids future? What are your plans for them?