How to Help Kids Build Wealth
It is never too early to start kids saving. Children have one enormous advantage and that is time. Time is on their side in relation to adding to their savings, compounding their wealth and generally building financial stability for life.
Teaching your kids how to save and invest for the long-term is a wonderful gift any parent can give. As the Proverb goes, “give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.
For example, let’s look at helping a child from birth until they attain the age of 16. That’s 832 weeks of life or 5,824 days (not including leap years). Let’s also assume that when pocket money kicks in (making sure that the kids have things they have to do to earn the pocket money) it is $10 per week on the condition that at least $5 per week goes into savings. Start putting the $5 per week into a bank account from day one, then when your child reaches 16, at a minimum there will be $4,160. But wait, there’s more! Ask family and friends who may give birthday and Christmas gifts to your kids to make part of the gift $5 each time (ie, $10 per year) to add to savings. Then that’s an additional $160 per person who participates over the 16 years.
So, by the time your child reaches 16 years of age, with the interest on the savings, your child could have around $5,000 without much effort or hardship.
Although my wife and I didn’t start from birth saving with our son, we have insisted a portion of his pocket money and relatives’/friends’ cash gifts be put away in savings. This process has resulted in a year or so ago buying some shares in trust for my son. Through this process, he is learning about other investment as he must research some shares that I think would be good and tell me which one he wants to buy next and why. Involving your child in the process and letting them learn is how they will be able to continue to make decisions to build their wealth. The first shares purchased have recently shown capital growth and have also provided a steady dividend over the time he has held them.
Remember, keep some money in cash for those emergencies that crop up from time to time. An example of this is my son wanted a Macbook Air for his birthday which was fine as he had saved the money, however, part of the deal was that after buying his Mac he had to have an agreed amount left in his bank account to continue his wealth building.
It is our role as parents to ensure that our children have the greatest chance of success in life. Going to the best school you can afford and sending them to university means little if they do not understand the value of long term saving.
Setting a goal to always have some money left from whatever money you earn whether it be pocket money, odd jobs, part time job or whatever will ensure that your children learn sound financial skills that will last them a lifetime.
Please note, I am not a financial planner or advisor and the information here is general. You should seek independent financial advice from an appropriately qualified person where appropriate.