Do you want to get your child’s attention and encourage them to save money? A little basic math will show them how they might become millionaires – if they start investing early.
Consider this hypothetical example: A teenager has a part-time job and puts $2,000 of her earnings into a Roth IRA every year starting at age 16 and ending at age 20. Then, she leaves that $8,000 total investment to compound for 47 years at an average rate of 10.7%. Even though no additional money is added to the account, at the end of 47 years the $8,000 investment grows to $1,114,423. Now, even though the average return may seem high, that is not the return the account earns every year but rather the average return earned over the 47 years. Of course results do not indicate past or future results of any investment.
The point of this simple example is to show kids how building wealth is not determined by luck (like all those losing lottery tickets out there), but by making regular, consistent investments, and by starting early. In fact, the power of time is the greatest advantage of our youth because it can help assets compound. Show your kids this example and then, as they receive gift money or begin earning their own money, encourage them to put away some of it. Getting them started early means they will take advantage of time to secure their financial future.