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Saving For Kids
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It is important for children to understand the power of making money work for itself, compounding.
Compounding happens when you invest money and allow it to continuously reinvest itself. Any interest you make you leave invested so that it adds to the value of your money.
The power of compounding
In an 18-hole golf game, if you bet just ten cents on the first hole and double your bet every hole thereafter, by the time you reach the last hole it would be worth $13,107.20
This is a brilliant example of compounding, and a good way for your child to understand how they can make money with the money they have already got.
This will make them excited, and enthusiastic about saving.
But saving is a long process, and they might get distracted from the big pay out at the end, and settle for the smaller pay out.
Saving for kids, with the Three buckets
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Security Bucket
This bucket is for low-risk investments. The growth rate on these investments seems slow at first but compounds over time. What goes into this bucket should stay here – allow the profits to be reinvested. Growth Bucket This bucket is for higher-risk investments with more potential for growth, such as stocks. Reinvest one- third of the profits in your security bucket, one-thirds in your growth buckets, and one-third in your dream bucket. Dream Bucket This is the place to have fun and save for the things that you want now in your life or something a bit bigger. This bucket lets you start building toward your dreams and making them come true. |
By doing this with your child at a young age you will help them grow into educated adults with in the area of money.
Have fun with the stock market, do a pretend run first.
You both can look at some shares in different companies, your child might want to invest in chocolate, don’t discourage them!
Look at how that industry is doing in the market and explain things clearly to them, so that they can decide if they still want to buy into that company.
At this point no money has been used. Then the fun begins, place your bets and make a table so that each week you can see how well or badly you are doing.
If at any point one of you decides that they would pull money out of a company, still keep track of those company’s, so that your child can see that company’s values goes up and down, and that they might have made the wrong choice.
This is the highest form of return on money.
And the richest man in the world at the moment made his Billions from shares.
Saving For Kids Better Future. Good Luck!
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