If you’re a parent, chances are you spend a great deal of time and energy trying to do the best for your kids. From making sure they eat well (forgiving the odd chicken nugget), to prising them away from the TV long enough to do some homework, we do our best in the hope that it will give them a solid foundation and the best possible head-start in life.
One area where we could all do more to help our children’s futures is with their finances.
These days, saving for our kids’ futures makes good financial sense. Like it or not, the ‘Bank of Mum & Dad’ now funds more than a quarter (26%) of all home purchases in the UK, according to the Centre for Economics and Business Research. So, it’s worth thinking about where the money would come from, if you were asked for help.
Even if you’re not in a position to start saving and investing for them now, evidence shows that simple things like giving them regular pocket money and talking with them about finances will benefit them later. A survey from ING Bank found that 55% of people who received pocket money when they were children regularly added to their savings as adults.
One thing’s for sure, if you do intend to put money aside for your kids, the sooner you start, the better, as you’ll enjoy more of the boosting effects of compound returns on your balance.
At Wealthify we’ve done the maths and found that just by putting aside a modest amount regularly from the time they’re born, it’s possible not only to give your kids a significant financial leg-up when they’re 18, but even for them to become millionaires in their sixties.
It’s not as fanciful as it sounds. In fact, all it takes is a commitment to regularly saving, the ability to pass the skill on to your kids, and a little help from the effects of compound returns.
Making of a Millionaire Toddler
Starting with an initial investment of £250 soon after the kids are born and adding £100 every month until they’re 20 could grow the savings to around £53,500, assuming 7% average annual growth.
Not a bad deposit contribution to help them onto the housing ladder, but still a way off the golden £1 million. To realise the magic seven-figure sum, the urge to spend must be resisted, and you, or they need to keep adding those £100 monthly deposits. This is where the good regular savings habits you taught them will come in handy, because the contributions need to keep going for another 40 years, until they reach 60!
By then, assuming the 7% average annual growth rate continues, the £250 initial investment with £100 monthly contributions made diligently for 60 years would give them a pot of around £1.07m – the magic number!
If their retirement age is nearer 70, their pot would have grown to a staggering £2.3m!
Whether it’s for a helping hand onto the housing ladder, assistance with university fees, or a sizeable retirement fund – starting an investment plan and teaching them the value of regular saving could be one of the most effective things you do as a parent to give them a head-start in life.
Investments can go down in value and you could receive back less than invested. The projected growth figures are for illustrative purposes, and are not guaranteed.
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The comments and opinions expressed in this article are the author's own and should not be taken as financial advice from Wealthify.