The Best Financial Gift to Give a Kid is FREE
“It is crucial to understand that wealth flows from savings, not from income.”
– David Chilton, The Wealthy Barber Returns
What if the greatest financial gift you ever gave a child didn’t cost you a cent…but meant that they ended up with a nest egg of a million — or two — dollars?
If you’re the frugal sort, that should put a smile on your face
So what IS this great financial gift?
Why, advice, of course. Which is this:
If one starts to save regularly as a young person, then the amount of money that can be accumulated over a significant period of time is staggering.
For it’s not the amount of money a person earns that determines whether or not they will be wealthy; it is the amount of money the person sets aside that really matters. And the sooner they get started, the better.
Years ago, I read an excellent article in the Globe & Mail about the importance of teaching kids about how — and why — to start saving when they are young.
“Financial freedom occurs when a person’s investment income is greater than their monthly expenses. Many people who appear wealthy simply have high incomes but little or no net worth; they may also be in huge debt and not even close to financially free.”– Nancy Phillips, author of The Teen Steps to Success Guide, as quoted in the Globe & Mail article, “Parents of millennials, teach your children well,” by Gail Johnson, Jan 16, 2016
“Financial experts agree that teaching children about money early is vital, as early as 5 or 6, or at least well before they start using credit cards and apps,” said Johnson.
“Research has shown our belief system around money is set by age 7,” explained Phillips, “mostly from modeling the behaviour of those who raise us.”
Wow.
To illustrate the importance of starting young to save, here is an example by Nancy Phillips in her book, Steps to Success Teen Guide, 25 Financial and Life Success Lessons to Help You Achieve Your Dreams:
“Say you start investing $2000 a year at 19, then stop at 29 (so a total of 10 years) for a total investment of $22,000, while your brother starts putting aside $2000 a year at age 38 until he’s 60 (so 22 years for a total investment of $46,000). Assuming an annual return of 6.5%, you’ll have more than $231,000 in your portfolio by age 60, while your brother will have about $107,000.”
In other words, time is what is needed for compound interest to work its magic.
And money, of course. But surprisingly — and this is the beautiful part — not necessarily a lot of it. In fact…