Hello!

So, you are planning to provide your child with some financial assistance in the years to come, to give them a good education or to help them purchase their first car or buy their first home etc?  The key here is to start saving early and buy good assets.

There are plenty of different assets that you can buy, e.g. cash, fixed interest investments, shares and property, however, for the purpose of this article, I wanted to concentrate on the first point and that is:  start saving early.  By starting now, you will be buying one of the most important and non-renewable assets of all, time.

Never underestimate the value of good old fashion saving and allowing the ‘magic’ of compound interest / returns over time to do the hard work for you.

When my wife was pregnant with our first child, naturally, like any good parent my mind raced towards how I was going to provide for this new life.  However, I didn’t want to just provide for my child, I wanted to teach them about money, about investing.

Teach a child in the way that he should go, and when he is old he will not depart from it”.  – Proverbs 22:6.

Before the birth of our first child, I had a reoccurring image in my head – the one where the little child looks up at their dad and asks the question, “Dad, what does ____ mean?

Like a child stacking blocks one on top of another, we naturally learn by building upon our prior knowledge, a reference point.  Babies have no reference point.  How was I going to explain something to someone who had no reference point?

Thankfully, it wasn’t has hard as I had imagined.

When our eldest daughter, Mia, was around 4 years old, she asked me the question, “Dad, what does investing mean?

Investing:  “to put (money) into financial schemes, shares, property, or a commercial venture with the expectation of achieving a profit”.  – Oxford dictionary

Knowing that she was not going to understand the above definition of investing, I told her that, “it was when money makes money”.

Thinking back on this and chewing on those words again, it makes sense.  The heart of investing is simply compound interest / returns, which is simply this:  interest that is paid on interest i.e. money making money.

You don’t need much to get going.  $5 invested on a weekly basis and earning just 4% pa, would be worth around $7,910 in 20 years’ time.  $10 invested on weekly basis, earning the same rate of return, would be worth around $15,820 over the same period and $20 invested under the same scenario would be worth around $31,640.

Have a look at a simple compound interest calculator on ASIC’s MoneySmart website.

So, why not start today?  To keep it simple, get started by:

  • establishing a high interest paying online bank account, offered by all the major banks;
  • directing a regular amount of money into this account via automatic direct debit, even if it’s just $5 per week; and
  • Stick to it and be consistent!

By the way, a few days after I had told Mia about investing, to see if what I had told her had stuck, I decided to ask her “what does investing mean?”  She thought for moment.  After a brief pause I said, “I’ll give you a clue… it starts with iii….”  She thought for a little longer and with a big smile on her face she answered, “IMPOSSIBLE!”  Hmmm, it looks like I have more teaching to do…

photo credit: <a href=”http://www.flickr.com/photos/8011986@N02/2707571409/”>Bill David Brooks</a> via <a href=”http://photopin.com”>photopin</a> <a href=”http://creativecommons.org/licenses/by-nc-nd/2.0/”>cc</a>
Sing Koay and ipac western australia are authorised representatives of Charter Financial Planning Limited (ABN ABN 35 002 976 294, AFSL 234665).  All information and advice given is general only and should not be relied upon as specific personal advice.  Please seek personal financial, tax or legal advice prior to acting on this information.
  • I’ve never made any investments as I’ve always been too scared of losing all my money

    Reply

  • it is worth doing this for your kids. even a little amount will add up into a nice sum of money one day for them even just to get a decent car or something

    Reply

  • Being money educated and money savvy is essential.

    Reply

  • There is now companies that special accounts and deals saving for childrens education. I can’t rememberr how much they expect you to invest on a regular basis. One company also promotes the chances of scholarships.
    Always seek professioanl advice besides the company offering it unless you are absolutely certain that is exactly what you want to do.

    Reply

  • Too late for me. I didn’t know any of these when my kids were little, I needed to read this about 30+ years ago to help me. Instead, I have a life insurance policy to help them when I’m gone, I hope it makes up a little for my slackness

    Reply

  • Good reading on what can be a dry topic.


    • I love reading about money and finance – it is a terrific thing!

    Reply

  • Really very good knowledge to know! Thanks for sharing this article!

    Reply

  • Great advice. We’ve already got a bank account going for our daughter (now eight) and make regular contributions.

    Reply

  • It is important to start this early.

    Reply

  • Good advice. Start young, keep up the momentum.

    Reply

  • Very interesting topic. Thanks for the advice and information.

    Reply

  • Good article and some interesting advice.

    Reply

  • The key is to start young, gets to be a habit, and one of the best ones.

    Reply

  • As well as transferring a regular but small ($10) amount every pay into an internet-access-only account, we also have a jar where we put all the coins from our purses and wallets each night. It’s amazing how quickly it adds up.

    Reply

  • Good advice, thanks for sharing.

    Reply

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