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Piggy Bank Blog: Parents Reaching Financial Big Goals For Their Children

Piggy Bank Blog: Parents Reaching Financial Big Goals For Their Children

It is no secret that investing money early will produce greater gains, on average, than starting later. But many parents wonder how early is early enough to make an impact?  Do you wait until your children are in their school years or start earlier?  The numbers speak for themselves showing the positive effects that take place when you start investing as soon as possible.

Below I have created a chart that shows the value of an ongoing investment, in six different amounts. Three ages have been selected to show the benefit of starting early, ages 1, 5 & 10. Also, this chart presents the future value based on different ongoing contribution amounts - $10/month, $25/month, $50/month, $100/month, and an increasing contribution starting at $25/month and increasing 5% per year (so $26.25/month in year 2), and lastly the future value of a lump-sum investment without additional contributions (meaning if you put away a one-time sum of money for your child and never add to it again). Its important to note that this chart assumes that the S&P 500 average return is achieved, which historically averages 7% annual return, after inflation.

Piggy Bank Blog: Parents Reaching Financial Big Goals | Parent Living Toddler Blog

What you will find through this chart is that the Total Gain, as a percentage of the Total Investment, is much greater when the time period of contributing is longer. Looking at the last scenario, where there is no ongoing contribution, the $1,000 left to grow for 17 years, more than triples, versus not only doubling if invested for 7 years under the age 10 scenario. In the scenarios where the monthly contribution is constant, the investment is nearly doubled (93% gain) when starting at age 1, versus only an increase of 36% over the period when starting at age 10.  Therefore, when planning for future financial stability for your children, there is no time like the present to get it started, even if they are only crawling. A few dollars a month can really add up to significant savings in the end that your little one will definitely appreciate. 

The future value of money left to grow over long periods of time isn’t limited to your child’s investment account, but should be considered for you as well. If $100/month is contributed for 30 years, the future value is over $120,000. At 37 years of growth and contributions, it is more than $200,000. Starting with a $1200/year contribution and increasing 5% per year, it takes under 23 years to reach $100,000. Although some of these contributions may seem out of reach, the earlier you can put away any amount of money for the future, the longer period it has to grow.

 

Read Part I of the Piggy Bank Blog Series: Teaching Kids Financial Freedom Starts as Home.

 

From an early age, Jared Sarnowski was passionate about money. How to make it? Where to spend it? When to save it? He started his first business venture at the age of 12 offering to mow the lawns of his neighbors in exchange for monetary compensation. Jared went on to graduate from Penn State with a degree in Finance and is currently a Construction Estimator. Jared resides in Jersey City, NJ with his wife Alexis, who arguably is even more financially savvy than him.

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