Yes, you read that correctly. Your child can in fact become a millionaire.
How? Well, we are glad you asked.
Let’s say you invest only $100.00 per month in low cost index funds for your 7 year old child until he or she turns 18. At age 18, assuming an annual rate of 10%, thanks to compound interest your total contributions of $13,200.00 would grow to $22,572.21... without doing any extra work!
Now, assuming that your 18 year old never contributes another penny into his or her investment account, at the age of retirement (let’s use age 60) he or she would have $1,217,802.29 !
Because of your due diligence and by investing just $100.00 per month for 11 years, your child would become a millionaire. This is the beauty of investing!
And don't worry, you can start at ANY age. But we know what you’re probably thinking... that seems too easy.
But it really is that simple. So where do you start? Below are four steps for you to get started TODAY.
1. OPEN AN INVESTMENT ACCOUNT
There are two main types of investment accounts that you can open for your child: a custodial brokerage account or a custodial Roth IRA account.
UGMA/UTMA
UGMA stands for Uniform Gifts to Minors Act, and UTMA stands for Uniform Transfers to Minors Act. These are laws that help set up these brokerage accounts for young ones. Think of a brokerage account like a piggy bank but on steroids, allowing you as parents to manage and invest money for your kids until they hit a certain age (usually 18 or 21, depending on the state).
These accounts allow your child to own pieces of companies (stocks), IOUs from the government (bonds), index funds, cash and insurance policies, while Uniform Transfer to Minors Act accounts, or UTMAs, allow minors to also hold additional assets such as real estate or fine art.
You can open a custodial brokerage account today with companies such as Fidelity, Vanguard, or Charles Swaab.
Roth IRA
A Roth IRA is a unique type of retirement account that allows your earnings to grow tax free. But what’s the catch? In order to open a custodial Roth IRA, your children must first have earned, verifiable income. If your child has earned income, you can open a custodial Roth IRA account for your child easily through the same companies listed above such as Fidelity, Vanguard, or Charles Swaab.
We detailed more benefits and the pros and cons of custodial Roth IRA accounts and UGMA/UTMA brokerage accounts in another article that you can check out here!
Hire your kids
There are multiple ways that your child can earn verifiable income to begin investing in a Roth IRA. Below are some examples of tasks that your child can do to earn income:
Dog walking
Babysitting
Selling lemonade
Car Washing
Yard Service
We even shared more ideas that your child or teen can do right now for less than $100.00 to start earning income.
However, if you are an entrepreneur and have a business, you can also hire your child (and reduce your tax liability) by outsourcing the following tasks to your child or teen:
Bookkeeping
Social media management
Web design
Filing
Document shredding
Clean rental properties
Other administrative tasks
Modeling for your marketing and advertising
Just keep in mind that you must pay them a fair and reasonable wage. In other words, you may not want to pay them $200.00 an hour for stapling papers.
2. BEGIN CONTRIBUTING FUNDS & INVESTING
Unfortunately, most people think that once you deposit funds into an investment account that the funds are automatically invested and that is NOT the case. Think of an investment account like a bucket - it simply holds your investments. After you transfer funds to your child's brokerage or Roth IRA, you must now select his or her investments, be it individual stocks, index funds, ETFs etc.
3. REAP THE BENEFITS OF COMPOUND INTEREST
Based on the above example and assuming a conservative 10% rate of return, your child could earn $1,217,802.29 at age 60 as a result of compound interest. But imagine if he or she decided to continue contributing even more of their income as they embark upon their professional career? They would have even more money!
4. TEACH THEM
Creating generational wealth first starts with knowledge.
Teaching your child the importance of investing EARLY is equally important and why the KidVestors App is the perfect resource to give your child or teen the knowledge to begin their investing journey.
Teach your kids how to invest in the stock market by enrolling them now and change your child’s financial future.
Don't worry, we discuss this in more detail in our free class, so if you still have questions, save your seat here and join us!
FINANCIAL EDUCATION & INVESTING FOR KIDS AND TEENS
FREE LIVE CLASS FOR PARENTS
Enroll your student in our financial literacy course and app here.
If your school or group is looking for a finance curriculum to teach your students about how to manage money, start here to learn more on how to bring KidVestors to your classrooms!
Parents, teach your kids money and make money conversations normal in your household by visiting here.