In a world where kids graduate high school with complex knowledge of molecules and algebra but don’t know how to balance a checkbook, how do you get your kids interested in saving and investing?

I’m sharing our journey to compound their interest so that we can raise financially savvy kids that are actually interested in properly managing money.

Why investing?

A survey conducted this year by Bankrate found that only 23 percent of those aged 18 to 37 say that the stock market is the best place to put money they won’t need for 10 years or more.

Additionally, 30 percent of millennials would choose cash over other methods of saving/investing.

This is a significant shift from older generations that prefer the market: 33 percent of Gen X and 38 percent of baby boomers say they prefer investing over other methods of saving.

Cash is a lousy solution as inflation devalues itself at 2-3% per year. You will never be able to achieve the compounding necessary to build a retirement nest egg. 41 percent of millennials have no retirement savings, and just a quarter feel as if their savings are on track for a secure retirement.

These numbers are truly alarming and we are working to instill a passion for investing for our kids at a very early age.

Wait a minute! Aren’t stocks risky and millenials have good reason to be weary after living through the financial crisis?

Over the past 90 years, the average annual return for the S&P 500 is over 9 percent.
According to Standard and Poor’s, the average annualized return of the S&P 500 from 1926 to 2010 was 12.01%. At 12%, you could double your initial investment every six years.

This is huge! We’ll show through the power of compounding and low/no fees how if you start early enough you can easily amass a small fortune.

But wait, can pre-schoolers really understand enough to start?

It’s never too early to start!

In fact, the earlier the better.  Continuing reading to find out how we started with our kids!

Want to get a sense of what kind of returns you can expect through diversification, compounding, regular contributions and low/no fees?

Using this periodic investment S&P 500 calculator I can easily give a real world example.

Let’s say you invested an initial $1000 dollars into the S&P 500 when your child was born in September 1998 and then continued to invest $100 per month or $1200 per year for the next 20 years. We are now in September of 2018 and your child is 20. How much do you think you have in the account?

Just over $64,000. If you put it all into a bank account you would only have $25,000. You have 156% more now because you invested!

Now to show the power of compounding and starting early enough: what if we kept the same initial starting amount and monthly contributions but we started 10 years earlier, in 1988?

Over $185,000. If you put it all into a bank account you would only have $37,000 and because your money was not keeping up with inflation you actually have less every day that passes by. Instead you invested and have 400% more!

One more: what if we kept the same initial starting amount and monthly contributions but we started 10 years earlier, in 1978?

Over $645,000 and 1,216% more than contributing the same amount to a bank account which would result in only $49,000. These numbers are incredible when you think it is only $100 per month contributed the entire time. Surely as you get older and start making more money this amount could be increased, but this proves the point that the returns are incredible even at only $100.

But can a child really learn & understand investing?

Depending on the age of the child you can obviously teach more or less but even my 3-year old can easily explain why you diversify and not put all your eggs in one basket. They’ve lived through Toys R Us and can explain how you would lose all the money you invested if you only bought one company and they went bankrupt.

At this age it’s all about getting them excited about it and to understand the key themes: diversificationcompoundingregular contributions and low/no fees.

Kids soak up everything, including the names of the stores they walk into and the branding on the side of a construction bulldozer. We have just the app that honors the 4 key pillars and lets even the youngest understand where their money is going.  Read how we launched this initiative with our kids!

Ready to get started?

I’ll share our entire program, the progress we’re making and how we rolled out to our kids going forward. But, if you are ready to skip ahead and get started now – go open an account at M1 Finance. It will be the easiest and best thing you’ve ever done. Note: signing up through this link will give you $10 to get started! We will give you our honest opinion and full review of M1 Finance but here’s the quick rundown:

  • No fees from M1 Finance
  • Fractional share investing. This is very important. This means that if you only have $10 to invest this week it will still be invested! You don’t have to wait until you have a couple $100 to buy 1 share of Apple stock, it will buy just a portion of one share. This means that out of your $10, 5 cents could be invested in Boeing and 10 cents in Caterpillar. This puts all your money to use and allows it to compound quicker!
  • Automated contributions/investing (if you want). Set it and forget it.
  • Easy to use platform on web and mobile apps.
  • Manual rebalancing and automated investments to maintain balance. This ensures you buy more of some of your losers (that are on sale!) and sell some of your winners.

So what are you waiting for?

Run, don’t walk to open an account at M1 Finance today. Remember, you can get $10 just for signing up and funding an account through this link!

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