It Only Takes a Few Dollars
When children are young they realize that just a few dollars can go a long way. This fundamental knowledge needs to be maintained as the prices of items children purchase become more expensive. It is important to teach your child that to reach her goals and dreams takes only a few dollars each day. And sometimes that means a few minor sacrifices along the way. Financial security can be built on a very modest income and saving money is much easier than you think. What it comes down to is knowing how you spend and learning how to spend less than you earn.
“What do you consider the greatest invention of all time?” – Reporter
“Compound interest.” – Albert Einstein
The most important aspect of compounding is to start early. Explain to your child that the younger she starts, the more she will earn. See how this works in the table below, where one investor who starts younger but invests less money over less time actually ends up earning more.
| Early Starter | Late Bloomer | ||
| Age | Contribution | Age | Contribution |
| 25 | $2,000 | 25 | None |
| 26 | $2,000 | 26 | None |
| 27 | $2,000 | 27 | None |
| 28 | $2,000 | 28 | None |
| 29 | $2,000 | 29 | None |
| 30 | $2,000 | 30 | None |
| 31 | $2,000 | 31 | None |
| 32 | $2,000 | 32 | None |
| 33 | $2,000 | 33 | None |
| 34 | $2,000 | 34 | None |
| 35 | No more contribution | 35 | $2,000 |
| 36 | 36 | $2,000 | |
| 37 | 37 | $2,000 | |
| 38 | 38 | $2,000 | |
| 39 | 39 | $2,000 | |
| 40 | 40 | $2,000 | |
| 41 | 41 | $2,000 | |
| 42 | 42 | $2,000 | |
| 43 | 43 | $2,000 | |
| 44 | 44 | $2,000 | |
| 45 | 45 | $2,000 | |
| 46 | 46 | $2,000 | |
| 47 | 47 | $2,000 | |
| 48 | 48 | $2,000 | |
| 49 | 49 | $2,000 | |
| 50 | 50 | $2,000 | |
| 51 | 51 | $2,000 | |
| 52 | 52 | $2,000 | |
| 53 | 53 | $2,000 | |
| 54 | 54 | $2,000 | |
| Total Contribution | $20,000 | Total Contribution | $40,000 |
| Total Earnings at 8% | $135,042 | Total Earnings at 8% | $91,524 |
The Early Starter invested only $20,000 for 10 years and ended up making almost 50% more than the Late Starter who invested $40,000 over 20 years.
These figures are for illustrative purposes to demonstrate the power of time. Since investment values tend to fluctuate, it would be odd to earn the same rate or return each year for such a period of time. Also, your investments may not average and 8% annual return, depending on the investments you choose. The illustration also does not take into account fees or taxes. And, most importantly, it assumes each investor reinvests all dividends and earnings, and makes no withdrawals.