PiggyBankNomics
Conscious Financial Living

Children and Finances

Ideas of how to set a child up for financial success

Saving for College Vs Retirement Fund

Are you saving for a milestone in your child's life? Compound interest can be your friend.

Are you saving for a milestone in your child's life? Compound interest can be your friend.

Let me first start off with that I do not have kids. I'm not saying I do not want them, they just haven't seem to magically appear in my life yet.

As an avid saver, and a pro-retirement fund advocate, I recently was part of a conversation that dealt with how to allocate your personal savings once your little-me comes into the picture. 

One of my friends stated that she is not only saving to send her child to a private elementary school, she is also saving for her son's first car. And college. And wedding. And down payment on his first house. She "loves [her] son and makes sacrifices (ahem, her 401K) so he is set up for the best future."

My mind was blown. I can barely afford my own life, if that's what it takes to be a parent, I'll never be able to afford it.

As the conversation continued, I half-jokingly told her she might as well save for little Johnny's retirement. She brushed off my not-so-sarcastic comment with "Oh, you just don't understand. You'll get it when you have kids."

Yes, I do not know anything about the joys of parenthood. But I do know about the joys of compound interest. 

After playing around with numbers, I was absolutely delighted to have my statement confirmed. 

If my friend invests $50/month for Johnny's future, at a 8% annual return, she will have invested a total of $10,800 from the time Johnny is born till the time he is 18.

If this money is taken out at the age of 18 for college, it will be worth $24,267.72.

If this money is taken out at the age of 25 for Johnny's wedding, it will be worth  $41,590.62.

And if the money isn't touched until Johnny takes it out when he buys his first house at age 30, the account will be valued at  $61,110.27.

BUT LOOK AT THIS: If Johnny decides not to touch that money until he retires, at the age of 65, the account will be worth  $903,536.50! Incredible! 

Not only are you giving little Johnny some financial autonomy, but you are teaching him to prioritize short-term/long-term goals and help him put those goals in relation to his wants/needs.

Piggybank Nomics