Preparing Our Next Generation for Financial Success
Thu, 04/20/2023 - 15:01 Wealth management
Over the years, I’ve coached many of my son’s teams and enjoyed every moment of it. As a parent, I do it to be involved in his daily life as much as possible. I guess it’s part of my thought process that I want everything for him and his sister to be better than I had it growing up, not because I didn’t have a great childhood, but like a lot of parents, we just want things to be as good as or better than it was for us.
In doing so, we may provide our kids many of the luxuries we didn’t have as children. It’s a new phone, the latest tablet, the must-have sneakers, or new accessories. Whatever it is, in a responsible way, we try our best as parents to provide those things that will give them enjoyment and help them fit in with their peers.
As my kids get older, I’ve started to take a different view of what I want to provide my kids to make things better. I’ve come to realize that teaching them how to be financially responsible provides them with more value than any of those material possessions. If they understand, today, how important money is and the difference between wants and needs, then I’ve given them a great head start in life.
I’ve spent the last couple of days speaking to upcoming medical school graduates about budgeting. I’ve spoken to them like they were my children, and in the way I wish someone had spoken to me when I was in my twenties.
One thing I wish someone had taught me about sooner was the power of what compounding interest does for you over the years. Take a look at an example of John and Jack, who decide to start investing in a growth mutual fund that has an annualized return of 11.60%. John starts saving $2,400 a year from ages 21 to 30 and will have contributed just $21,600 for a total portfolio value of $2,547,150 at age 67. His best friend, Jack, doesn’t start saving until he is 30 and saves $2,400 a year until age 67. Jack will have contributed $91,200, but at age 67 will only have $1,483,003.
The power of compounding interest and a nine-year head start is why John has a million dollars more than Jack with a fraction of the contribution. This truly is one of the most powerful lessons you can teach your children. As a parent, if you want to give them a head start without it costing you anything but your time, be a good financial coach and help them understand how a simple act of saving can position them to have a very successful future.
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