Teaching your kids the value of money is one of the most important lessons you can offer. Starting children on savings and investment programs while they are still young can provide lifelong benefits, from learning how to budget and live beneath their means to the power of compound interest.
While you shouldn’t deceive your children about what it means to save and invest, you may have to “trick” them into being interested, particularly at a young age. Here are some steps you can take to get them on the right path.
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Let Them See Their Money Grow
One of the best ways to get children interested in saving at an early age is to let them actually see their money grow. You can accomplish this by setting aside their savings in a glass jar or other easily visible “safe.” Seeing their money grow over time right in front of their eyes can be an exciting way to start the saving/investing process.
Offer Rewards/Incentives
Children generally respond well to rewards and incentives. Encourage your kids to save and invest by perhaps trading off some household chores, gadget time or a treat they’re really looking forward to.
For example, you might offer to take your kids to the movies, the park or somewhere they really want to go in exchange for saving $500. Tailor the process to your specific household dynamics for the best effect.
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Create Your Own 401(k) ‘Match’
One great way to put your kids on a path to millionaire status — and give them some real-world experience as well — is to create your own 401(k) “match.” Every year, or perhaps even every month, make a deal with your kids that you’ll match a portion of their own savings, just like they will experience if they ever get a 401(k) of their own with an employer.
For example, if your kids sock away $1,000 in a year, offer to contribute an additional $100, $500 or even $1,000. This teaches your kids what to expect from a real-world 401(k), incentivizes them to save more and helps boost their account values at an early age, giving them the chance for lifelong compounding.
Have Them Invest In Companies They Know
The more interesting you make saving and investing for kids, the more likely they’ll engage. One strategy to turn money-saving from a chore into a joy is to have them invest in companies that they know. Whether through paper trading or investing their actual money, kids are more likely to get excited if they own companies that they’re already familiar with.
If your kids are gamers, for example, they might be into owning Roblox or Electronic Arts. Other popular kid-friendly options might be Disney, Netflix or McDonald’s.
Use Investment Apps
Kids in this era are more likely to do anything if it involves using their smartphones. Fortunately, there are a number of investment apps that make it easy to track paper or real portfolios, providing all types of statistics such as gains and losses, trading volume and even technical trends. This “gamification” of investing makes it more attractive for kids and adults alike and may encourage a lifelong interest in investing.
Show Them the Magic of Compounding
Teaching your kids the magic of compounding is the single best way to get them on the path to retiring as millionaires. Because the truth of the matter is, the earlier they can start saving and investing, the easier it is to become a millionaire.
Ask them directly — is it easier to save $1,000 per month out of your income or $200? Hopefully, they’ll acknowledge that saving $200 is easier. Then, simply show them the charts.
If you wait until age 40 to start investing, you’ll need to save just over $1,000 per month — earning an 8% return annually — to save $1 million by age 65. But if you instead start at age 20, you’ll need to save less than $200 per month — actually, about $190 — to reach that seven-figure nest egg.
While saving $200 per month might feel difficult for a teenager or someone in their early 20s, impress upon your kids how easy it will feel when they are in their 40s and earning a much larger salary. If you can encourage them to increase their savings as their income goes up, all the better. Under that scenario, that $1 million nest egg might easily turn into $2 million or more.
The Bottom Line
Nothing can absolutely guarantee that your kids will retire as millionaires, as there are many variables involved. But the younger you can get them interested in investing, the easier you can make it for them and the sooner they can start accumulating actual savings, the more likely they will be on their way toward retiring with a seven-figure nest egg.
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This article originally appeared on GOBankingRates.com: Trick Your Kids Into Retiring as Millionaires — 6 Ways To Pull It Off
