Kids aren’t getting the financial education they need.
In the USA, only 20 states require high school students to take an economics course. And in Canada, even though there have been increasing numbers of families in debt, only 2 provinces – Ontario and Alberta – are including personal finance courses as part of the curriculum in 2018.
Right now at the beginning of a new year is a great time to share your financial knowledge and help your kids put it into practice. Imagine what can happen if your kids learn good savings habits when they’re still kids. When they hit their 20s and get their first “real” job, they can start setting aside a bit of their paycheck each month right away. Their money will have literally decades to grow.
The earlier they start saving, the better their chances of a well-funded retirement.
Waiting too long to save for retirement has a high cost. For example, if the goal is to retire at 65 with $1 million, when you start saving has a huge impact.
To retire at 65 with $1 million (using a 5% tax-deferred hypothetical account):*
- Start saving at 25, and put away $655.30 per month.
- Start saving at 35, and put away $1201.55 per month.
- Start saving at 45, and put away $2432.89 per month.
- Start saving at 55, and put away $6439.88 per month.
And if you wait until 60 to start saving? You’ll need to put away $14,704.57!
So back to you and your kids. Chances are the majority of your children’s financial education will happen at home. Feel free to use the above illustration to explain the importance of early retirement saving to your 8-year-old, but be warned – you might get a blank stare or a full-on fidget fest. Luckily for everybody involved, there’s a simple exercise you can do with your kids today to give them a head’s up about what it might be like to set aside some of their paycheck when the time comes.
For the really young ones, each time they receive money (earned, received as a gift, etc.), help them save part of it. It really is that simple. No complicated formulas or examples. After all, the basis of saving for retirement is…saving money. If your kids are a little older and ready for the next step, help them save with a specific goal in mind, like 1 big toy or activity at the end of the month.
Working on exercises like this with your kids has the potential to make a huge difference for them when they start preparing for retirement. It may seem small, but you’re laying the groundwork for solid financial literacy, one saved dollar at a time.
*In this hypothetical example, a 5% compounded rate of return is assumed on hypothetical monthly investments over different time periods. The example is for illustrative purposes only and does not represent any specific investment. It is unlikely that any one rate of return will be sustained over time. This example does not reflect any taxes, or fees and charges associated with any investment. If they had been applied, the period of time to reach a $1 million retirement goal would be longer. Also, keep in mind, that income taxes are due on any gains when withdrawn.