Raising a Financially Literate Child
What You Need to Know to Teach You Kids About Money
By Diane Kennedy
Teach your child the power of compounding. One of the tax tips above for parents is to pay into a pension plan for their child. Look at the difference timing can make. Which plan would you want for your child? PLAN A: Invest $6,000 per year for three years (child is 15, 16, 17) and receive, at 62 years old, more than $351,000 accumulated. Or PLAN B: Invest $19,600 per year for 12 years (starting at age 50) and receive, at 62 years old, more than $351,000 accumulated. The difference between Plan A and Plan B is the power of compounding. The same amount is accumulated – but Plan A only takes three years, not 12. Teach your child the power of real estate. Assume that your child invested that same $6,000 per year for three years in real estate. At a modest 10 percent cash return with 5 percent appreciation, the following would be true: If you invest $6,000 per year for three years (child is 15, 16, 17), in 20 years, the total cash flow would equal $535,312. At the end of 20 years, the asset value would be $293,000. The difference between (1) above ($351,000) and (2) above (535,312 + $293,000) is the power of real estate. Three Tips to Teach Your Child How to Succeed in Business - Find a need and fill it. My client's teenage son loved to work on computers. He quickly built a business that supported small businesses in their computer systems after hours. His billing rate was reasonable – $50 – but much higher than he could have made working a regular job. But, summer vacation was coming. He was used to the level of income, but didn't want to have to cancel out on the family trip. His solution: get some of his computer buddies to fill in on the jobs. He paid them $15 per hour (much more than they would make at their normal hamburger stand jobs) and he billed them out at $45 per hour. He pocked the $30 per hour difference.
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