One of my greatest joys in life, making me very rich indeed, are my 15 nieces and nephews. Tonight I was talking with my sister about the 3rd annual “Auntie Eve’s Birthday Party” I am throwing this weekend. This is an afternoon in which we celebrate ALL their birthdays ALL at once (I can no longer keep up with them individually!). This is very convenient for me as I try to maintain my status as Favorite Auntie, and they don’t care because they are ALL under 10, and there’s cake. Because I don’t have kids of my own, my instinctual desire to nurture and nudge little ones along leads to grandiose plans to teach with the gifts I give. When I actually get down to it, it usually ends up as a magazine subscription to National Geographic Kids or something of the sort…but I digress. This year I am going to make a contribution to their saving accounts and teach then the fabulous lesson of THE JOYS OF COMPOUND INTEREST. This is defiantly a viable path on the road to riches, and I wish I had internalized it at their age and not somewhere in my early thirties. Check out the COMPOUND INTEREST CALULATOR I have added to the right. If I start them out with $25, and they add $100 per year until they are 18 (in the case of my two 7yr old nieces,) at 5% interest and no bank fees, they will have $1,534.47. This will seem like 1 million dollars to them, and hopefully plant a financial awareness seed in their fertile young brains that will someday grow into a giant oak of living rich. (I warned you I get grandiose). At the very least it might incent them for a few days to ask mom and dad how they can help around the house for some cash, and provide me and their grandparents an easy and productive way to give them future gifts. Win/Win.
To find the best interest rates in your city, check out this link:
http://www.bankrate.com/brm/news/news_checking_home.asp
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3 comments:
well it seems like that's not a lot of money in 11 years. that's only like $400 in earned interest...and by the time they're 18, 11 years from now, $1,500 seems like it would be nothing to them, just a drop in the "car insurance" bucket. Is it just me. am I clueless?
peewee, you are right, it is only $409.37 in interest.
The $25 initial investment would have 11 years of interest, the last $100 only 12 months, so the smallest amount had the longest period to compound.
Here's some more data:
at 8% the total would be $1,856.00
at 10%, the total would be $2,109.76
at 12% the total would be $2,400.28 (This is the rate of return claimed to be the "average" return of the stock market. Just keep in mind some stocks win, some lose.)
at 3.5% the total would be 1,396.70 -- which would be the amount needed to keep up with the average rate of inflation since the late 1970's.
In general, the greater return, the greater the risk. Promises of 20, 30, 40% though possible, also carry with them risk of loss.
well, my fantasy plan goes something like this: they get excited about $25 at the age of 7. they like the idea of free money from interest, even if it is only a tiny bit to start. they start concentraing on how they can make their seed money work harder for them. their grandparents, parents, misc family members, summer jobs and babysitting start adding to the account. they get a littler older and auntie eve and their mothers are now really good at investment portfolios and teach them how to get that 5% rate of return up to 15% or so over the average of the 11 years they have until they are 18 and ready to go to school. (phew, run on sentence). all the energy they put into planning their future leaves them nothing in common with the slackers who only want to do drugs or get pregnant. the $25 seed turns into a life time of freedom and sound choices. that return sounds pretty exciting, doesn't it? : )
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