How to Inspire Your Kids to Invest
Money loves to work. Just make sure it’s on your side.
By Julia Scott
In this article, I’ll introduce you to The Compound Effect and how the rich get richer without doing a thing. Managing your money is easier than you think. The most important advice I can give you on this is to START! While you’re at it, teach your kids. The sooner they learn how to put their money to work, the better!
The Compound Effect
The compound effect allows you to reap MASSIVE rewards. It’s mind blowing and I can’t believe they don’t teach it in schools! Use it for your health, relationships, finances or anything else.
The theory is that if you make a consistent series of small positive changes, these changes snowball in size which leads to a massive change in your trajectory.
All compounding requires is consistency, growth and time (which kids have a lot of). Like starting a regular gym session, it may take a while to see a result but when you do, it’s HUGE and you’re always glad you stuck with it.
“I so regret going to the gym today” – says no one EVER!
Take this simplified example from The Compound Effect by Darren Hardy:
If you were given a choice of receiving $3 million in cold hard cash right now or, 1 cent which would double every day for 31 days, which would you choose?
Surely, you’re better off with the $3m cash in hand today? Who would say no to that? Let’s take a closer look..
Say you took the $3m deal and your friend Sarah took the 1 cent deal. On day 5, you would have $3m (awesome!) and Sarah would have 16 cents (not so great).
Follow the chart below for visuals.
On day ten your friend still has only $5.12. Meanwhile you’re having fun putting your $3m to good use NOW and feeling confident you made THE best choice.
After 20 full days of the experiment with only 11 days left, Sarah, after all her sacrifice still only has $5,242.88 compared to your huge, beautiful $3m. Can you imagine how Sarah feels? Well, she probably feels like she’s not getting anywhere and is starting to lose faith in her decision. But like a good stoic, she sticks with the plan.
Once a substantial amount of time elapses, the magic of the compound effect begins to emerge.
By day 29 your friend appears to be catching up at $2,684,354.56 (let’s call it $2.7m).
“Yes Julia” you say, “but it’s taken her SO long to reach this amount. Is it really worth the wait? I’ve had almost a full month already to utilise my $3m.”
But I say:
Watch this space! Over the last couple of days is where the real magic happens.
On day 30, Sarah’s $2.7m turns into $5.4m and then on the 31st day it doubles again to reach $10.7m. This is the magic of compound interest!
Blows your mind, right?! Now no-one’s going to make you this offer in real life BUT this “what if scenario” does open your mind to the power of compounding. It gets you thinking about how it can work in real life! Take a look at the visuals below.
The Compound Effect in action $3,000,000
Real Life Compounding
Money LOVES to work. It works whether you’re awake or asleep. It never tires. Make sure it’s always working for you not against you and start NOW.
Now you don’t want this kind of magic playing for the wrong team. The trick is to ensure you always use it for good as opposed to bad.
Bad would be compounding credit card interest (this is why credit cards get out of hand so quickly).
Good is compounding savings or investments where you make money, from money, from money.
Money at work is a beautiful thing, let me show you ..
Meet Oli, he’s 14 years old and ready to start saving.
If Oli can find a way to earn around $48 per week (or $2,500 per year) for the next 10 years.
That’s $25,000 invested in total.
And he invests this in a basic quality share portfolio at say 10% (the Australian share market has averaged a return of 10.8% per year over the last 30 years)[1].
Then he stops investing any further money (because he’s 24 and he’s moved out of home now).
But he leaves the shares alone until he’s 60.
At age 60 he will have an investment worth $1,4990,322.
All this from a $25,000 investment and not a dollar more!
I’ve set this example out in a table below and I’ve compared it to another kid (let’s call him Eddie) who doesn’t start investing until 24 (10 years after Oli starts). As you can see, Eddie never catches up even if he puts in WAY more than $25,000. The power of compounding has already taken effect for Oli because he started so much earlier.
The Compound Effect in action $2,500 / yr @ 10%
Your turn
Show this table to your kids to inspire them to put money away NOW while they have no overheads and have plenty of TIME to allow the magic compounding work for them.
If you want to learn more about how you can get the compound effect on your side, sign up for my How to Invest (for Teens) Waitlist at www.LoveLuckWealth.com.
With both my finance and creative backgrounds, I’m here to teach you not only the financial realities of money but also how get control of the emotional triggers money brings up in all of us, young and old. It’s NEVER too late to start. You’ll feel so much better when you do!
Love Luck Wealth,
Julia
P.S. If you have any general money questions for me, I’d love to hear from you. Email me (hello@loveluckwealth.com) and I’ll do my best to answer you in my blog. I’ll reference your first name (unless you ask me not to). Your personal information is always protected.
The Important Legal Note
Information provided by Love Luck Wealth does not take into consideration your personal financial situation and is general and factual in nature. It is to be considered general life advice for educational purposes only and does not constitute financial advice nor financial product advice in any way. Before acting, you should consider seeking independent personal financial advice that is tailored to your needs from an appropriately licensed or authorised financial adviser. Love Luck Wealth and Julia are sharing general financial knowledge only and not acting as a financial advisor.
[1] Share market values go up AND down over time. Historical records show that on average over the long term this value increases.