How to make a million before eighteen? | Business

There is no universal best way

I can assure you that there is no one and only best way to invest in your children’s future, so it is important to find the best way that works for your family. The goal of making a million by the time your child comes of age is bold and good, but obviously not within everyone’s reach.

If you had to give a short answer on how to do this, the answer would be simple – it is important to invest for many years and do it from the first day of the baby’s life.

However, as shown by regular research conducted by Swedbank’s Lithuanian Finance Institute, investing is still an “undiscovered land” for the majority of Lithuanian residents. So maybe the birth of a child could be the reason that would encourage people to look more into it.

The most important example of financial behavior comes from parents

Worrying about your child’s financial future can really be a great incentive for parents to learn about investing and putting money to work. Of course, it is not necessary to aim for a million, because a smaller amount will definitely be enough to start an independent life. Especially since if we are determined to invest in our child’s future and do it together with our children, we will contribute to an equally important thing – the development of children’s financial literacy. What is the use of that million if the eighteen-year-old who receives it does not know how to handle money?

Many people in our country had to learn from scratch how to invest or save for their retirement, but if our children see this model from a young age, it will become a matter of course for them – as it is in many developed countries of the world. Investing with your grown children helps you understand the value of money and the importance of saving for the future.

Research by the “Swedbank” financial institute shows that the main source of financial knowledge of current students in Lithuania is not school, not the Internet, not friends, but parents. However, a fifth of independent students feel that this knowledge is lacking and have only a basic understanding, making it difficult for them to deal with everyday financial situations and manage their budget.

Generally speaking, the common young person is surprised that the food that was once “free” at home is so expensive. So the task of parents is to show where money comes from, how to increase its value and why it is important not to spend all the income.

The most important thing is to take the first step

I would encourage future parents to look into investment options as early as possible, and while expecting a child, the family can discuss which investment method to choose. Data from Swedbank show that many parents choose investment life insurance for their children. In Lithuania, this method is popular because it is possible to take advantage of the GPM discount every year and get back part of the money from the paid contributions, in addition, the investment process itself is automated and does not require a lot of time.

Other residents choose to invest for their children’s future on their own or in a separate securities account. It doesn’t matter which way parents choose, the important thing is that they decided to do it in the first place.

I would only suggest that you pay attention to the fact that some of the above-mentioned methods help to protect investments from themselves as well – so that suddenly, when circumstances change, it would not be very easy to use the accumulated sums for purposes other than the children’s future. So this is also a constant exercise of financial discipline for parents. In addition, for the aforementioned reason, it is worth considering opening an account for the child, where funds would be accumulated for his future needs.

2 different scenarios

So let’s go back to the numbers – if you don’t delay the start of investing for too long after the birth of a child, and you allocate the received one-time payment to the initial investment capital and the child’s money received every month, and possibly also various financial gifts from relatives and grandparents, you will be able to accumulate considerable sums. Let’s elaborate on two possible scenarios.

Scenario no. 1. What would the capital of the child look like on the occasion of the 18th birthday, after investing in securities, for example, the initial payment of 539 euros given by the state and setting aside 85 euros of the child’s money every month? If we calculate that the investment return would reach 6 percent, you will accumulate about 34 thousand in almost several decades. euros, and if the investment return reached 9 percent. – you will accumulate more than 46 thousand euros. These are really solid sums for studies, starting a business or a down payment for housing. In addition, such a long-term investment will be the best real example for children of how to passively earn money.

Scenario no. 2. If you were to allocate an additional amount of the child’s money for investments every month, then you would invest a total of 190 euros each month, and the initial contribution would be 100 euros. In this case, if the investment return would reach 6%, you will accumulate more than 72 thousand in eighteen years. euros, and if the investment return reached 9 percent. – you should have more than 98 thousand euros. Of course, no one can say exactly how much you will earn in a few decades, but if you start investing early and do it periodically, you can expect a pretty solid return.

A million money or a million lessons?

I can hear you saying in your mind that it’s not a million at all. Yes, but it can also be accumulated. In order to have a million by your child’s eighteenth birthday, you should start with 5 thousand. EUR initial contribution, and monthly investments should reach at least 2 thousand. euros.

Of course, the absolute majority of us will never allocate that much, but we can calculate. And perhaps these specific examples will encourage someone to think more carefully about investments for their children and choose investment instruments that match their financial situation.

Finally, I want to emphasize once again not only the immediate monetary benefits of investing, but also the example of money management that your children will see during those years of investing. Research shows that we still don’t talk enough in families about money and how to manage it wisely. Investing with children allows you to do this from an early age.