[How to teach young people to save]

[How to teach young people to save] - A friend shared with me his experience in teaching his children to invest and manage money. The full text is as follows:

My daughter had just turned 27 that year and was a very smart and independent girl. After graduating from college, I made a living independently in Irvine, Califorina. I just graduated with a small salary, but I know how to enjoy various activities of young people, such as watching movies, finding good restaurants to eat, attending friends’ parties, listening to concerts, going to football games, skiing, skydiving, traveling... She is a girl who knows how to live a good life! Of course she doesn't have any savings.

One day in 2013, she told me that she didn’t have enough money! She wants to find another hourly job to supplement her living expenses! And asked me how can I save money? Because she remembered that we once talked about the meaning of life and money. I'm glad she came to tell me about the awakening of not having enough money! In fact, when I first graduated, I had already talked to her about how I could start saving money, accumulate wealth, and retire at the age of 50! Of course, I didn’t just talk about it casually. I just taught her to save. I told her very hard that [the function of compound interest] would allow her to retire early. I thought to myself, she had majored in "Finance, Business and Economics" for four years in college, so she should have a good understanding of the power of compound interest, right? But she, who has her own opinions, did not take my advice to heart - how much influence saving early would have on her future wealth! At that time, I could only think that the time had not come yet!

Today I want to let you know how I got my daughter to start saving and gradually increase her savings, and how I used methods to encourage savings and investment so that she could make money with the money she saved.

First, encourage her to save money. I will subsidize her as much as she saves. The more she saves, the more money she has available to invest. So she decided to save $200 a month as her maximum savings. Of course, it was very hard for her to save money at the beginning. At one time, she couldn't automatically transfer funds and stopped for two months. Fortunately, she is a perseverant child. For this small savings (which she had to work hard to earn), she reduced some activities, so she saved for a year and made up for the two months' money. She never looked at her money-generating account (because she still didn't care how useful such savings could be?)

Second, automatically transfer the money saved to your retirement account every month! There is an advantage to saving in a retirement account, but you can’t withdraw it at any time!

At the beginning of 2014, I asked her to review the balance of the account to see how much deposit there should be in the investment account at that time. She immediately responded to my message and called me very surprised to tell me that the total amount was $6,100 (I have to explain that her return on investment this year was 27%. My daughter is so lucky!). She said: I didn't expect to have such savings. She only put in $2,400. How could so much money grow? Of course she knows that $6,100 is $2,400 of which is the subsidy we gave her. But I never expected that another $1,400 would be generated. Maybe in our eyes, this $1,400 is a small amount of income, but in the eyes of their young people, it is money that they have grown! Money made out of nothing! What a surprise!

good! This is another good opportunity for me to educate her. I told her, if you continue to save, see how much savings you will have at the end of this year. This time I used Excel to teach her how to calculate compound interest. Calculate and see what different amounts will be accumulated in 5, 10, 20, 30, and 40 years? (Why count to 40 years? Because she will be 67 years old this year, which is the legal retirement age in the United States. I don’t know whether the government will modify the later retirement age in the future).

This is a big deal! She finally understood how powerful compound interest is! She said that the amount in the 30th and 40th years will more than double. Therefore, she also understands that the results of this fixed amount and the method of depositing the first fund are very different, and the length of deposit time also has a great impact. Now come to a conclusion! She wants to add some money to the company's 401K, while the money in the investment account continues to be deposited.

At the end of 2014, she had $12,300 in her investment account (a 12% return in 2014). This does not include the deposits and returns in 401K! Then think about it, if her salary increases and she saves more money, there will be a bigger difference. My daughter told us that she will continue to increase the amount of savings every year and hopes to retire when she is 50 years old. This is her wish!

If she has $40,000 in principal when she is 30 years old, and if the annualized return on investment is 10%, she will not put a dime into the account after the age of 30! At the age of 50, there will be approximately $269,100 in this account! At the age of 60, approximately $697,976! At the age of 70, there will be approximately $1,810,370! If you save more money every year or the rate of return increases, you will grow even more!

The most gratifying thing about being a parent is that your children have good health and know how to manage money. I hope they will be safe and have food and clothing in the future! How to prevent the next generation from living on the savings left by their parents (if you have extra money! Or you have saved hard-earned savings! Or you want to leave a large legacy to them! Money - can be used up, and it is not painful to have money and then spend it unscrupulously! If they don't know how to manage money and don't know how to live in the future, then you are harming them!) If you are a well-off family like us, then I want to tell you that it is never too late to start teaching your children to save now. Save little by little first, and he will feel it when he reaches a certain amount.

What if parents never thought about these issues! Then action must begin. Because in the future, children will have a harder life than us, and they will need to work harder to accumulate wealth! Look at the current cost of daily life. It is getting higher year by year, and inflation is rising every year.......

You can refer to this link to see what compound interest is, and you can also calculate the most appropriate amount of savings:

https://www.thecalculatorsite.com/....../compoundinter......

I hope this experience can be used as a reference method to help young people save.

Let’s encourage each other!