We are often asked about investing for our kids. If, how and why we do it (we actually only have one daughter but still) and hence we decided to write a post answering these questions.
As you might have guessed, the answer is: yes, we do so let’s now move on to the other two frequently asked questions.
Why we do it?
There are quite a few reasons why we have decided to invest on behalf of our daughter but let’s look at the main ones, the way we see it (you might have your own reasons).
The absolute key one, I feel, is that by doing this we will start to involve her in saving and investing at the earliest age possibly. She is currently only 1,5 years old so it’s still early days but our intention is to later on start discussing with her the importance of saving, investing and understanding the language of money (no surprise there!). Whilst we might have started this journey for her already when she was born, we want her to continue this journey throughout her life.
We understand the importance of money and what it can add to ones life but this doesn’t mean we have to be stinking rich, take advantage of other people, nor be stingy. We just want her to comprehend the value of money and the freedom understanding money and numbers will bring.
By doing this and involving her in the process, it will be a learning (and earning!) process for all of us. As she is getting more and more comfortable with and around money and investing, her interest in this space should also grow and those are lessons for life.
Just to be clear about the rules we have set when it comes to investing for our kids. We have decided to manage the accounts in our names and she will not be getting access to the funds until she has proven she can handle money wisely. It’s not like we want her to get xx amounts of money when she turns 18 to just spend it all recklessly…
We of course want the process of investing for our kids to be as easy as possible for us, meaning we have set up a few direct debits which basically means the money is drawn from our account every month and immediately invested.
We actually decided to set up two different, tax efficient, investment accounts with our online broker (everything online and cheap).
In one of them, it’s all automatic and we currently invest in:
- One global index ETF
- One Low Volatility High Dividend ETF
- One European Property Fund
- One Mutual Fund investing in investment companies
As the investment horizon is very long (fingers crossed infinite as she will just be adding more and more money), we only have “high risk” holdings ie stock funds.
As I have a personal interest in investing, the second account we have holds individual stocks. These are investments we make on an ad hoc basis.
Besides from us making monthly contributions to these accounts, we also add a little bit extra on birthdays and Christmas. We also encourage friends and family wanting to buy gifts to instead make a contribution to her investment account. To be honest, most people don’t find that as appealing as gifting another toy but we still try to ask them when the moment is right. They might compromise by getting something little, like a second hand book or so for the sake of gifting and put the rest on the account.
So basically we want investing for our kids to be as simple as possible for us so that we don’t have to think about it. The money is drawn just as easily as our phone bills, it just happens! That’s the cool thing with automating things. If one does it in a controlled manner, it’s actually liberating and not a chore and there is no need to wonder where all the money went by the end of the month!
What amounts are we talking about?
I’m not keen on talking about numbers as how much one wants to invest on behalf of their kids is something completely individual. Yes, I wrote WANT and not can and that’s for a reason! Everything in life is a priority and so are our children. With the internet, there really are no limitations as to how little one can save and invest so there are no excuses. It’s all about creating a habit out of investing and then the amount can be adjusted at any time!
Don’t have any money?
How about skipping one coffee or one beer per month and just invest those dollars? Even if you can’t give up your sodas (for your child’s future), maybe you can invest whatever money you get when recycling the cans! Ideally you have your kids doing it and you then transfer the funds or part of the funds into their savings account.
My point is that anything and everything counts as you are helping your children creating great habits when handling money!
When our daughter is old enough we will for sure encourage her to be creative and entrepreneurial and invest some of the money she makes by doing chores. One thing I’m likely to implement is that any money she earns and decides to invest, I will match! That will of course will be into the account I control which she won’t get access to until she is old enough and has proven she can handle money wisely.
Let’s put it like this, our daughter is currently less than two years old and has more money saved up than 69% of Americans, who don’t have 1,000 USD to their names according to a survey done by GoBankingRates done end of 2019. More info on that can be found here. We don’t want anyone to go through life with the uncertainty of not having any savings and by starting early and investing for our kids we should for sure be able to avoid it all together which is what we want for you and your family too!
By investing just 10 USD per month and if we expect that investment to grow with 8% per year (roughly the historical stock market return on average), that would add up to almost 5,000 USD over 18 years! If you were to invest 100 USD per month and with the same assumptions as above, you would have almost 50,000 USD!
I bet you’re not thinking too much about some of your monthly direct debits, they just happen, month after month. If you were to go through this post on how you can save +1,000 USD in a couple of hours and then just use those savings to invest in your child’s future, your monthly outgoings would not even change! That’s right, you would not even notice and at the same time you would do your child a huge favor of not having to live in financial insecurity!
Basically, there are no excuses as to why you shouldn’t spend some time now to make this happen. You will learn new things during this journey, your kids will too and I am sure you will all have an even brighter financial future as a family!
If you have no idea on how to get started, talk to someone who is already investing and let them assist you in setting up an online account with a low cost index fund provider like Vanguard (US). It’s really easy and it can all be done online and as always, you are free to reach out to us as well!
Actions to take:
- How to save +1,000 USD in a couple of hours!
- Why you have to know your numbers!
- The Language of Money
- Learners are Earners and Earners are learners
- Automate your finances!