Financial Education: Teaching Groton Teens 'The Power of Compounding'
It's never too soon for kids to start saving for retirement. The earlier they start saving, the more time their money has to grow. And the teen years are a great time to teach our kids about the importance of saving money.
A big challenge many parents have is getting their teenagers interested in saving money. Let's face it, when you're in your teens, the last thing you're thinking about is saving for retirement. If you tell them they should start putting something away for retirement, their response will probably sound something like; "why do I need to start saving now, I'm only 17 years old. I won't be retiring for another 40 or 50 years. I have plenty of time."
Motivating a teen to save for retirement may be a difficult task, but that's not to say it can't be done. When I talk to kids in schools, one of my favorite topics to help initiate a conversation about the power of compounding is the classic "doubling of penny".
When I was invited to speak at one of my son's classes at Groton Dunstable High School, I asked them to each take out a sheet of paper and write down their answer to the following question. If you have a penny and it doubles in value each day, how much money would you have at the end of one month (31 days)? Their answers ranged anywhere between $10 and $1,000. Needless to say, they were speechless when I showed them a chart demonstrating how the penny ends up being worth more than; "ten million dollars." Of course, no investment doubles daily, but it is an eye opening way of introducing this important concept.
A second and more realistic topic we discussed illustrates how saving less money now, rather than saving more money later, can significantly increase their chances of retiring with more than one million dollars. Granted, one million dollars will not be enough money to retire on in 40 or 50 years from now, but this example is also meant as way of demonstrating to teenagers that saving money, earlier rather than later, can increase their chances of having a substantial amount of savings in retirement.
With the uncertain future of Social Security, and pension plans going the way of the dinosaur, our kids could end up being on their own when it comes to saving retirement. As a result, one of the best things we can do as parents is teaching them about the power of compounding.
The earlier they start saving money for retirement, the more time compounding has to work in their favor, and the wealthier they can become. And once they learn how the power of compounding can increase their chances of retiring as millionaires, saving money can suddenly become very exciting.
If you would like to review and or download the two illustrations I used during the class presentation at Groton Dunstable High School, they are located at the "Investment Articles" link on our website at www.capitalwealthmngt.com.
Martin Krikorian, is President of Capital Wealth Management, a "Fee-Only" registered investment adviser located at 9 Billerica Road, Chelmsford MA. He can be reached at (978) 244-9254,
Capital Wealth Managements website; www.capitalwealthmngt.com.
