Teaching Our Children Compounded Interest

Once we finish school and go off to work, we’re told to start saving for retirement. Unfortunately too many of us don’t even want to think that far since we’re only 18-22 years old. We think we have decades before retirement so we don’t even worry about it. Actually a small amount of young people do start saving for their golden years. They are the responsible ones who at an early age were shown the importance of starting early and using the power of compound interest to their advantage.
It’s sad to think how our school system doesn’t teach these life skills that are vital to our later years and many parents don’t either take the time or they don’t consider it to be important to educate their children. My daughters were/are homeschooled and my husband and I have taught them how to save money and how to spend it wisely. Our oldest daughter (18) has been has been working for two years and has saved thousands of dollars in a savings account. Our youngest daughter hasn’t started working yet, but has found way to make money and put it away for when she’ll need it.
My husband sat down with our oldest daughter recently to go over the importance of putting money away in a 401K account as early as possible. Starting early will give your money time to grow with interest. The earlier you start, the more your money will grow without you having to add any more on your own. Compounded interest is when your money sits in an account and makes interest for you and then the interest will grow by making interest too. In a sense, your money is working for you and not the other way around.
Putting money in a 401K account is the easiest way to prepare for retirement. The money is taken out of your paycheck before any taxes are taken out. In doing that, you lower your tax burden each pay period and over time you won’t even realize that the money is being put away for yourself. Another great benefit of a 401K is in many cases your employer will match a certain amount of what you contribute to your account. Typically an employer will match up to 5% of your salary.
There are other ways you can save for retirement than just a 401K. You are only allowed to put 20% of your salary in a 401K account, so if you’re able to save more money than that (especially if you still live at home), you may want to think about using a financial planner or even a company that will help you make the right decision for you and your needs by putting your money in a IRA, investing in the stock market or even an annuity. Like I said before, it’s best to start while you’re in you late teens or early twenties to get the benefits of having your money work for you to have more for those years when you will no longer be able to work or want to work.

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