The old adage the sooner the better proves true for saving for chidren because compounding interest is key. What is compounding? MetLife says, "The process of growth building upon growth in an investment. Interest that is calculated using initial principal as well as accumulated interest. This differs from simple interest which is a calculation that is based solely as a percentage of the original principal sum." (www.metlife.com) The principal is your deposits or contributions. This is especially a benefit if you want to start off with a moderate amount of money. The benefits of starting a savings vehicle for a child as early as possible is so that you have more time to earn interest. For example hypothetically you invest $1,000 today for a one year old for the next 17 years. The $1,000 is growing at 4.50% annually (4.50% at the end of each period), and you contribute faithfully $600 a year ($50 a month). You would have aproximately $16.958.40 after 17 years of saving. (compounding calculator on www.moneychimp.com)You see how saving early while your child is a toddler gives you more power. That is the possiblity if you're earning only 4.50% interest a year on your $1,000 investment and putting only $50 a month in. Wow! Not bad huh? This is why the earlier the better! This also proves you don't need to start off with $10,000 to save a nice little nest egg for your child's future aspirations. Hey that $16,900 could help decrease student loan debt for him or her, right? Remember three key reminders: Start Early, Make regular contributions, and Patience is a virtue!
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