Importance of Early Investing

Importance of Early Investing

                Parents have a responsibility to teach their children the fundamentals of life.  One such fundamental I wish I understood earlier in life is that of investing.  Sure I was taught to save for a rainy day, yes; but I never knew that I could make money by essentially setting it aside and in the right place.  Investing is not only for greedy people who only care about money; investing is (1) a function of time and interest which provides a form of income for later in life and (2) teaches life lessons in budgeting and decision making.

Compounding interest is central to investing.  Simply put, compounding means earning interest on interest earned.  The more time money has to accumulate interest, the larger the growth potential of the investment will be, as more compounding periods will help the investment grow (Investing 101: The concept of compounding, 2014).  Parents who teach their children the basic concept of compounding interest and help them to invest will give their children a great financial advantage in life.

Investing is actively managing money, not just building a budget.  A budget determines needs and goals and how they can be financially accessible.  Investing is similar to budgeting but involves finding opportunities for financial growth while putting money away for goals.  Setting goals early allows for more compounding, which requires a lower initial investment.  Deciding where to invest is important; one needs to have a timeframe and amount in mind to make the investment worthwhile (Bedway, 2009).

The lyrics of a song by Crosby, Stills, Nash and Young instruct parents to: “Teach [their] children well, their father’s hell did slowly go by…”  Now, I do not know the context of the song, nor what sort of “hell” the artists are singing about, but I do know that teaching children to invest early in life can provide a financial blanket for later in life, and help them to make good budgeting decisions.

References

Bedway, B. (2009, November 10). Budgeting wisely, investing carefully. CBS News. Retrieved from http://www.cbsnews.com/news/budgeting-wisely-investing-carefully/

Investing 101: The concept of compounding. (2014, October 9). Retrieved from Investopedia: http://www.investopedia.com/university/beginner/beginner2.asp