Sometime in 2020, a Reddit user found himself in a conundrum. He found out his grandfather left him an inheritance of over $3 million! His grandfather bought Apple shares in 2003 with the money supposed to go for his college tuition when the Reddit poster enlisted in the military. Link to original Reddit post
Imagine how you would have felt if, at the time you turned 18 or finished university or NYSC, your parents handed you an account with millions of naira for you to use to chase your dreams. Ecstatic right? Well, let’s help you figure out how to do this for your future kids.
Saving for your future kids
The cost of raising children in today’s world is on a steady rise. If you want to cry, just check the price of school fees primary and secondary schools are charging these days. Since it is almost inevitable that you’ll have to face those costs if you’re thinking of having kids, MoneyRise has some tips to give you a headstart with the race to handle those costs.
In many commercial banks today, you can create a savings account in your children’s names and set up monthly deposits to these accounts. While these are good, we know that the naira has not been the strongest currency over the last few years, and school fees and other expenses tied to raising children have been on a steady incline with no respect for anybody’s feelings. Coupled with that, the interest rates on these accounts aren’t very encouraging. So what can you do?
You can start a goals-based investment plan with Rise that allows you to invest in a strong currency, the dollar, so your money doesn’t lose value while it’s in the plan. You can start with our low-risk Eurobond plan, which offers a good return of 10% per annum. Also, you can set monthly direct deposits from your account, so as soon as your salary comes in, you can automatically save for your kids.
The savings account set aside for your kids is primarily for taking care of expenses that might come up when they’re young. So you don’t want to put this in any risky asset that can “crash” any moment or an illiquid asset like a land that might be difficult to sell for your desired price when you need the money.
Investing for your kids
While saving is great, except you are making a lot of money, you probably will not have enough to save for the day-to-day expenses of taking care of kids and save enough to give them a great graduation cheque. Another thing to think of is investing for your future kids.
Think of investing for your kids like a pension plan for them. That is, it is money you are setting aside, separate from what you need to take care of their day-to-day expenses such as school, feeding, clothing, etc. but a cash pot that you can get access to in the future. It is a long-term decision.
There are 2 ways to go about this:
You can invest in steady investment plans like the real estate and stocks plan offered by Rise and take advantage of compound interest. Here’s a simple example
If you deposit $50 every month from the day your child is born to the day they turn 21 in the stocks or real estate plan, which offers about 12% return per annum, you would have over $52,000 to give your child, which would be a great place to start, and if you increase the amount as you earn more, you could have 2 to 1000 times that!
Another way to do this would be to invest in companies building the future.
While it is important to find steady options that guarantee the money you saved, as seen in the example of the Reddit user whose grandfather bought some shares in Apple. The greatest gain, the sweet spot, lies in investing in companies of the future. Apple wasn’t a multi-trillion-dollar company in 2003. It was a tech company recovering from the Dot-com bubble crash of 2000. A share of Apple at that time was worth about $1. With relatively small investments in futuristic companies, you can make your kids small fortunes by the time they are older. And since there is no pressure for you to spend the money invested in companies like that, you can afford to stay invested for decades and really enjoy the benefits and growth potential of long-term capital gains.
We started this article with you imagining how you would have felt if your parents handed you millions of naira for you to use to chase your dreams. Now imagine the beaming smiles and gratitude your future kids would feel if you give them the same. Very rewarding.
Whether you want to start saving or investing, Rise has got you covered! Start a plan with us today.