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How to make your kid a millionaire

U.S. News & World Report logo U.S. News & World Report 11/10/2017 Lou Carlozo


Video by CNBC

Listen up, kids – and this case, we truly mean kids: If you want to invest your way to wealth by the time you hit 30, or even 20, it's definitely possible. You don't even need a huge honking loan from Mom and Dad to do it, though you'll likely need their guidance at some point.

But let's say you (or your progeny, for the parents and grandparents reading along) want to become a millionaire at an age when most young adults are just starting their careers. What then?

"Ten to 12 years old is the sweet spot to start, depending on the emotional maturity of the child," says Steve Siebold, author of "Secrets Self-Made Millionaires Teach Their Kids," which comes out this month. Throwing them spare change proves no contest for psychological change. "You have to start programming your child to think like a millionaire before he or she will have a chance to become one."

It's also a good excuse for savvy parents to reinforce the value of hard work.

Related: 10 Tips for Couples and Young Families to Build Wealth

"As soon as your child is able to mow lawns, babysit or shovel snow, it's an obvious starting point for putting money away for future days," says Jake Loescher, a financial advisor with Savant Capital Management in Rockford, Illinois.

So where can the money go? How about a Roth IRA? "Roths don't require a minimum age for opening an account and simply require the child to have earned income," Loescher says. You can also make like an employer, he adds, "by offering to match their contributions. That puts parents in a position to teach their child about not giving up the opportunity to earn free money."

"While tax-deferred growth would certainly be helpful, it wouldn't allow for the large contributions needed to get your child to a millionaire by age 30," says Dan Casey of Bridgeriver Advisors in Bloomfield Hills, Michigan.

As the father of three, Casey has given the fast-track millionaire riddle some thought. Here's what he suggests: permanent insurance, starting with a $2,000-per-month payment from birth. Of course, the parent jump-starts the process, but there's nothing stopping you from making your child pony up once they're old enough to do so.

With permanent insurance, "the cash value can be tweaked so it grows fast and the $1 million is guaranteed," Casey says. "And the tax code allows the cash value to grow tax deferred and then given to your child at age 30 tax free, as a loan with no payments."

Yet while kids can understand the idea of free money, that usually goes hand in hand with free spending – and certainly not delayed gratification. Think of it this way: If your pre-teen hauls home a ton of loot in the form of Halloween candy, what do you think the chances are you'll get them to wait a few years to eat it?

Thus perplexed parents can always trade in delayed gratification for gamification. In the adult world, there may exist no better example than the investment site Kapitall. It features colorful drag-and-drop icons and monthly competitions where "Kapitallists" get a virtual $100,000. (The platform is the brainchild of video game entrepreneur Gaspard de Dreuzy.)

And with many children wielding their first smartphones in their elementary school years – the average is now age 10 – MassMutual has developed the FutureSmart app. It may not replace Snapchat as the love of your youngster's life, but it does feature 14 levels that introduce students to a new life stage and its relevant financial decisions.

"Reaching them on their devices in a way they can easily understand provides young people with a deeper understanding of the connection between the choices they make and potential outcomes," says Dennis Duquette, president of the MassMutual Foundation in Springfield, Massachusetts.

As for tapping a more classic gaming era, "I believe Monopoly is an excellent, early teaching tool of the effects of managing your own money and planning for the future," Loescher says. "Although life doesn't offer us many opportunities to pass Go and earn $200, Monopoly helps parents educate their kids about making wise decisions with their bankroll."

One positive for parents and children alike is that while the word "millionaire" connotes an exotic goal, hitting seven digits isn't nearly as difficult as several generations back. In 1925, when the m-word was enough to set a flapper's heart a-flutter, $1 million was worth $14 million in today's money. And in 1964, when the Beatles hit America, $1 million would translate nowadays to $7.8 million.

If you want to invert the equation, $1 million today was worth $128,000 in '64 – and $71,700 in '25. Still, that's not to say a kid's trek to Seven-Digit Row translates into a cakewalk.

In culling the secrets millionaires teach their young, Siebold (who says he's interviewed more than 1,200 wealthy folks over the years) has compiled a list of 160 concepts – and "avoid magical thinking" ranks as paramount. But if magical thinking is simplistic, then the nuance of a kid getting wealthy the right way isn't so far off: "Keep it simple," Siebold says.

He adds: "Kids don't care about investment principles; they care about the benefits of being rich. Teach them to invest 10 percent of their money, the power of compounding interest and time." 

And in time, who knows what kind of abundance they'll grow into?


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