Tuesday, November 13, 2007

Save or Explode

I have been wondering how to engage my kids in money management. Reading the Wall Street Journal or watching CNBC together has not been very productive. Strolling through the blogosphere and surfing finance sites today – I came across this unique piggy bank gizmo made in Japan by toy manufacturer TOMY.
I see some merit in buying this gizmo for my kids. I assume the novelty of the exploding piggy bank will wane over time but hopefully it will get my kids started on the path to savings and some financial education. To make the banking concept interesting and maybe even create a little saving fund for the kids by the time they are ready for college age – I plan to regularly invest in the bank.

A $25 investment every week that is invested at a rate of 10% return will yield about $33,500 in 13 years. My daughter is 5 and if I invest $100 in her account every month she will have a reasonable account balance by the time she is 18. Market fluctuations, inflation, taxes and admin cost will impact the final balance but this is a learning exercise. And I am hoping to explore learning options in the following areas

- Consistent Saving Habit: Regular and consistent savings is the hallmark of creating wealth. This piggy bank will reinforce that concept by consistently saving $100 month in this account.

- Make Your Money Grow: Money sitting in the piggy bank will not grow. To make the money work, we will have to invest the money. That opens the door to asset allocation and investing in stocks, savings bonds etc. I plan to invest in kid friendly companies like Disney, Mattel and McDonalds to keep my daughter engaged.

- How Compounding Works: When you regularly save and invest over years – compounding kicks in. There is no better way to explore this concept than by engaging kids in a joint venture.

- Affecting the Top Line: As my daughter grows, she will have opportunities to invest more capital in her account based on income she might generate via summer jobs etc. With added income there will be opportunities for some profit taking also which can be used to explore concepts around P/L, balance sheet etc.

- Having Fun: Financial education is important but the subject can be dry and impersonal (hint – Wall Street Journal) for a kid. These creative ways to save money and explore investing options may be more engaging for my daughter. And a crying and exploding piggy bank sure does sound like fun!!!

Photo courtsey Reuters


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