The Watering Hole Blog

The Best Financial Gift to Give a Kid is FREE

Updated Apr 26th, 2023

The Best Financial Gift to Give a Kid is FREE

“It is crucial to understand that wealth flows from savings, not from income.”

David Chilton, The Wealthy Barber Returns

What if the greatest financial gift you ever gave a child didn’t cost you a cent…but meant that they ended up with a nest egg of a million – or two – dollars?

If you’re the frugal sort, that should put a smile on your face 🙂

So what IS this great financial gift?

Why, advice, of course. Which is this:

If one starts to save regularly as a young person, then the amount of money that can be accumulated over a significant period of time is staggering.

For it’s not the amount of money a person earns that determines whether or not they will be wealthy; it is the amount of money the person sets aside that really matters. And the sooner they get started, the better.

Years ago, I read an excellent article in the Globe & Mail about the importance of teaching kids about how – and why – to start saving when they are young.

“Financial freedom occurs when a person’s investment income is greater than their monthly expenses. Many people who appear wealthy simply have high incomes but little or no net worth; they may also be in huge debt and not even close to financially free.”

Nancy Phillips, author of The Teen Steps to Success Guide, as quoted in the Globe & Mail article, “Parents of millennials, teach your children well,” by Gail Johnson, Jan 16, 2016

“Financial experts agree that teaching children about money early is vital, as early as 5 or 6, or at least well before they start using credit cards and apps,” said Johnson.

“Research has shown our belief system around money is set by age 7,” explained Phillips, “mostly from modeling the behaviour of those who raise us.”


To illustrate the importance of starting young to save, here is an example by Nancy Phillips in her book, Steps to Success Teen Guide, 25 Financial and Life Success Lessons to Help You Achieve Your Dreams:

“Say you start investing $2000 a year at 19, then stop at 29 (so a total of 10 years) for a total investment of $22,000, while your brother starts putting aside $2000 a year at age 38 until he’s 60 (so 22 years for a total investment of $46,000). Assuming an annual return of 6.5%, you’ll have more than $231,000 in your portfolio by age 60, while your brother will have about $107,000.”

In other words, time is what is needed for compound interest to work its magic.

And money, of course. But surprisingly – and this is the beautiful part – not necessarily a lot of it. In fact, what is far more important than the amount of money saved is developing the habit of regularly setting aside money i.e. paying yourself first.

I’ve yet to read a financial book (and Lord knows, I’ve read an awful lot of them) that doesn’t drive this crucial point home to the reader.

Pay yourself first – and you will become wealthy.

As for how much to pay yourself?

“Wealth beyond your wildest dreams is possible if you learn the gold secret: invest 10% of all you make for long-term growth.”

David Chilton, The Wealthy Barber

Here are some further figures to ponder (from The Wealthy Barber):

“If you invest $2400 a year, say $200 a month, for the next 30 years and averaged a 15% return a year, how much money do you think you’d end up with?”

$1.4 million.


But, for all the young ’uns out there, get this:

“If you put $30 a month away at age 18 and you continue until you are 65 (so 47 years), averaging 15% annual return, how much would you end up with?”

$2 million.


But wait…there’s even better news!

TFSA Contributions in Canada

Now, if you live in Canada, the annual TFSA contribution limit is now $6500.

So if a 20-year-old invested $6500 in a TFSA that earns an average of 7% interest per year  and contributed $6500 each year (and don’t draw any money out) for 40 years, by the time the person is 60, how much money would they have accumulated?


So why don’t more people – young or not-so-young – save on a regular basis?

“One of the biggest reasons that it’s so difficult to save is that no one out there really wants you to. It’s true. Almost everyone want you to spend as much as possible.”

David Chilton, The Wealthy Barber Returns

Sadly, it IS true. But I wonder if it is also the WAY we try to communicate the savings message to young people that could use some improvement? I mean, when I was 16, I pretty much tuned out whenever I heard the words, “saving,” “retirement,” “compound interest” and “tax.”

Blah, blah, blah…bo-ring.

So the other day, I just happened to be with a friend’s daughter on her 16th birthday and the subject of personal finance happened to come up 🙂

Now, as perhaps you may have noticed, teens DO tend to like the words “money,” “cash,” and “rich,” so I tried to make sure those words made an appearance…at least in the first part of the conversation.

And before I knew it, I was googling a compound interest calculator on my phone and punching in numbers – at the birthday girl’s request!

“So let’s say I put aside $100 a month, starting now,” she said. “How much would that be worth in 50 years, when I’m 66?”

I began punching in the numbers. “I’m going to put in an average annual return of 7%, compounded monthly…”

She shrugged and resumed looking at her phone.

“The amount,” I said, a moment later, “would be $551,263.17.”

She nodded, somewhat impressed.

“But,” I continued, “if we raise that rate of return to 9%, compounded monthly, which is achievable over a 50-year span, let’s see what you get…”

A minute later, I had the answer: “$1,184,513.84.”

The birthday girl looked significantly more impressed. She even looked up from her phone!

Then her eyes narrowed a little and she said, “Since I will be making a LOT of money someday, I’ll be able to save more than $100 a month. So what if I increase the monthly amount?”

Unable to contain my excitement (that a teenager was actually interested in a personal finance discussion…on her birthday yet!), I made a quick change in the criteria on the compound interest calculator.

“Let’s say you increase your monthly payments by just 5% each year,” I said. “So this year, you contribute $100 per month. Then next year, you contribute $105 per month. Then the year after that, you contribute $110.25 per month, and so on, so very do-able…”

I saw the new total, smiled, and looked up from my phone.

“What?” she said.

I read her the amount: “$2,225,421.89.”

The birthday girl and her sisters – a 14-year old and a 7-year old – also in the room, all looked at me…rather impressed.

Fair enough, you say. So the 16-year-olds are gonna get rich.

But what about all of those, er, not-so-young people out there? Is it ever too late to start building a healthy nest egg? Nope. But you can read more about that in this blog: Money Matters Part 2 – Saving Saavy for the Not-So-Young.

In the meantime, if you have any teens in your life, please do pass this blog on to them. You just never know where the seed of an idea will take root…and grow into a multi-million dollar tree 🙂

Related blogs by Maryanne:

The Magic of Compound Interest – Why Geometric Progression Matters

Tales, Tears & Triumphs – Transforming Your Relationship to Money

A Great Gift Gone Bad – A Cautionary Tale about Investing Properly for a Child’s Education

Maryanne Pope is the author of A Widow’s Awakening, the playwright of Saviour and the screenwriter of God’s Country. Maryanne is the CEO of Pink Gazelle Productions and the Chair of the John Petropoulos Memorial Fund. If you would like to receive Maryanne’s weekly blog, please sign up here.



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3 thoughts on “The Best Financial Gift to Give a Kid is FREE”

  1. This excellent comment came in via e-mail:

    Yep I really missed the boat on the compound interest thing the past 30 years. Trouble is finding those rates of return (5%+) are nearly impossible without a tremendous amount of risk and volatility that has become the normal and is here to stay. Might be okay for the youngsters who have years to save and benefit, but challenging for those of us in middle age. Gone are the days of high-interest bearing Canada Savings Bonds (‘memba those?).

    Your article timing was perfect as it got me off the fence to sign up for a session on THE PROCRASTINATOR’S GUIDE TO RETIREMENT: HOW YOU CAN RETIRE IN 10 YEARS OR LESS.
    I am overwhelmed with fear and anxiety on how I’m ever going to be able to retire. I have some very damaging “money scripts” from childhood that I need to overcome. Even as recent as this past Christmas my Mom made a money comment out of left field that just blew my mind. In that moment I fully realized where it all came from and it made me quite angry. It’s a very tangled web I need to unravel! Along with saving I need to develop more income streams. I read somewhere that the average “wealthy” person has seven streams of income?! I’m thinking of pro sports people who make money at their sport, have a winery, clothing line, endorsements etc. But the average Joe…wow, what do you do? Most people leverage up and invest in rental properties hoping one day to sell at a gain (and hopefully get to do more than break even in the meantime). I am just so afraid of debt that I struggle with that too much.
    Reader, Calgary, AB

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