Make Your Kid A Millionaire: Prebirth Through 6 Years

This week, The Simple Dollar is conducting a detailed review of Kevin McKinley’s Make Your Kid A Millionaire. This title focuses on the role parents play in building a net worth for their child, both financially and psychologically. Does this book provide some interesting insights, or is it merely a repeat of the power of compound interest? This week, we aim to find out.

The first few chapters of Make Your Kid A Millionaire focus heavily on the earliest years of a child’s life, starting from that very moment when you see the plus sign on that home pregnancy test. Simply put, McKinley repeatedly hammers home the point that you should start as early as possible saving for your child’s future. I agree strongly with this; you can’t go wrong founding your child’s 529 the day that you see the home pregnancy test.

Why? Let’s say you’ve decided to save $50 per month for your child’s college education. If you start this with $50 on the day of their birth and continue this until their 18th birthday. At a 10% earning rate, on their 18th birthday, you’ll have $30,631.13 saved for their college birthday. On the other hand, let’s say you get a seven month head start on that $50 a month by starting the account on the event of that positive home pregnancy test. The total in that event is $32,822.12, a difference of $2,190.99 just by starting with $50 a month seven months earlier!

The results get even more dramatic if you don’t invest for the child’s first year or two. If you wait until the child’s second birthday to get started, your total is only $24,015.90, a loss of $6,615.23 just because you waited two years to start depositing $50 a month.

In the examples above, I’m assuming that you’re using a 529 to save for your child’s education. Why? As the book says, 529s are spectacular deals. They’re essentially Roth IRAs for your child’s education, since you don’t have to pay taxes on the earned interest provided that it’s used for educational purposes.

The book also recommends looking beyond education into the major events in your child’s life, such as a home purchase or retirement. Because you’re dealing with such long timeframes here, you can do an incredible amount to make their life easier by starting this saving now. Even trivial amounts invested in childhood can become very large amounts later in life. For example, if you simply invest $5 each month into a fund that returns 10% from the child’s conception to their 18th birthday, then stop contributing, the child will have $353,909.87 in the account on their 65th birthday and can withdraw about $3,000 a month without touching the balance. One less latte a month can help create a wonderful and more secure life fro your child.

McKinley also addresses life situations that we don’t want to think about and strongly encourages you to have a well prepared will and a healthy amount of life insurance. An entire chapter is spent on this topic and a powerful case for investing for such what-ifs is made.

In the next section of the book, McKinley goes on to talk about the choices you can make as your child grows older.

You can jump quickly to the other parts of this review of Make Your Kid A Millionaire using these links:
Overview
Prebirth Through 6 Years
Ages Seven to Twelve
Age Thirteen to Adulthood
Buy or Don’t Buy?

Make Your Kid A Millionaire is the fourth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

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One thought on “Make Your Kid A Millionaire: Prebirth Through 6 Years

  1. David says:

    Well there is one way that you can go wrong with a 529.

    When our first child was born, we had a hard time grappling with the financial realities of being a family rather than a married couple. Our expenses (childcare, diapers, etc) were now $700+ a month higher, but our thinking did not change.

    We also were like 529, great, here’s $175 per month.

    The end result is a net worth statement that makes no sense at all — we have credit card debts of $24K, and a 529 plan balance of $9K.

    Talk about a duh moment. Yeah, we’re not going to do that any more :-)

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