is a guide for parents who are thinking about investing for their child’s future, whether it be for their education, for buying a home, for making their life easier, or even for their retirement. The book attempts to address children of all ages, but works hard to convince people to start early so the power of compound interest works in their favor.
The language of the book is very conversational, making it an easy read. One could read this book in little nibbles over a month or two, or swallow it down all at once in a few hours. Many of the basic concepts are shown in various different lights so that they really sink in no matter what stage the reader or the reader’s child is at.
Another useful attribute of is that McKinley has broken down most of the concepts into ordered lists, many of which serve as step-by-step action plans. A great example of this appears in the book’s introduction, where McKinley lays out an ordered list of ten things you need to know, each with a couple paragraphs of description. Here’s that list, for a sample of the book’s content:
1. Time is your best friend.
2. Procrastination is your worst enemy.
3. Without a foundation, the structure crumbles.
4. A watched pot never boils, and a watched stock never doubles.
5. Wealth equals freedom.
6. We are what we are, not what we have.
7. Money is a tool, not a weapon.
8. The second-greatest gift. (with the greatest being love)
9. It’s easier to spend less than it is to make more.
10. People get rich slowly.
The purpose of this list is (obviously) to get a parent in the proper mindset to invest for their child’s future, but it also reveals many of the principles of the book: slow and steady wins the race, money is just a tool to have more time, and time works in your favor so you should get started early.
Prebirth To 6 Years
The first few chapters of focus heavily on the earliest years of a child’s life, starting from that very moment when you see the 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.
Ages 7 To 12
As your child grows older, the book begins to assume that you’ve done a few fundamental things, such as plan for an unexpected disaster as well as begin a savings program in a 529. What else can you do to help ensure a great future for your child? The middle section of the book addresses this.
The strongest suggestion given is to invest in your own Roth IRA. Since this money is all after taxes and you can begin withdrawing at age 59 1/2, it’s a great way to channel money to your future self without worrying about taxation. This serves two great benefits in terms of your child: one, it ensures that they will have very little expense when it comes time to look at assisted living facilities and other late-life needs for you, and two, it gives you a source of money that you have many options for distributing. You can take the money out steadily and spend it on your children or grandchildren while you’re alive, or, if you’re in great financial shape, you can hold onto that money and pass the Roth IRA onto your descendents upon your death. Either way, a Roth IRA is a great way to keep control over your money while still allowing you to be able to help your children later in life.
The book also suggests investing in common stocks and annuities for the future, but it is quite clear that there are better investment options than these, so there are portions of the middle of the book that feel much like supplemental material.
Another disappointment in this section of the book is the continuing references to the value of this period in a child’s life to educate them about money, but the book offers no real advice on the subject. I found this particularly disheartening because of my belief that a good education about life is the most valuable gift you can give your child, and an education about money is a vital component.
McKinley’s book does a very good job of explaining the mechanics of how you can make your child a millionaire by giving the child the money, but it does a poor job of explaining how you can teach your child to understand the real value of this gift, that money in the bank is freedom, not just the key to more stuff. This is the big sour note for this book.
Age 13 To Adulthood
This week, Money360 is conducting a detailed review of Kevin McKinley’s . 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.
As your child becomes an adult and leaves the nest, you might be in a financial position to continue to help them with the major obstacles in their life. Most of the remainder of the book deals with these positions and what you can do to help out.
The first suggestion is to get your child a Roth IRA as soon as they start earning income, and it also is one of the best suggestions in the entire book. For most children, when they get a teenage job, the last thing they think about is retirement. I know I didn’t think about it when I was fifteen years old and working as a farmhand; I was busy spending my income on music and girls. What can you do as a parent to help? The best thing to do is offer to match what they save themselves (in a savings account) with an equal amount in a Roth IRA. You can pitch it to them as literally doubling their money. Obviously, no teenager will be willing to sock away all their money, but you can convince them to sock away enough so that their Roth IRA begins to build a balance in their mid teen years.
When I read this, I used myself as an example. Through my high school and college years (ages 15 to 23), I earned about $100 a week, on average. I could have easily put away $20 of it into savings. On my 23rd birthday, if it earned an average of 10% a year, I would have had $12,772.33 in my Roth IRA. Let’s say I never put another dollar into it for the rest of my life. At age 60, I would have had $434,309.70 in my Roth IRA. That number alone might just startle you into considering such a deal with your child.
After college (which the book recommends you help pay for with a 529), you might want to help your child out with a home purchase. The book offers several suggestions on this topic, from offering advice to making a payment for them (a single extra payment at the start of a mortgage can knock years off of the end of it) to paying part or all of the down payment. This felt like the strongest part of the book, as it combined advice for discussing these financial assistances along with the mechanics for actually doing it.
The book also offers advice on what to do with your money when passing it on to descendents, including the interesting topic of passing money straight to grandchildren. This is especially important if your estate is large enough to be concerned with an estate tax, as most people wish for their family to reap at least some of the rewards of their hard work throughout their life.
Buy or Don’t Buy?
If you’re thinking of buying this book, the first question you need to ask yourself is whether you (or the person you’re buying this for) has any children or is planning on having any children. If there are no children around, you’re better off buying another personal finance book. Of course, this should be obvious from the title and the cover, but we’re better off being clear on it anyway.
This book is strong in terms of the actual investments you should consider for a child’s future. If you’re to the point where you’re looking to put money somewhere for a child’s future, this book is definitely worth the time it takes to read it. It’s not overly long, but it’s packed with specific investment advice for people investing for their children.
On the other hand, this book is weaker on the psychology of the matter. It won’t give you advice on how to teach your children how to be responsible with money; if you’re looking for that, go elsewhere. This book focuses strictly on investing for a child’s future, not teaching them how to deal with the fruits of that investment.
In short, buy this book if you’re a new or expecting parent or are looking to gift it to a new or expecting parent – with one little caveat. This book is very mechanically strong in terms of methods for saving and investing money for a child’s future, which is a component that many other “children and money” books are weak on. Since many parents will eventually read a “children and money” book, is a wonderful and valuable complement to this.
As a fairly new parent, I thoroughly enjoyed this book, but I plan on supplementing it in a few years with a book or two on teaching my son how to manage his own money.
Make Your Kid A Millionaire is the fourth of fifty-two books in Money360’s series 52 Personal Finance Books in 52 Weeks.