Why time, not money, is key to your child's financial future

WE all want our kids to be financially savvy, but if we wait until they are old enough to learn to save for themselves, we rob them of the most important years of growth.

- ADRIAN HOPE-BAILIE

It’s tempting for parents to think, “They'll start saving when they start earning,’ or “It’s not worth it unless I can contribute big amounts,” but this mindset overlooks the most valuable asset in wealth-building, and the one advantage your kids have today — time.

The magic of compounding: Why starting early matters

One of the most powerful wealth-building tools at your disposal isn’t necessarily the amount you invest - it’s the time you give your money to grow. Thanks to the magic of compound growth, even modest investments can snowball into substantial sums over decades.

For parents looking to secure a financial head start for their children, starting early can make a huge difference, and a tax-free savings account (TFSA) offers one of the most accessible, tax-efficient vehicles to do just that.

To illustrate this, let’s compare some different investment scenarios using a 9.4% return per year. This is the average for the MSCI World Index for the last 40 years, a pretty good yardstick for the global markets.

If you invest R36,000 a year (R3,000 a month) in a TFSA for your child - the annual limit permitted - and you start investing from the moment your child is born, you'll have invested the full R500,000 allowed by the time they are 14.

Without investing another cent, that investment will be worth more than R123 million when your child is ready to retire at 65.

In contrast, if you only start investing when your child is 9 years old (halfway to adulthood) they will only have R 53m at age 65, significantly less than half of what they'd have if you started at birth.

Quite simply, time always beats money when it comes to long-term investing.

Starting age: Return at age 65

Table Caption: Expected return at age 65 from a TFSA with 9.4% annual return, assuming R3000 monthly contribution until R500000 total contribution limit is reached.

Not a high earner? Start anyway