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Education and Investment
The gift of compounding interest
A savings habit is one of the most valuable things we can pass on to the next generation, a timely cash injection is another. Combine one or both with the power of compound interest, and you could be handing out a literal gift that keeps on giving.
Any child will tell you what they think makes a good present. Video games, electronics, that in-demand gadget you have to battle crowds at the toy store to snap up. But one of the best gifts for children is one few of them even know about: the gift of compounding interest.
What is compounding interest?
Albert Einstein once said “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it”. So it’s probably a good idea to become familiar with the concept.
In a nutshell, compounding interest means earning interest on interest. You invest a principal sum, that sum earns interest, then that interest is added to the principal sum... which keeps earning interest. This means your interest-earning sum is constantly growing.
A meaningful present
With Christmas around the corner, it’s a good time to reflect on the impact and meaning of the gifts we give. Material items can bring joy, of course, but the long-term benefits of a smart investment could mean more than a present that may well end up in landfill.
You might look at compound interest and the wealth it creates as a gift somebody can find joy in twice. First when they receive it, and again when they spend it.
Even a small donation to a savings fund represents an investment in the person’s future. It’s one of the most meaningful gifts you can give. But the money itself is only the beginning.
A gift that keeps on giving
Whether you choose to start a brand-new investment or give an existing one a boost, a gift that earns compound interest can come with an added bonus: a bit of financial know-how. It’s an opportunity to introduce the recipient to interest.
If they don’t already have a savings account, creating one can remove the obstacle of not knowing where to start. And boosting an existing account can hammer home the power of saving and investing. Nothing teaches kids about that like watching their own money grow.
Your gift could become a catalyst for developing lifelong financial habits and an appreciation for long-term investing. And when you consider the uncertain future today’s children and young adults are heading towards, that could come in very handy.
The next generation face challenges
The Futurity Investment Group Investing in Education Report looked into what the future holds for Gen Z (1997-2010) and Gen Alpha (2010-current). It found they’re expected to live longer and work later into life than previous generations.
But it’s not likely to be a matter of studying, becoming qualified, and then settling into a long life of employment. Their working world will look very different to what’s come before.
The emerging generations are expected to have 18 jobs over six careers in their lifetime. That will come with a great deal of training and study. This lifelong learning could mean a lot of expense, especially when you consider the cost of education in Australia is rising.
Easing the path for children and grandchildren
With the largest intergenerational wealth transfer coming, parents and grandparents have an opportunity to help the next generation navigate their way through lifelong learning.
Over the next 20 years in Australia, $3.5 trillion of the older generations’ wealth will either be spent or passed down. By the end of that period, the youngest of this cohort will be in their 80s, and 70% of that amount could have been transferred to children or grandchildren.
When you consider the benefits of long-term investing, intergenerational wealth transfer utliising a tax-effective investment that earns compound interest could be one of the most welcome gifts for students – current or future.
We can help you help them
Futurity’s EdSaver is designed as an easy way for you to start tax-effective investing and saving for your family’s future education expenses today.
You can start with as little as $1,000 upfront with an ongoing Savings Plan of at least $200 per month or make an initial contribution of $5,000 or more with no Savings Plan.
When you apply for our EdSaver, there is no minimum term and you’re not locked into a set Savings Plan.
Discover more about how EdSaver can help you give the gift of compounding interest to a child, grandchild, or someone else you care about.
Past performance is not indicative of future performance. Earnings, and therefore the benefit of compound interest, are not guaranteed. Education Bonds are designed to be a long-term investment.