Why it is Important to Start Saving When You're Young

I am a huge advocate of kids starting to save and invest when they are teenagers. Why? Because they have lots and lots of time on their side. Think about it, a teenager who starts saving at age 16, has approximately 50 years before they turn 65. Even if they have dreams of retiring early at age 55, that's still nearly 40 years to let their money grow.

If a 16 year-old could save and invest $1,000 per year for 3 years and then just let it grow until age 65, the account would be worth over $320,000 at age 65. And, that's assuming that they never added another dime to it.

Let's take it a bit further. Say they save for 3 years and skip saving while they are in college and then they start saving once they are out of college and starting a career. We'll assume that they can save the maximum allowed to be put in an IRA, which will be $5,000 starting in 2008.

For all you number lovers, here's what they look like:

     Starting                             Ending
Age   Balance  Additions   Total    ROR   Balance
 16     $1,000               $1,000 10%     $1,100
 17     $1,100    $1,000     $2,100 10%     $2,310
 18     $2,310    $1,000     $3,310 10%     $3,641
 19     $3,641  College      $3,641 10%     $4,005
 20     $4,005  College      $4,005 10%     $4,406
 21     $4,406  College      $4,406 10%     $4,846
 22     $4,846  College      $4,846 10%     $5,331
 23     $5,331    $5,000    $10,331 10%    $11,364
 24    $11,364    $5,000    $16,364 10%    $18,000
 25    $18,000    $5,000    $23,000 10%    $25,300
 26    $25,300    $5,000    $30,300 10%    $33,330
 27    $33,330    $5,000    $38,330 10%    $42,163
 28    $42,163    $5,000    $47,163 10%    $51,880
 29    $51,880    $5,000    $56,880 10%    $62,568
 30    $62,568    $5,000    $67,568 10%    $74,324
 31    $74,324    $5,000    $79,324 10%    $87,257
 32    $87,257    $5,000    $92,257 10%   $101,483
 33   $101,483    $5,000   $106,483 10%   $117,131
 34   $117,131    $5,000   $122,131 10%   $134,344
 35   $134,344    $5,000   $139,344 10%   $153,278
 36   $153,278    $5,000   $158,278 10%   $174,106
 37   $174,106    $5,000   $179,106 10%   $197,017
 38   $197,017    $5,000   $202,017 10%   $222,218
 39   $222,218    $5,000   $227,218 10%   $249,940
 40   $249,940    $5,000   $254,940 10%   $280,434
 41   $280,434    $5,000   $285,434 10%   $313,978
 42   $313,978    $5,000   $318,978 10%   $350,875
 43   $350,875    $5,000   $355,875 10%   $391,463
 44   $391,463    $5,000   $396,463 10%   $436,109
 45   $436,109    $5,000   $441,109 10%   $485,220
 46   $485,220    $5,000   $490,220 10%   $539,242
 47   $539,242    $5,000   $544,242 10%   $598,666
 48   $598,666    $5,000   $603,666 10%   $664,033
 49   $664,033    $5,000   $669,033 10%   $735,936
 50   $735,936    $5,000   $740,936 10%   $815,030
 51   $815,030    $5,000   $820,030 10%   $902,033
 52   $902,033    $5,000   $907,033 10%   $997,736
 53   $997,736    $5,000 $1,002,736 10% $1,103,010
 54 $1,103,010    $5,000 $1,108,010 10% $1,218,811
 55 $1,218,811    $5,000 $1,223,811 10% $1,346,192
 56 $1,346,192    $5,000 $1,351,192 10% $1,486,311
 57 $1,486,311    $5,000 $1,491,311 10% $1,640,442
 58 $1,640,442    $5,000 $1,645,442 10% $1,809,986
 59 $1,809,986    $5,000 $1,814,986 10% $1,996,485
 60 $1,996,485    $5,000 $2,001,485 10% $2,201,634
 61 $2,201,634    $5,000 $2,206,634 10% $2,427,297
 62 $2,427,297    $5,000 $2,432,297 10% $2,675,527
 63 $2,675,527    $5,000 $2,680,527 10% $2,948,579
 64 $2,948,579    $5,000 $2,953,579 10% $3,248,937
 65 $3,248,937    $5,000 $3,253,937 10% $3,579,331

Even at age 55, they could have over $1.3 million.

The point of all this is that if possible, it pays to start saving at a young age. So, to all you parents out there: teach your children well.