For the average family, it can cost over US$ 200,000 to raise a newborn child to age 17. However, if you consider the amount of money it will cost to send your children to college, that figure is just the beginning. Today, one year at a private college or university can cost over US$30,000. Even moderately priced or more inexpensive schools can present to financial challenge to many families.
What's important to remember while your children are young is that time is money. If you have a lot of time, then compound interest can make your money go a long way, even if you start with very little.
Suppose you deposited US$500 in a money market account for your newborn with an annual percentage rate of five percent. If you deposited just US$1 a day in the account for the next 17 years, your child would have close to US$10,000 to use for college. Imagine what this amount be if you had deposited even more over the years, or if you left the money for even longer.
If you put any amount of money in an account with a competitive interest rate, you'll earn interest payments on you initial deposit. As each month goes by, you'll earn interest on everything in your account, so you are basically earning interest on your interest. Plus, the higher the annual percentage rate you can get, the more your bank will pay you each month in interest.
Over a long period of time, compound interest can really add up, so it makes good sense to start early and deposit funds whenever you can. What if instead of buying your child another new toy this week, you decide to deposit the money in his or her savings account? Years later, long after the toys have been sold at yard sale or given away, your child may even thank you!
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