A warm and welcoming guide for parents.
As a parent, you've probably wondered: "How can I give my child the best financial start in life?" The answer might surprise you: it doesn't take thousands of dollars or complex investment strategies. With just $5 per month and the right approach, you can begin building your child's lifetime income today.
The secret lies in understanding the incredible power of compound interest and starting early. When you plant a financial seed in your child's early years, time becomes your greatest ally. Let's explore how a small beginning can grow into substantial lifetime wealth.
Why Starting with $5 per Month Makes Perfect Sense
Many parents feel overwhelmed by financial planning because they think they need large sums to make a difference. The truth is, consistency matters more than the amount. Starting with $5 per month removes the psychological barrier that keeps many families from taking action.
Consider this: a child born today has roughly 65+ years before retirement. That's 65 years for money to grow and compound. Even modest contributions during childhood can create remarkable wealth by the time your child reaches adulthood: and extraordinary wealth by retirement age.
The beauty of beginning small means you can adjust your contributions as your family's financial situation improves, but you'll never regret starting early, even with minimal amounts.
Step 1: Open the Right Account for Long-Term Growth
Your first step is choosing the proper vehicle for your child's money. Not all accounts are created equal when it comes to building lifetime wealth.
Custodial Investment Accounts offer the most flexibility. You control the account until your child reaches the age of majority (18 or 21, depending on your state), then ownership transfers to them. Many brokerages allow you to start with as little as $5 per month and have no minimum ongoing contributions.
529 Education Savings Plans provide tax-advantaged growth specifically for educational expenses. While originally designed for college costs, recent changes allow withdrawals for K-12 education expenses and even some career training programs.
Roth IRAs for Minors become available once your child has earned income from work. These accounts offer tax-free growth and tax-free withdrawals in retirement, making them incredibly powerful wealth-building tools.
The key is selecting an account that aligns with your family's goals and your child's future needs. Each option offers different benefits, but all provide better growth potential than traditional savings accounts.
Step 2: Choose Growth-Oriented Investments
Once your account is established, your $5 per month needs to work hard. This means moving beyond basic savings accounts and into investments that can grow over decades.
Low-cost index funds that track the S&P 500 give your child ownership in America's 500 largest companies with a single investment. These funds have historically averaged around 10% annual returns over long periods, though individual years vary significantly.
Target-date funds automatically adjust the investment mix as your child ages, becoming more conservative as they approach the target date. These "set it and forget it" options work well for parents who prefer hands-off investing.
Dividend-paying stocks and funds can provide both growth and income over time. When dividends are automatically reinvested, they purchase additional shares, accelerating wealth building through compound growth.
The magic happens when you consistently contribute to these investments. Even $50 monthly contributions, assuming an 8% average annual return, could grow to over $100,000 by your child's 18th birthday: more than double the $46,800 you contributed.
Step 3: Consider Children's Annuities for Guaranteed Lifetime Income
If you want a portion of your child's plan to be predictable and protected, a children's annuity can be a smart complement to market-based investing.
- Why parents and grandparents choose children's annuities:
- Guaranteed growth options and the ability to create lifetime income later on
- Tax-deferred compounding for potentially decades
- Start small (even $5 per month–$25/month) and scale as your budget allows
- Beneficiary design can help money transfer outside probate when set up correctly
- Things to know before you start:
- Annuities are designed for long-term goals; early withdrawals can trigger surrender charges and taxes
- Income riders and features may have fees—know what you’re paying for
- Guarantees are backed by the claims-paying ability of the issuing insurer
- A simple way to use this step:
- Open a custodial annuity and automate a small monthly contribution
- Schedule annual “birthday step-ups” of $5 per month–$10 to build the habit
- Revisit at major milestones (age 18/21) to consider future income options
“Guarantees don’t replace growth—they balance it. Pairing an annuity with investments can give your child both stability and opportunity.” — Shaneil L. Tunis, Agent
Step 4: Evaluate Indexed Universal Life (IUL) for Flexible Growth and Protection
Indexed Universal Life is permanent life insurance that can build cash value linked to a market index (with a floor to limit downside and caps that limit upside). For children, it can lock in insurability and low premiums for life while creating a flexible future fund.
- Benefits families appreciate:
- Lock in low premiums and lifetime coverage while your child is young and healthy
- Potential cash value growth with downside protection (often a 0% floor on credited interest)
- Tax-advantaged access to cash value via policy loans/withdrawals if structured properly
- Optional riders (e.g., chronic illness, waiver of premium) for added protection
- Things to consider:
- Caps, participation rates, and policy charges affect growth; design matters
- Policies must be funded appropriately to stay healthy and avoid lapse
- Loans/withdrawals reduce cash value and death benefit if not managed carefully
- A simple way to use this step:
- Start with a small, affordable premium (as low as $3–$25/month) and increase over time
- Overfund within guidelines to prioritize cash value growth
- Set family rules for access (e.g., education, first home, or entrepreneurship)
“For many families, a modest IUL becomes a ‘flexible future fund’—protection today with the option to use cash value tomorrow.” — Shaneil L. Tunis, Agent
Step 5: Automate Contributions for Consistent Growth
Consistency transforms modest contributions into substantial wealth. The difference between families who successfully build wealth and those who don't often comes down to automation.
Set up automatic transfers from your checking account to your child's investment account. Whether it's $5 per month weekly, $20 monthly, or whatever amount fits your budget, automation ensures contributions happen regardless of busy schedules or competing financial priorities.
Start small and increase gradually. Begin with an amount that doesn't strain your budget, then raise contributions when you receive raises, bonuses, or tax refunds. This approach makes wealth building feel natural rather than burdensome.
Make it a family tradition. Some families contribute to their children's accounts on birthdays, holidays, or special achievements. Others match their child's earnings dollar-for-dollar once they start working part-time jobs.
The goal isn't to stress your family's finances but to create a sustainable habit that continues for years. Small, consistent contributions almost always outperform larger, sporadic ones because they benefit from dollar-cost averaging and compound interest over longer periods.
Step 6: Reinvest Everything for Maximum Compound Growth
One of the most powerful wealth-building strategies is reinvesting all dividends, interest, and capital gains instead of withdrawing them. This approach transforms your child's account into a wealth-compounding machine.
When dividends are reinvested, they purchase additional shares or fund units. These new shares generate their own dividends, which purchase even more shares. This creates an accelerating cycle where your money earns money, and those earnings earn money of their own.
Over decades, reinvestment makes an enormous difference. A $10,000 investment at age 20 with 5% annual returns grows to about $70,000 by age 60 with reinvestment: but only $50,000 if dividends were withdrawn and spent.
For children, who have even more time for compound growth, the effects are even more dramatic. Money invested during childhood and left to compound until retirement can grow to seven-figure amounts, creating genuine financial independence.
Step 7: Teach Financial Literacy and Transition Ownership
Your final step involves preparing your child to manage their growing wealth responsibly. Financial education should begin early and continue throughout childhood.
Make investing tangible and interesting. Show your child that through their investments, they own pieces of companies they recognize: McDonald's, Apple, Disney. This makes abstract financial concepts concrete and engaging.
Involve them in account reviews. As children mature, include them in quarterly or annual reviews of their investment performance. Explain how compound interest works and why long-term thinking matters in building wealth.
Encourage earned income contributions. Once your child starts working, help them open their own Roth IRA and consider matching their contributions. Many families match dollar-for-dollar, allowing 100% of the child's earnings to be invested while teaching that "savings is a bill": a non-negotiable expense.
Plan the transition gradually. Rather than transferring complete control at 18, consider a gradual transition where your child takes increasing responsibility for investment decisions while you provide guidance.
The Long-Term Impact: From $5 to Lifetime Security
The strategy of starting with $5 works because time is your most valuable asset in wealth building. A child born today has decades for money to compound before they need it for major life expenses.
Consider this scenario: $100 monthly contributions from birth to age 18 with 10% average annual returns. The $21,600 in total contributions could grow to over $1 million by retirement age: all because you started early and let compound interest work its magic.
This isn't just about money: it's about giving your child options. Financial security provides freedom to choose careers based on passion rather than just salary, to take entrepreneurial risks, to support causes they care about, and to build generational wealth for their own children.
Getting Started Today
Building your child's lifetime income doesn't require perfect timing or large initial investments. It requires taking the first step with whatever amount you can comfortably contribute.
If you're interested in exploring children's annuities or whole life insurance for children as additional wealth-building tools, these products can complement your investment strategy by providing guaranteed growth and protection benefits.
Remember, the best investment strategy is the one you actually implement. Starting with $5 per month today beats waiting for the "perfect" amount or the "right" time. Your child's financial future begins with your decision to take action, no matter how small that first step might seem.
HAVE QUESTIONS?
I’m happy to answer your questions or offer a free, no-pressure consultation for your family.
Shaneil L. Tunis, Licensed Insurance Agent
Phone: (910) 786-1413
Website: www.momannuity.com
Email: sl.tunis@momannuity.com