There’s a lot of research showing that the best school for kids is the one closest to their home. Attending a school close to home can lead to improved academic performance, increased physical activity, better social engagement, and higher educational attainment. If you consider this, then all the money that you would otherwise spend to send you child to a fancy school somewhere else in the country, you should rather invest for them from the age of 4-6 to 18 (this is even more applicable in e.g. the US where tuition fees are quite high) and invested in low-cost index funds.
The Vanguard First Investment Trust was launched and offered to the public in 1976, and is considered the world’s first publicly available index fund. This fund was later renamed the Vanguard 500 Index Fund as it tracked the Standard and Poor’s 500 Index. The average yearly return of the S&P 500 since 1976 (through the end of 2023) is approximately 11.6%.
If you assume this type of investment returns 11% yearly, and that you made a mistake and sent your child to a low-quality public school. They did not get into the best college and they ended up with a mediocre career. This lead them to having trouble buying their first home and they can’t live the life that you really wanted for them.
If you then have consistently invested 4,800 USD annually (200 USD pr parent, pr month) for the child’s first 18 years with an 11% interest rate and reinvesting the returns, you would have accumulated approximately 242,000 USD by the end of the 18 years.
Then you stop depositing money into the account, and the grown child, now 18 years old, let’s this amount at 242,000 USD compound by reinvesting the returns every year at an 11% interest rate for 12 years, until he/she is 30 years old it would have accumulated to approximately 846,000 USD.
Regardless of how their career went, they will now have 846,000 USD that will ease a lot of economic anxiety. This is how powerful the compounding effects of consistent investments with yearly returns are.
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