Hi everyone. For the last few days I talked about health and some wisdom. Today I thought I will talk a little about wealth, specifically how to build wealth for your children.

The easiest thing to do is to open a savings account for your child. You can invest a small amount like $50 per month. Nowadays you can manage the account online, so your children can learn how to do that. They can also deposit any money they get from relatives or prizes into that account. But the interest rates are so low that if you want to build wealth, this method will not work.

The next best thing to do is to open a brokerage account with you acting as a custodian. In the US the Uniformed Gifts to Minors Act (UGMA) is a way for children to own stocks and securities. This type of account is very different from a regular old savings account, essentially it is a trust that allows a minor to receive thousands of dollars a year without any legal issues.  An account is set up for the child, and a custodian is appointed to oversee the funds and the investments. This type of trust allows the custodian to buy stocks, mutual funds, and other types of securities and assets. I did that for our kids. I created an account and I buy shares of Walt Disney Company. You can look into companies like Toysrus, McDonalds, or anything that your children like. But stocks can be volatile.

Yet another investment is Index Funds. These funds mimic an index like S&P 500, meaning they invest in stocks that are in the S&P 500. The best part is that the portfolio is balanced by a computer model so there is little or no human intervention. So you take out the emotional aspect.

The key to building wealth is to start as early as you can. Warren Buffet started investing when he was 11 and he thought that he was late. But the magic of compounding is unbelievable. As an example, a child who invests $50 a month for six years before the age of 13 and then never invests another cent will end up with more than $723,000 at age 65. An adult would have to invest nearly $200 a month for 35 years and ensure they get a 10% rate of return on their money to be able to retire with the same amount at age 65.

Finally, I do want to say this. I am not a certified financial planner or an accounting professional. My post should not be taken as financial advice. You should contact a professional before making any financial decisions. Also, things I said here, apply to the US. If you are outside the US, you should look into similar investment vehicle in consultation with a licensed professional in that country.