As adults, how many times have you wished you had invested money as a teenager or young(er) adult? We're all aware of the power of compounding interest, and the idea that starting your savings earlier means having more money when you are ready to retire, but by the time we discover this financial truth – we've already missed a whole lot of years of saving! Why not help your kids earn their first million?

Teenagers aren't thinking about retirement. They're thinking about getting their first cars, road trips with their friends and falling in love. If you can help your child realize the formula for retirement fund success relies on starting it early and not withdrawing the money until retirement, your child won't be among the adults who look back and wish they had started their retirement savings earlier. Investing money for retirement as a teenager doesn't have to be overly complicated. You don't have to spend hours studying the performance of various stocks and bonds or anything – just open a Roth IRA with a low-cost equity portfolio and leave the money until your 16 year old turns 67 and can remove the money tax-free.

Here's how today's teenager can (start) earning their first million by the time they retire:

Get a summer job at the age of 15 or 16: Can a 16 year old earn $2,000 over the summer months? Of course they can (and I did too, 13 years ago when minimum wage was even less than it is now). If your teenager gets a job at about $9 an hour, they would have to work around 223 hours to make a little over $2,000. This is before taxes are taken out though, so to be on the safe side, you could assume they need to work around 350 hours in order to clear the $2,000 after Uncle Sam gets his cut. A typical summer vacation is around 3 months in length, so your child would be looking at working at least 117 hours per month, or about 29 hours a week. This leaves plenty of time for socializing and “hanging out”, too.

Earn $2000 per summer all through high school: (and maybe your first summer as a college student or new high school graduate, too) If your 16 year old earns $2,000 during each of the four summer vacations of their high school career, they're looking at $8,000 that can be placed in a Roth IRA to earn tax-free for as long as the money remains in the account. (If you withdraw the money after you are 59 and a half years old, it can be withdrawn tax-free as well!) With $2000 invested into a Roth IRA over the teenagers four summer vacations, your sixteen year old could start the ball rolling to earn their first million for retirement. If you invested the $8,000 earned over the four summers into a Roth IRA; investing in common stocks with the average compound rate of 10.7%, your account would grow to be over $9,300 at the end of the fourth year. By the time your sweet sixteen year old has graduated from high school and started the next phase of his or her life, even without any additional contributions those summers of working will have earned:

  • Over $25,000 at the age of 30
  • Over $71,000 at the age of 40
  • Just shy of $198,000 at the age of 50
  • Over $540,000 at the age of 60
  • Over $1,100,000 at the age of 67

Helping your teenager understand the value of compounding interest and saving early will turn them into retired millionaires with just a few summers of working. (Not to mention whatever they do to contribute to their retirement accounts through their adult working years). As we get older and have more financial responsibilities, most of us find it impossible to save $2,000 in 3 months time. The opportunity is perfect for a teenager to establish their retirement accounts, as long as they keep their hands out of this piggy bank until they retire.