Read an interesting article this week (I forget where) about this topic. They suggested that most people think about this topic backwards.

Instead of trying to decide how to give people a huge amount of money when you die, focus on giving them a much, much smaller amount really early and let compounding growth do the heavy lifting for you.

Here's an example. Historical stock market growth rate has been a bit more than 7%/year in real terms. (10%+ including inflation.) The rule of 72 sows us that an investment at that growth rate will double about every decade.

Here's the progression of doubling based on an initial $1000 investment made on a grandkid's behalf on their day of birth.

$1000, $2000, $4000, $8000, $16,000, $32,000, $64,000, $128,000, $256,000, $512,000, and $1,024,000. So, they would have $64,000 at age 60.

That's better than a huge percentage of American families at that age.

But what if you invested $2000 on day 1 instead? Suddenly that retirement nest egg for your grandkid when they turn 60 is $128,000. That's a whopping big difference!

What if you gifted them with $8,000 on day 1? Now they're sitting on over half a million $ at age 60!

And, of course, $16,000 gets them to more than a million $ at age 60.

I think this makes a lot of sense. Unless you have a bunch of kids early who also have a bunch of kids early, it's the kind of thing that many mustachians could pull off. It also has the advantage of being a gift from someone that the kids know and, hopefully, love and respect.

You then teach them the financial knowledge and family values that would both enable and encourage them to pay it forward to their grand-kids.

I have 3 grandkids. 1 is in her early 20s, the two boys are 4 and 6. It's early enough that a small gift for the two youngest will really grow over time.

The older one would need a bit more to get her fund started.

We're thinking of hiring them under contract to model for us and pre-paying them. One can model jewelry that I make, the others can model how much fun it is to play in the yard at our rental houses. If we open up a Roth for them their money will grow tax free forever after that. Awesome stuff. :)

We still have some research to do to make sure that wouldn't get in the way of financial aid calculations...