That’s the gist of an article from Paul Katzeff, entitled “Make your Kid into an IRA Millionaire“.
The article is basically a great compound interest example. To summarize, if you start your children saving in an IRA when they are 10 years old, they can potentially be millionaire by the time they retire (65).
I do take issue with using an 8% average rate of return to say someone will be a millionaire when they retire. Over the past 10 years, we (at least in the US) haven’t averaged an 8% annual return. And using a “market” average does not reflect the fees, costs, and commissions that are a fact of life when it comes to making investments.
A more conservative number for future returns (4%-6%) would provide a greater margin of safety and protect against those unexpected events that we call “life”.
That said, teaching children personal finance and investing at an early age is a great idea. Period. Regardless of the numbers used or whether the end result is millions of dollars, the early you can teach kids about investing, the better off they will be when they reach adulthood.