Savings & Inflation
Soon I will be able to increase the amounts that I have been depositing to three childrens savings accounts. They will receive their funds when they turn 18 years old. But I need to know if you think the following is fair to all three children. Child #1 will turn 18 in four years, child #2 will turn 18 in 8 years and child #3 will be 18 in 11 years.
If I give the same amount to each, it is apparant that childs #2 and #3 will receive more money then child #1.
So I decided to use a base number to make it fair (I think) to all three.
$7200.00 is the base number
Child #1 gets $150.00 per month for 4 years = $7200.00
Child #2 gets $ 75.00 per month for 8 years = $7200.00
Child #3 gets $ 54.55 per month for 11 years = $7200.00
Now here is where I get stuck. Inflation will give #2 and #3 less purchasing power when they turn 18. So how do I adjust for inflation? Do I Increase the monthly deposit by the past years inflation rate or use some other number?
After 14 views, I thought someone might let me know if I am close to being right. So I'll try to answer my own question.
After the #1 child receives her funds (about 7200.00) I will give the other two an imaginary $7200.00 and keep a yearly record of past years interest rate and add it and the differance between that the inflation rate if any to the principal. So in summary:
$7200.00 + estimated 3.75% yearly interest rate (compounded monthly) + any differance between interest rate and inflation to be added to the new principal. (Whew) This is about as close as I can figure it.
So to make this work, I will also have to adjust the monthly deposit to reflect this new principal.