Imagine that you were born in 1939 and your grandparents scrimped and saved $10 a month for you during the first 10 years of your life. They placed this money into a trust fund earning an average rate of return of 8%. Then that money remained in the trust fund accumulating the same average rate of return over the next 55 years. How much would you have had when you retired at age 65 from your grandparents’ investment of $1,200? $146,851.08!!! Who would have ever thought that $10 a month gift would amount to this number?

Albert Einstein was once asked by a reporter, What is the most powerful force in the universe? His reply? Compound Interest. Compound interest is interest accumulated not only on the dollars you invest, but on the interest already accumulated by these dollars as well. For example, if you invest $100 in an account earning 3% interest annually, you will make $3 the first year. Now your principle balance is $103. So, how much money will you have the next year? If you thought $106, you’re wrong-the answer is $106.09. The second year, you earned 3% on $103, not $100. The extra 9 cents was the result of compounding.

Now, you might be thinking, whoop-de-doo; an extra 9 cents. And while it’s true that won’t even buy you a pack of gum, the key is that the more time your money is invested, the more your money – no matter how little you start with – will work for you. An easy way to calculate the impact of compound interest is applying the rule of 72. Just divide 72 by the annual return on the investment and you will arrive at the number of years it will take for the investment to double. In the example above, for instance, it would take 24 years for the $100 investment to double (72/ 3).

And just for the record, an investment of any type with a potential to only earn 3% is probably not suitable for a young child with a long time horizon. Although many vehicles such as savings accounts may appear to be the safe route to take, you most likely won’t be able to outperform inflation and we all know inflation plays a strong role with the cost of higher education in particular. It is important to consider investments with more growth potential.

Speaking of higher education…if your goal is to assist your grandchild with the cost of school, consider taking advantage of tax-advantaged vehicles. Coverdell Education IRAs and 529 College Savings Plans are tax-deferred savings accounts. Additionally, some plans in some states may be tax beneficial to you.

Another idea is to involve your grandchild. One of the best gifts you can give is your wisdom. Teaching a child to save and invest for the future at an early age may create excellent habits he/she can carry throughout life – and give them a sense of pride and accomplishment in helping provide for their own education at a later date. Investing does not require a large dollar amount to get started. There are many investments with low minimums.

So after you are finished celebrating the birth of your new grandbaby, place talking with your advisor about saving and investing for the new addition to your family at the top of your list.