In this series of blogs about demystifying personal finance, we look at how to make your child a millionaire.

In the UK, anyone can have a pension plan. Even a baby can have a pension plan in their own name. They don’t need taxable earnings or even any earnings at all. Every person is entitled to pay (or have paid on their behalf) up to £3,600 per year into a pension plan and receive basic rate tax relief on that sum. That means the Government will pay 20% of the sum for you. 20% of £3,600 is £720, meaning you only have to pay in £2,880 a year to get £3,600 invested.

£2,880 is £240 per month.

So, let’s look at how you make your child a millionaire with these sums.

Let’s assume you start as soon as they are born. You set up a pension plan and your £3,600 is invested into it every year until they reach adulthood. In the UK this is age 18 so these calculations are based on that.

So I’m assuming you invest £3,600 for 18 years for your child – meaning you will have invested £64,800 in total. Take off 20% tax relief in the UK and the cost will be £51,840.

Assuming that money grows at 5% per year over the period and by age 18, your child has a fund worth £104,761.

You can now stop contributing because the miracle of compound interest will do the rest for you. By the time your child reaches retirement age (let’s assume age 65) that fund will have grown to £1,093,129.

Without having to pay anything at all into the fund themselves, your child will retire a millionaire. Rather than having to commit chunks of their income to a pension throughout their life, they can use that money instead to buy a better house, start a business, have great holidays. Whatever, it doesn’t matter. They will be a millionaire anyway.

But it gets even better than that. I assumed the money grew at 5% ever year.

What happens if we assume that investment growth is double that? The same in fact as the average annual increase for the US stock market? The long term return from investing in the US stock market is about 10% per annum.

It could not be easier these days to invest in that market. A simple index tracker fund will do the job. You don’t need complex investment funds or a financial adviser to sell you a big portfolio of shares.

So, if we assume your child’s fund grows at 10% per annum, what do the figures look like?

By age 18, the fund will be worth £180,169 – up from £104,761 assuming 5% growth.

And if we then grow £180,169 by 10% per annum up to age 65, we arrive at a figure of £19,427,019

Your child is now a multi-millionaire – all for the cost to you of £64,800 (or £51,840 in the UK) over 18 years.

If you want your child to retire at age 60, the fund will be £11,807,520

Let’s even say you want your child to retire a millionaire in their mid thirties. You won’t be able to use a pension plan in the UK for that as they won’t be able to take the money out, so let’s assume we just invest £3,600 in another investment vehicle.

By the age of 36, at 10% growth, they will have a fund worth £1,081,860.

Now you may be amazed by these figures and by the fact that nobody has ever told you that you can set your child on the path to immense wealth and financial freedom, all for the sake of you investing just a few hundred pounds every month until they reach age 18.

Why is this? Why is this information not given to you in the maternity ward when your child is handed over?!

Because the finance industry does not want you to know.

They don’t want just £64,800 from you, invested in a very low cost index tracker fund.

They want your child to become an adult with no money or assets, so for the rest of their working life they can harangue them about saving more and more for their retirement. They older they start, the more they will be told to pay in. And the more they pay in, the more the finance industry makes out of them in charges and fees.

So if you have the means, you have the power to put your child on a completely different path.