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Parents can set up an Employees Provident Fund (EPF/KWSP) account for their kids the moment they turn 14 years old and deposit some money monthly or yearly. This way, parents can help ensure that their kids can retire rather comfortably in the future thanks to the power of compounding.
According to EPF, children as young as 14 with MyKad or MyPR can register for an EPF account to enjoy long-term dividend growth. They can participate in a voluntary, government-matched savings program like i-Saraan.
Under the EPF scheme, account holders can opt to invest in two ways: Self-Contribution (i-Simpan) or i-Saraan.
What’s the difference between the two? Self-contribution (i-Simpan) is a basic, flexible, and voluntary top-up without government incentives.
Meanwhile, i-Saraan is specifically for self-employed individuals, freelancers, and gig workers, and provides a 20% government incentive of up to RM500 a year.
i-Saraan is open to those 60 years and under, so your 14-year-old teen can start saving under this scheme already.
Over the years, there have been ongoing efforts to educate the public on financial literacy, especially the importance of long-term saving, such as building a retirement fund. A healthy retirement nest egg benefits not only the individual saver, but also the government and society as a whole.
With more people having a healthy retirement sum, it places less burden on public finances and frees up resources for other, more productive uses.
The power of compounding explained
As Threads user @im_tristupe pointed out, this could be a key to breaking a cycle that often proves difficult for middle-class families to overcome.
He calculated that by depositing RM1,000 today, and contributing a one-off RM1,000 every year at a 6% average dividend, the child may have up to RM140,000 by 60 years old.
The total may be more when the child contributes themselves when they start working. If the child starts working at 25 years old and their monthly contribution is RM1,000 (combined from their own contribution and employer), they would get approximately RM1.44M by 60 years old.
Even when adjusted for inflation, they will still have a sweet RM700,000 ready for retirement.
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