Mad Money

Acorns CEO explains how parents can turn $5 into five figures for their kids through 'the power of compounding'

Key Points
  • Acorns recently launched a new custodial account called Acorns Early to help parents save for minors.
  • "We know through the power of compounding ... if you do the math, on $5 a day, beginning at birth, by college — based on historical averages in the market — that can add up to $70,000," CEO Noah Kerner said in a "Mad Money" interview.
  • Acorns' mission is to "condition people to become savers," he said.
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Acorns CEO explains the power of compounding: 'There's nothing like it'

Acorns CEO Noah Kerner on Thursday told CNBC that the micro-investing app recently launched a new program intended to help parents turn $5 into five figures for their kids.

The magic is all in the power of compounding, combined with consistency.

"We try to get people to really commit to regular small amounts, and so they are," Kerner said in a "Mad Money" interview with Jim Cramer. "We know through the power of compounding ... if you do the math, on $5 a day, beginning at birth, by college — based on historical averages in the market — that can add up to $70,000."

Kerner added that in 50 years the investment strategy could compound to $1 million and in 65 years it can climb above $4 million.

Acorns, a financial technology company that educates market newbies and lets users invest with spare change, launched Acorns Early last month to help parents save and invest for their children through a custodial account. The feature will let the beneficiary get their hands on the cash upon reaching adulthood.

Because young investors are more likely to be able to take on more risk than older investors, Early accounts take on Acorns' "Aggressive Portfolio," which gives the child exposure to greater return potential, the company said.

The platform, founded in 2012, now boasts serving more than 7 million accounts. Two in three customers are enrolled in automatic recurring investing, which includes options of daily, weekly and monthly withdrawals from a bank account, Kerner said.

Acorns offers diversified portfolios and exchange-traded funds to investors.

"It's a really big problem in the country that people aren't saving, and I think when you think about parents investing in their kids — saving and investing for their kids — that's also a major problem," Kerner said, explaining that 50% of parent users are not saving for their children.

"It's really exciting to see this kind of momentum where people are starting to participate, people are starting to take care of their families in a new way, take care of themselves in a new way," he told Cramer. "And, like you said, we make it so easy, and we condition people to become savers, and we're proud of that."

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Micro-investing app Acorns CEO on conditioning people to become savers

Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.

Correction: A previous version of this story mischaracterized a quote, which has now been updated to say how a daily $5 investment can compound over decades.

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