Life is tough right now but the future looks even tougher for the younger generation who face student debt, sky-high house prices and stagnating wages.

Many grandparents are keen to help younger family members get on, with three in 10 loaning or gifting money to grandchildren, rising to two thirds among those aged over 85, according to Saga research.

Most of the money goes on short-term spending such as holidays, cars, property deposits and education fees, but far-sighted families can also build long-term wealth by investing in a pension instead.

While a pension may seem a strange financial priority it could prove transformational as money invested in the early years has decades to compound and grow.

Start early and stick with it you and you could even make today's little ones millionaires by the time they retire, removing at least one financial worry.

Investing in a pension at birth can build up a small fortune even with a relatively modest sum such as £1,000 a year, said Neil Rayner, head of advice at wealth manager True Potential. “It could be worth £37,269 by the time they turn 18, assuming an average annual growth rate of seven percent a year.”

If the child left the money to grow after that it could be worth a staggering £1.06million by age 66, a huge return on just £18,000, he added. “Having their pension in place could leave them free to spend their earnings how they see fit, knowing their financial future is secure.”

If the child continued to contribute £1,000 a year to the pension as an adult, the total pot could grow into an astounding £1.47million.

While its spending power will be eroded by inflation in real terms, it should still generate a healthy retirement income. “These remarkable figures show the power of compound interest over an extended period,” Rayner said.

True Potential's research shows that 85 percent of people with children under 18 do not even realise they can open a pension in their child’s name.

In practice, just three percent of families open a pension for a child but they are missing out on a chance to set them up for life, Rayner said. “Saving in a pension can also instil good financial habits, by teaching children the benefits of saving and investing from an early age.”

As ever with investing, there is a high cost to delaying. “If you don’t start putting away £1,000 a year until the child is five, the amount they will receive on their 18th birthday will drop to £21,920, more than £15,000 less.”

If they leave their reduced pot invested to age 65 it will grow to £624,897, an incredible £437,621 less simply for missing five years of contributions.

A pension isn’t the only way to build long-term wealth for children or grandchildren. 

Families can invest up to £9,000 a year in a tax-free Junior Isa until the child turns 18. Last year, four million families put away £1,229 per child on average.

Junior Isas include a cash option and rates have improved lately with building societies leading the way. For example, Beverley pays 5.5 percent a year while Coventry pays 4.7 percent and Skipton pays 4.6 percent.

However, a Junior Stocks and Shares Isa should make your child’s money work much harder over the long run, said Laura Suter, head of personal finance at AJ Bell. “The message seems to be getting through with 58p of every £1 invested in Junior Isas now going into stocks and shares, much more than before.”

READ MORE: Parents urged to consider Junior ISAs to boost savings up to £5,600

It seems counter-intuitive but families can afford to take more investment risks with Junior Isas. “Children have the longest savings horizon and can ride out the ups and downs of the stock market to harvest higher returns.”

While few people max out their £9,000 Junior Isa, the nation's children still have a whopping £9billion saved in their names.

The money belongs to them from age 18, said Victoria Scholar, head of investment at Interactive Investor. "Alternatively, they can roll the money over into an adult Isa with all the tax advantages intact."

By contrast, nobody can touch pension savings until they turn 55, which will rise to 57 from 2026 and increase in line with state pension age hikes thereafter.

Most families will continue to favour Isas as they are more flexible and can be accessed at any time. This gives children the money they need for early adulthood costs such as university fees, a first car or property deposit.

Yet Rayner said building a million-pound pension does have one big advantage. “By the time your child turns 55, they will have gained the experience and maturity to make responsible choices with the accumulated funds. At age 18, they may not be ready for a large lump sum.”