I've been questioning lately whether I should open a Roth for my daughters as soon as they start to work and set aside an equivalent amount to whatever they make (babysitting, HS jobs, etc...)... or convince them to set aside some percentage that I'll match like employers to 401k's these days.
Anyone else been down this road and have some wisdom to pass on? Is it better to just teach them all the lessons and let them go at it on their own... encourage, but don't force?
Would I be better served applying those funds to my own Roth and plan to pass that down to them? I guess that would achieve the same goal without the risks.
Thoughts/Ideas/Suggestions appreciated.
For anyone raising a money-smart kid, I strongly recommend David Owen's "First National Bank of Dad". Timeless.
Brokerages that will sub-custody a minor's Roth IRA include Vanguard, Schwab, T. Rowe Price, and Ameritrade.
Starting your kid’s Roth IRA | Military Retirement & Financial Independence
When you buy a firearm for a kid, you're pretty insistent that they should be properly trained in its safe use. As they demonstrate skill & safety proficiency, you could step up from a BB gun to rifle or a shotgun... or let them save their own money toward that purchase.
Same with saving & investing. You have to give kids enough money to learn how to manage it, even if you have to imagine them setting $20 bills on fire before they figure out how to manage their money.
When our daughter started working at age 14, she was pulling down a righteous $7.25/hour. By her standards, she was richer than Buffett. But by then she'd also learned to save for important purchases, and she had already felt the pain of self-imposed poverty. We were able to convince her to save 80% of her salary for her IRA. We also paid her for [-]slave[/-] child labor around the house (jobs in addition to her chores) to push her closer to the IRA limits. By the time she graduated from high school, her Kumon franchise boss was paying her $11.25/hour. Our daughter maxed out her Roth IRA contributions when she was 15, 16, and 17.
She got off to a rocky start during her first semester at college, but she already had the basic skills and it was a matter of withstanding peer pressure. (Imagine rooming with a stinkin' [-]rich[/-] kid of rich parents who has all the rich possessions and rich entertainment habits.) Once she got her spending under control (and found a different set of friends) she got back on the road to financial success... poorer but wiser. That poor little rich roomie unintentionally taught her as much in six months as we'd taught her in 18 years.
Spouse and I continue to pay our daughter for household jobs that she does while she's home, and she has a part-time college job. It's quite likely that she'll continue to max her Roth IRA during the college years, and she'll graduate with a starting Roth balance of ~$35K. The Navy claims that it has a job waiting for her, so she'll be off to a good start.
I [-]obsess[/-] worry a lot about affluenza, and we were probably overly frugal when our kid was younger. These days she sees us open the purse strings a little more (like the entertainment expenses at last month's wedding). However we've told her that we plan to live so long that her inheritance would be worthless to her. Instead, we'd rather take an opportunity now to pass a smaller inheritance to her, and let her grow it in a tax-deferred manner.
She just moved off-campus. We've been paying $6200/semester for room & board, so we're happy to send that money straight to her. She has to make it last for six months instead of the college dorm's 4.5 months, but she was already budgeting for four people in a 2BR apartment. I think she'll figure it out. She gets to keep what she doesn't spend, so we hope we've aligned everyone's incentives. She worked really hard to find a cheap used car ($4200), even though I thought she'd have to go up to $8K.
Since she's more than hauling her share of the college expenses with her NROTC scholarship, we're happy to share the profits from whatever's left of the college fund. When she graduates, we can gift her enough to enable her to fully contribute to her Thrift Savings Plan account and her Roth IRA. That'll probably last for a year or two. If she's buying herself a Beemer and living an indulgent lifestyle, then we're done. If she's continuing to live frugally, and putting more of her own savings in taxable accounts, then we'll share more. We'll see how it goes. One advantage of sea duty is that you hardly have any time to spend money, anyway. Thanks a lot to the Navy for providing a supportive environment...
It's our money, but we're already financially independent. More of it wouldn't make a difference to our lifestyles. We could donate a huge stinkin' pile of filthy lucre to charity, but we already donate enough to make us feel that we're doing our share. Giving more wouldn't make us feel more virtuous. We could set it aside for her graduate degree, but I think that's her funding problem. We could buy her a home and rent it out until she's ready to decide whether or not to live there, but we already have a rental property. We could save for our grandkids' college fund, but I think we'd rather wait until we have grandkids.
Given all of our options, it seems to be a decent idea to put seed money in the account of a young adult who can leverage it for her financial independence. Instead of inheriting a million [-]yuan[/-] bucks in 2060, she can start with a smaller amount and grow her own.
The fact that she's our daughter helps me feel that she has the skills to do a good job with it. So far so good...