10/11/2011 10:45 PM ET|
Is your kid saving for retirement?
Too far off to be real?
Of course, the average teen feels 10 feet tall and bulletproof. Retirement is something that will happen, oh, 200 years from now. You can't blame him for that, since more than a few 50-somethings haven't saved a cent for their post-work lives, either.
That's because it's tough for human beings to appreciate a goal that's still decades away, says Robert Brokamp of The Motley Fool, an investing website. "We're just not wired for it. We're wired for instant pleasure and instant consumption."
Brokamp's suggested motivators are greed or fear, such as: "Even a small amount will someday be huge" or "If you don't save, your last years may be spent in penury.
"Some people are motivated by what they could have," Brokamp says, "and some people are motivated by the idea of what they won't have."
Expect some resistance, especially if you haven't already instilled good money habits in your teen. (Read my column "8 crucial money lessons for teens.") Even if you have, your kid might still be tempted to take his or her first paycheck straight to an electronics store.
Don't let that happen. Right now Junior might not be able to process the idea of small amounts of money growing bigger or the possibility of an impoverished old age. He might not "get" speed limits either, but you insist that he obey traffic laws. Similarly, it's your job to insist that he save at least some of his earnings.
How to get the kids on board
Sweeten the deal by offering a funds match: "Save at least half your wages, and I'll save the other half." The Internal Revenue Service doesn't care where the money comes from.
If you can swing this financially, your teen will be able to enjoy some of the fruits of his or her labor while developing the habit of saving for the future. This is a great tactic but still relatively rare, according to Ira Rubenstein, a New York principal at MBAF-ERE CPAs.
"(Parents) just don't have the money, and they're worried about their own retirements," Rubenstein says.
He suggests two possible solutions:
- Pay what you can. Just because you can't entirely match the kid's contribution doesn't mean you shouldn't contribute anything. Remember compound interest? Even a few hundred dollars will grow exponentially over the decades. For ideas on finding extra money in your current budget, read "9 sneaky tips for saving more."
- Get more relatives involved. Is Grandma interested in gifting beyond holidays and birthdays? Putting some money into the grandkids' Roth accounts could be part of her estate planning. Or when Great-Uncle Mike asks what Junior wants for Christmas, your reply could be, "He doesn't know it yet, but he wants a contribution to his retirement fund."
Life (and money) lessons
Prepare for Junior to be a little disappointed when he gets a holiday card reading: "Congratulations! I put $50 into your Roth so you won't have to eat cat food when you get old like me!" He might have preferred a new video game or an Old Navy gift card.
That's natural. Haven't you ever felt a twinge of disappointment when you got a useful gift versus a fun one? You got over it. So will he.
As adults, we need to look out for our children. Who knows what awaits them in 50 or 60 years? Starting retirement accounts now will, with luck, get them in the habit of saving for a secure future.
Requiring your child to start a Roth is an act of love. Besides, it gives us the chance to say something parents love to say and kids hate to hear: "Someday you'll thank me." And they will, even if we're not around to hear it.
Correction: In an earlier version of this column, the name of Ira Rubenstein, a New York principal at MBAF-ERE CPAs, was misspelled, and the company was misidentified.
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