10/11/2011 6:49 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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Excellent article! My parent (depression kids) were ahead of their time when I came around – I still have the whole life insurance they took out for me when I was young (in my mid 40's now). They taught me to save for my life, not just college, and not rely on anyone. It was reassuring growing up that I understood money and how to make it work via mutual funds, savings and insurance. When I became an adult I realized we were poor but my parents installed me with lots of knowledge to take care of myself no matter what.
Heck, when I was young, I cut grass during the Summer & shoveled driveways in the Winter for cash. I don't see many kids doing this today. Yes, I saved it, but it was not for retirement, but it was used for school clothes & school supplies. Later on, I worked during the Summer saving to pay for College, Room, & Board. Now, I work & save for retirement.
I suppose you can start kids early to save for retirement, but there will be things along the journey that will come up that will be needed or wanted before retirement. Warren Buffett started early, but he has yet to retire, & just like most of you will most likely work right up until you either get sick, hit the hospital, hospice care, or death. Unfortunately, that is the grim reality.
Great Idea! So, should I explain to my toddler about Roth, traditional, and/or 401k before or after his Dinosaur train show? I think this is such a good idea, maybe I should also have him save and invest in a whole life insurance policy too. This way, he is not only planning on retirement in his early years, he can plan beyond too.
Feh. Soon there will be "means tests" for Social Seciruity benefits, Medicare benefits, etc. Those with retirement savings will get lesser benefits. The savers must take care of the non-savers, you know.
Put your money in a pickle jar in the basement, off the books, where the Tax Man can't see it. Preferably in the form of pre-1964 silver dimes & quarters.
The wee tykes should be exporing the wonders of life, not learning to covet money. This article is crap.
what do you suggest, we should have our little ones investing so they can lose their little saving, or maybe putting it into the bank and drawing nothing in interest. should i tell my little 7 year old grand daughter to invest her little $5 a week allowance so she can retire?
what a crappy article
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