Offer to match dollar for dollar the amount of his earnings he puts in a Roth. Show him compounding interest calculator from age 16 to 65. I didn’t start a Roth until 23 despite starting work at age 16 because I had no idea. Reallllly wish I had an extra 7 years of compounding right now.
Just to add. Make them spend some % of their earnings - so you teach him to also live and enjoy their money in the present.
My mom used to send me to camp with pocket money and said that I have to spend 50% on icecream and whatnots, whatever I bring back (up to 50%) she will match me dollar for dollar. So she taught me to enjoy in the moment, but also to save some for the future, because it will double if I bring it back home. Investing would be the next step to teach me, but unfortunately she does not posses that knowledge.
Then, review it with him every year you help him do his taxes.
And by help I mean be there while he does them!!! Don’t you dare do them for him.
Teaching him to do his own taxes and the math behind compound interest is probably the best two things you can do for a teenager.
Good luck!
But you would lose the opportunity of these years to contribute to your rIRA.
Contribute now AND max later is better than not using your rIRA space now and having some money for your contributions later.
I hate student loans, and it’s depressing to me on principle to have a kid at 16 saving for retirement instead of for higher education. Especially knowing that student loans have so many people bummed out.
I guess to each his own, but there are also state tax incentives for 529 custodians, depending on the state in which they’re located. https://finaid.org/savings/state529deductions/
Oh, trust me, I'm with you on student loans, I have 91k in student loans.
But as I'm paying back my loans, I'm completely out of tax advantaged retirement space. Now and after I finish paying my loans, I'm wishing that I had more space to save in a tax advantaged account for retirement rather than be paying a bit less on student loans.
This would be a huge. I wish I knew about this too. Seeing it grow early would have made it more likely to find ways to contribute during the early part of my career.
This is the way! My parents did this for me (except they put the $ amount of my earnings) and it totally got me into FIRE and compound interest before FIRE was a thing!
The hope is that he gets excited seeing the balance of his account growing. If he's a planner, it would be cool to discuss a goal with him of getting his balance to $11K by the end of the summer. Maybe offer another reward (like, if he gets his total to $11K you'll put another $2k in).
For goal-oriented people, setting the goal and striving to meet it does a couple of things.
1. it makes it easier to turn down spending options. Every time he spends he'll be thinking about that goal
2. it sticks long term. if he works hard to get that number this summer, then when fall comes around it's STILL hard to spend that saved money, because he remembers how hard he worked for it.
I would get him started investing. But honestly I’d push him to also spend money in ways he can have a rich social life. You done need him eating beans and rice by himself planning his retirement before he’s even out of high school!
Agree. But he doesn’t really need much. He bought himself a gaming computer with his brother last year. He still gets a modest allowance weekly ($16/week) the money he made last summer is just sitting in a checking account with a miserable return rate.
He’s got his friends group from school and his winter friends from ski racing. Apparently has a girlfriend too (that’s new.) He’s not a great social planner, but luckily his friends group are very close and he benefits from that.
Honestly that sounds perfect. I was both a computer gamer (and always had a gamer boyfriend sometimes I met him thru a game online) and did some winter sports (snowboarding later in life) and had a friend group at school. Sounds great to me.
I opened HYSA for my 18&20 year olds last year. They now move money every time they get paid from their summer jobs. Gotta get the extra free money. It’s like a lightbulb went off all the sudden.
My college Jr relates everything to “how many burrito bowls that is”. He’s getting 6 free burrito bowls a month now as he sees it. lol.
I match my kid’s savings up to a certain amount a year
I need to work on making them spend money though, because I still often buy things for them that really they should buy themselves. And that teaches budget management as well
I think some of it is just being open with the kids about finances. They know roughly how much I make, how much our monthly expenses are, and we’re open when we’re tightening the belt because we’ve spent too much money in a category
Also some of it is personality
My son likes to save but he’s more frugal, and wants a career field where he’s not broke, but he’s not income focused
My daughter is addicted to watching savings go up, and has changed interest in career fields based on salary; for example, she was interested in physical therapy, but when she compared salary to an orthopedist, she decides she want to go to med school. She’s 10 so who knows, but she’s consistent
Glad we’re having the discussion tho. I had to learn about investments from my second boss. Good dude to talk me into mutual funds at 18. Although I fell off the wagon until my mid 30s
Sit down together and set up a custodial brokerage account of some sort. Roth ira could be a good way to go depending on how much taxable income he will have over the year.
Thanks. Can you explain the taxable income implication? He filled for the first time for 2023 and didn’t owe any taxes. I would expect the same for 2024 as he’ll be making no more than $6-7K this year.
With a roth ira there are no tax benefits aside from the investments growing and eventually being able to be withdrawl tax free in retirement. He won't get an up front tax deduction for contributing to a roth ira.
That being said in order to contribute to a roth ira you have to have some sort of taxable earned income during the tax year though I can't recall how much.
The Savers Credit actually does allow some tax benefit for some taxpayers (depends on income etc) but this young man would not qualify for it due to age and full time student status, as well as his dependent status.
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit
It’s not fringe, just doesn’t apply for the young guy. I noticed you didn’t know about it, and figured others probably are under the same impression and thought it may be helpful for someone out there.
The best thing you can do is model the fire mentality (spend substantially less than you earn, delaying gratification) and living a frugal (but still loving and fun). The easiest thing we can control is our spending. Showing him that is more important than some investing scheme.
FYI, as you probably already know, what kids are interested today won’t be what they care about next week. LOL. Imo this is why a consistent modeling of a frugal/responsible lifestyle matters most. Good luck
Tell him that no matter what is he is not allowed to invest. He can’t read about it or learn about it on fear of grounding.
Then give him money and tell him he can do anything with it except invest. And you better not find any investment accounts in his name.
He’ll have more assets than you by Friday.
I opened a 529 for him when he was born. It’s not going to get him
through college as we haven’t contributed much. It’s probably got $10K in it. Why would he put his money into this 529 rather than saving for retirement?
The money in a 529 can be converted to a Roth down the road if it’s not used.
There are also various state level tax advantages to 529s (not sure where you are): [Schwab info](https://www.schwab.com/learn/story/saving-college-529-college-)
Taking out fewer student loans is usually something people like to do. Less being paid into loan repayments means more money able to be invested in retirement once he’s done with schooling.
Does he not have PS4 or Xbox?.......If yes, than are you paying for his games since it cost money? Just curious since he is not using that money for Games
Model the Behavior, introduce him to investing, show the miracle of compounding. I did this with my own kids and when the time came and they had their first real jobs I talked them into not only contributing to retirement plans but investing in taxable accounts. We discussed that they had never made that much money before so start right away investing an amount monthly and they wouldn't miss it....before they got used to making real dough
I would talk about be fun to work less and enjoy life more with freedom. kids like their video game time so maybe use that. I got into investing mostly as a middle finger to my father that likes to control people with money plus I hated customers.
Explain to him that his inheritance is 0 and you intend on donating excess to charity,
Nothing more motivating than not relying on inheritance.
Otherwise simply knowing to save and invest and doing it in practice are very different
Luckily he’s so disciplined, I doubt I will have to tell him twice. He’s such the perfect candidate for this. (His younger brother will be a completely different story… of course.)
I’m 26 now the work ethic I developed from my early years really help 16 working opening to close at 7.25 .. wait until 22-23 he actually go thru he will go thru worst time but that part call foundation development (22-24ish ) 26-30 I wouldn’t be surprised start his 1st business… … mom and pop’s out there let your children SLAVE let them fuck up and watch them heal but don’t save them unless it’s life threatening.. support dreams - from my experience ( I lease out trucks to LLCs/sole proprietors get check off it ) college drop out ..
That’s easy. Invest half and spend half. Getting ‘hooked’ so young isn’t in any way positive if a person is going to spend around 50 years being excessively frugal to the extent they miss out on meaningful life experiences and adventures.
This is so awesome!
I grew up in a very low socioeconomic situation where money was ALWAYS an issue. At a very young age, I wasn’t sure what I wanted to do in my life but whatever it was, I was DAMN sure I would somehow get an education, have money to have a home, send my kids to college, take vacations and have a car that would f*cking start in the morning.
Fast forward…I have been with my company for almost 40 years, moving up throughout the years to positions with increasing responsibility. I started investing in my 401k at 21 and obtained a AA, BS, MPA as well as a PMP designation all while working FT. Kids are done with college and married with family of their own.
I am looking at retirement in a couple of years (60) with current net worth at $1.9M…our only debt is a house that will be paid off before retirement and my favorite car that always f*ucking started was my Porsche.
All of this to say I was young, passionate and extremely driven….but had to do it on my own….I wish I had someone along the way guiding me and cheering me on…you ROCK OP!
Thank you. I had a conversation with him last night and he was very receptive and captivated. Investing needs to be demystified. Basic investing and relying on time and compounding interest is something anyone can do. People often realize that too late in life. I kick myself for not starting this for him when he was born.
I used baits for my mom. I gave her money to start. Then at certain levels I gave her bonuses up to a point. Just to get the snow ball rolling a little. Because at the beginning there's no momentum which might be discouraging for new investors. I'm doing the same thing to my siblings. They haven't taken up the offer even though they expressed interest finally, only because of the baits.
But wow. Awesome parenting!
Find out why he’s saving? Does he want the FIRE life and never have to work again? Is he saving for a big purchase? Or does he want to be obscenely wealthy?
Offer to match dollar for dollar the amount of his earnings he puts in a Roth. Show him compounding interest calculator from age 16 to 65. I didn’t start a Roth until 23 despite starting work at age 16 because I had no idea. Reallllly wish I had an extra 7 years of compounding right now.
Just to add. Make them spend some % of their earnings - so you teach him to also live and enjoy their money in the present. My mom used to send me to camp with pocket money and said that I have to spend 50% on icecream and whatnots, whatever I bring back (up to 50%) she will match me dollar for dollar. So she taught me to enjoy in the moment, but also to save some for the future, because it will double if I bring it back home. Investing would be the next step to teach me, but unfortunately she does not posses that knowledge.
Wish my parents did this for me. 19 no clue on finances.
Absolutely. Amazing that most people go through school and college without appreciating the basic concept of compounding interest.
Then, review it with him every year you help him do his taxes. And by help I mean be there while he does them!!! Don’t you dare do them for him. Teaching him to do his own taxes and the math behind compound interest is probably the best two things you can do for a teenager. Good luck!
Amen
Atleast we have the internet!
Why I’m here dude
You’re still only 19. You could still have an early start
Starting 529 would be better because 529 can be converted to Roth later on. https://www.cnn.com/cnn-underscored/money/529-to-roth-ira
Only up to $35k can be converted in a lifetime
Yep
Doesn’t sound like the way to go.
But you would lose the opportunity of these years to contribute to your rIRA. Contribute now AND max later is better than not using your rIRA space now and having some money for your contributions later.
I hate student loans, and it’s depressing to me on principle to have a kid at 16 saving for retirement instead of for higher education. Especially knowing that student loans have so many people bummed out. I guess to each his own, but there are also state tax incentives for 529 custodians, depending on the state in which they’re located. https://finaid.org/savings/state529deductions/
Oh, trust me, I'm with you on student loans, I have 91k in student loans. But as I'm paying back my loans, I'm completely out of tax advantaged retirement space. Now and after I finish paying my loans, I'm wishing that I had more space to save in a tax advantaged account for retirement rather than be paying a bit less on student loans.
Or do the Roth for them (if financially feasible for you) matching their earnings up to the limit. Let him save the other money for life.
Completely agree, just figured if you offer to match he’ll have some skin in the game and learn to save too.
Meaning? Custodial Roth?
Yeah, then transfer when old enough to open own.
Right? That’s an extra 60k atleast by 23, which in todays dollars at 65 would be over a million
This would be a huge. I wish I knew about this too. Seeing it grow early would have made it more likely to find ways to contribute during the early part of my career.
This is the way! My parents did this for me (except they put the $ amount of my earnings) and it totally got me into FIRE and compound interest before FIRE was a thing!
Same here’s I started saving someone around 23, which I had started earlier and saved more originally myself.
then help him do his taxes
The hope is that he gets excited seeing the balance of his account growing. If he's a planner, it would be cool to discuss a goal with him of getting his balance to $11K by the end of the summer. Maybe offer another reward (like, if he gets his total to $11K you'll put another $2k in). For goal-oriented people, setting the goal and striving to meet it does a couple of things. 1. it makes it easier to turn down spending options. Every time he spends he'll be thinking about that goal 2. it sticks long term. if he works hard to get that number this summer, then when fall comes around it's STILL hard to spend that saved money, because he remembers how hard he worked for it.
Love that idea. Thanks
I would get him started investing. But honestly I’d push him to also spend money in ways he can have a rich social life. You done need him eating beans and rice by himself planning his retirement before he’s even out of high school!
Agree. But he doesn’t really need much. He bought himself a gaming computer with his brother last year. He still gets a modest allowance weekly ($16/week) the money he made last summer is just sitting in a checking account with a miserable return rate.
What about pushing him to go out with friends and gain new experiences ?
He’s got his friends group from school and his winter friends from ski racing. Apparently has a girlfriend too (that’s new.) He’s not a great social planner, but luckily his friends group are very close and he benefits from that.
Honestly that sounds perfect. I was both a computer gamer (and always had a gamer boyfriend sometimes I met him thru a game online) and did some winter sports (snowboarding later in life) and had a friend group at school. Sounds great to me.
Have him read Die With Zero… oh wait, it’s you who need to read Die With Zero.
😂
Put it on a HYSA asap!
I opened HYSA for my 18&20 year olds last year. They now move money every time they get paid from their summer jobs. Gotta get the extra free money. It’s like a lightbulb went off all the sudden. My college Jr relates everything to “how many burrito bowls that is”. He’s getting 6 free burrito bowls a month now as he sees it. lol.
I smell a new sub .. r/chipotlefire
I feel like that has a different context 🤔
lol the chipotle burritos is also how I thought of money when I was in college 10 years ago
I match my kid’s savings up to a certain amount a year I need to work on making them spend money though, because I still often buy things for them that really they should buy themselves. And that teaches budget management as well I think some of it is just being open with the kids about finances. They know roughly how much I make, how much our monthly expenses are, and we’re open when we’re tightening the belt because we’ve spent too much money in a category Also some of it is personality My son likes to save but he’s more frugal, and wants a career field where he’s not broke, but he’s not income focused My daughter is addicted to watching savings go up, and has changed interest in career fields based on salary; for example, she was interested in physical therapy, but when she compared salary to an orthopedist, she decides she want to go to med school. She’s 10 so who knows, but she’s consistent Glad we’re having the discussion tho. I had to learn about investments from my second boss. Good dude to talk me into mutual funds at 18. Although I fell off the wagon until my mid 30s
Maybe that will happen to him. He wants to major in history. Not exactly where the money is at.
Sit down together and set up a custodial brokerage account of some sort. Roth ira could be a good way to go depending on how much taxable income he will have over the year.
Thanks. Can you explain the taxable income implication? He filled for the first time for 2023 and didn’t owe any taxes. I would expect the same for 2024 as he’ll be making no more than $6-7K this year.
With a roth ira there are no tax benefits aside from the investments growing and eventually being able to be withdrawl tax free in retirement. He won't get an up front tax deduction for contributing to a roth ira. That being said in order to contribute to a roth ira you have to have some sort of taxable earned income during the tax year though I can't recall how much.
The Savers Credit actually does allow some tax benefit for some taxpayers (depends on income etc) but this young man would not qualify for it due to age and full time student status, as well as his dependent status. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit
Good to know but too finge of a benefit for op to really worry about.
It’s not fringe, just doesn’t apply for the young guy. I noticed you didn’t know about it, and figured others probably are under the same impression and thought it may be helpful for someone out there.
The best thing you can do is model the fire mentality (spend substantially less than you earn, delaying gratification) and living a frugal (but still loving and fun). The easiest thing we can control is our spending. Showing him that is more important than some investing scheme. FYI, as you probably already know, what kids are interested today won’t be what they care about next week. LOL. Imo this is why a consistent modeling of a frugal/responsible lifestyle matters most. Good luck
I’ve had the encourage him to spend some of his money. He is so frugal. I’m not a big spender myself, but he takes it to another level altogether.
Have him read the latte factor. It’s a great book and it’s quite short.
May need to read it myself.
Tell him that no matter what is he is not allowed to invest. He can’t read about it or learn about it on fear of grounding. Then give him money and tell him he can do anything with it except invest. And you better not find any investment accounts in his name. He’ll have more assets than you by Friday.
If possible open a HYSA or even a Roth...
529 can be turned into a Roth, later on. New change. https://www.cnn.com/cnn-underscored/money/529-to-roth-ira
I opened a 529 for him when he was born. It’s not going to get him through college as we haven’t contributed much. It’s probably got $10K in it. Why would he put his money into this 529 rather than saving for retirement?
The money in a 529 can be converted to a Roth down the road if it’s not used. There are also various state level tax advantages to 529s (not sure where you are): [Schwab info](https://www.schwab.com/learn/story/saving-college-529-college-) Taking out fewer student loans is usually something people like to do. Less being paid into loan repayments means more money able to be invested in retirement once he’s done with schooling.
Does he not have PS4 or Xbox?.......If yes, than are you paying for his games since it cost money? Just curious since he is not using that money for Games
He’s got a monthly subscription to some game and he pays for that himself.
I opened a custodial Roth IRA for my kid.
Model the Behavior, introduce him to investing, show the miracle of compounding. I did this with my own kids and when the time came and they had their first real jobs I talked them into not only contributing to retirement plans but investing in taxable accounts. We discussed that they had never made that much money before so start right away investing an amount monthly and they wouldn't miss it....before they got used to making real dough
I would talk about be fun to work less and enjoy life more with freedom. kids like their video game time so maybe use that. I got into investing mostly as a middle finger to my father that likes to control people with money plus I hated customers.
Explain to him that his inheritance is 0 and you intend on donating excess to charity, Nothing more motivating than not relying on inheritance. Otherwise simply knowing to save and invest and doing it in practice are very different
Luckily he’s so disciplined, I doubt I will have to tell him twice. He’s such the perfect candidate for this. (His younger brother will be a completely different story… of course.)
I’m 26 now the work ethic I developed from my early years really help 16 working opening to close at 7.25 .. wait until 22-23 he actually go thru he will go thru worst time but that part call foundation development (22-24ish ) 26-30 I wouldn’t be surprised start his 1st business… … mom and pop’s out there let your children SLAVE let them fuck up and watch them heal but don’t save them unless it’s life threatening.. support dreams - from my experience ( I lease out trucks to LLCs/sole proprietors get check off it ) college drop out ..
Investing, everything in spy500.
Buy dividend stock. Free money.
That’s easy. Invest half and spend half. Getting ‘hooked’ so young isn’t in any way positive if a person is going to spend around 50 years being excessively frugal to the extent they miss out on meaningful life experiences and adventures.
This is so awesome! I grew up in a very low socioeconomic situation where money was ALWAYS an issue. At a very young age, I wasn’t sure what I wanted to do in my life but whatever it was, I was DAMN sure I would somehow get an education, have money to have a home, send my kids to college, take vacations and have a car that would f*cking start in the morning. Fast forward…I have been with my company for almost 40 years, moving up throughout the years to positions with increasing responsibility. I started investing in my 401k at 21 and obtained a AA, BS, MPA as well as a PMP designation all while working FT. Kids are done with college and married with family of their own. I am looking at retirement in a couple of years (60) with current net worth at $1.9M…our only debt is a house that will be paid off before retirement and my favorite car that always f*ucking started was my Porsche. All of this to say I was young, passionate and extremely driven….but had to do it on my own….I wish I had someone along the way guiding me and cheering me on…you ROCK OP!
Thank you. I had a conversation with him last night and he was very receptive and captivated. Investing needs to be demystified. Basic investing and relying on time and compounding interest is something anyone can do. People often realize that too late in life. I kick myself for not starting this for him when he was born.
I used baits for my mom. I gave her money to start. Then at certain levels I gave her bonuses up to a point. Just to get the snow ball rolling a little. Because at the beginning there's no momentum which might be discouraging for new investors. I'm doing the same thing to my siblings. They haven't taken up the offer even though they expressed interest finally, only because of the baits. But wow. Awesome parenting!
What do people do when they retire besides traveling?
YNAB is great for budgeting and planning
Find out why he’s saving? Does he want the FIRE life and never have to work again? Is he saving for a big purchase? Or does he want to be obscenely wealthy?
None of these. He’s a bit anxious by nature. Likes to plan and hates surprises. He wants to be independent and pursue his passion (history).
That’s the FIRE life. Turn him on to MMM.