Have you ever sat and looked at your retirement account and wished you had started saving sooner? Yes, I have too! If only we knew then what we know now. Fortunately, you can encourage your child to not only budget the money they make, but also some tips for saving for retirement. There are major benefits to kids starting early, and here are some reasons why it’s essential.
It’s Easy to Double the Savings
If you begin a Roth IRA at age 15 rather than 25 (and how many of us really started at age 25?), it’s easy to double the money with that extra gap. Roth IRA’s are ideal for teens because the money isn’t taxed as it grows. They already have tax taken out of their income; they are getting a tax-free plan to save and collect later (when they would be in a higher tax bracket). It also doesn’t take very much. Let’s imagine your child puts in $1000 a year between ages 15-18 and then never adds to it again. They let it grow, and at age 65, it will be over $100,000. If they choose to pick up saving for retirement after college, they will have an excellent foundation to work with later.
They Will Have a Financial Foundation Sturdier Than Most
Kids who start learning investing younger than their 20-something counterparts can maintain healthy financial foundations longer. It doesn’t mean they will never make a mistake or not experience financial hardship, but they will be able to manage the situation easier and find relief sooner. Kids who healthily master money are starting with a great toolkit for life.
Offer More Than Just a Fund
Roth IRA’s are the best for the working teen, but you can get them started sooner, or at the same time, with other investing options. Certificates of Deposit (CD’s) are a short-term investment that can teach them how money grows, and they can see results faster than with other investment options. If they have something, they are passionate about, consider teaching them to buy shares of stock. A favorite store, video game, or company are ways that they can feel like they are a part of the money game and keep them excited. If whole shares of stock are out of their price range, you can get them started with partial stock trading.
Remember, kids are kids, and the desire to go shopping is going to be more tempting than saving for retirement. When you and your child sit with a budget, it’s an excellent time to discuss how to save small and let it build. If they choose to set aside just 1% of their net check each week, that’s at least a start! As they watch their savings grow, they may become more interested in saving more and increase that. Encourage a slight increase with a pay raise or a new job that offers more pay. While it’s tempting to tell your child what to do, it’s best to let them decide on how to invest (with reason!).