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May 30, 2008


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She sounds pretty motivated already!! (Saving HALF of her allowance is pretty good for a 12 yr old!)

If you think that showing her the portfolio will deter her from working hard and saving for the next 6 years or so, then I would advise against it. One of the things I hated most about some of my friends in college was when they felt entitled to college and goofed off alot and disregarded their actual studies because their parents covered the bill--classes were a hassle to them. It's hard to appreciate a college education when it's been handed to you on a silver platter.

On the flip side, if you think she would be motivated by it (and it sounds like she would be), I would go ahead and do it. The more involved she is in planning at this young age, the more she will appreciate all the time and effort her parents have put into preparing for her higher education.

Good luck!!

I think this is an excellent lesson opportunity. Tell her how much you have saved and that although it may seem like a lot, it is only a fraction (presumably) of what college will cost. (You don't want her to think "Wow! $10,000! Now I can go to Europe!") Then talk to her about how you and she actually contributed only part of that and compound interest did the rest. Then talk to her about how saving half her pay and most of her birthday gifts wasn't that painful and that she may have had to give up buying a few things now but her friends who aren't saving will have to take out loans to pay for school. I think this is stuff that a 12 year old can understand, but you should be the judge based on her maturity. You could also explain that in the same way that she is benefiting from compound interest, the lenders benefit at your expense since interest is working against you when you take out a loan.

If you feel comfortable, and perhaps when she is a little older, you can talk to her about your own experience with debt (if any) and maybe even share how you are doing saving for retirement and why starting so early in a Roth will have such a big benefit.

Perhaps this is an opportunity to involve her in the investing process and teach her what you know. Show her what you've done and let her choose how to continue investing what she puts away in savings. This could be a fun together-project for you both!

I've taken a similar savings approach for my two kids, who are younger. However, I decided not to reveal to them about the ROTH IRA money, since that money can be withdrawn at any time. I have the acct set up so that they can't legally touch it till 21 yo (a state guideline), but I don't want them raiding for something they "need" other than retirement. Kids go through a lot of phases between 12 - 21 that's why I decided to let them know when I'm sure they will make responsible decisions.

I have taken the same approach with my children (5). Two of them are grown productive citizens on their way to reasonable wealth through disciplined saving. I am not sure about the 20 year old yet, but he knows the rules and his net worth. There are no guarantees with children but they know more than you think. I have twelve year old twins that I started talking with this year. One saves 10% of everything she gets and one spends, but they both know the best practice. You are giving your daughter an invaluable gift by teaching her to manage money. Even if she made a mistake and blew it, or went on a spending free, she will be in a position to know how to recover. I am betting she'll turn out smarter than her parent(s). All the best.

My father saved money and invested it for me and my sister. It was much the same. We both did work for him and he put us on the payroll and opened roth IRA's.

We've had different attitudes toward the money. I went to a state school with a scholarship and studied engineering. My sister went to a nice private school and studied history and theater.

I took more to following the investments than my sister. But, she still saves. I would say when she get a little older, take some of the money and have her research and pick a couple of stocks. Even if it's only a few shares. Even if she doesn't take to it, hopefully she'll still like saving money and she'll certainly appreciate not having to pay for college later. (Even if she goes to an expensive liberal arts school)

If she already has a good attitude towards saving and is responsible with money then I think its probably a good time to start sharing more detail with her on the finances. Telling her now can help her get more head start on learning about finances in general. If she wasn't as responsible with saving then I might wait longer.


The bottom line is its never to early to start teaching this concept to kids. Just teach the basics it bite size pieces and you will be fine. My wife is a teacher for the talented and gifted students at her school and I look forward to being the special guest and teaching them about economics, finance, etc. It's awesome!

Go for it!!!

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