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September 05, 2008

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I'm still trying to get my hands wrapped around this whole concept of spend less than you earn. I don't think I could match $2k. All kidding aside, if I was able to do so, I would. My son is only 10, but I am trying to teach him about money and money management, so he doesn't do what I did after high school and blow every penny he ever earned.

Absolutely I would. I would consider even making 100% of the payment in some cases, like if he only earned $500-$1000 a year - don't want to miss the opportunity.

Absolutely! What a great way to encourage your kids to start early at saving for retirement!

Isn't it more important to save for one's own retirement? That would be my first priority. If I had enough leftover, then I might consider helping my kids.

I did. I talked to my kids about money, but I proved it was important by putting my money where my mouth was.

When my kids were first earning money, I offered to make a contribution for any money they kept a record of. In effect, I didn't match their contribution, but made the contribution. Only one took the time to make a record. I opened a traditional IRA with a bank and made the contribution. (I would have preferred Vanguard, but the contribution did not meet the minimum.)

The second year, I made the same offer. All three kids took me up on it.

After that, I matched their contributions dollar for dollar until they turned 21.

I did not save the maximum for my own retirement those years, but I considered teaching my children a worthwhile trade-off.

We started a custodial Roth-IRA for my oldest child this year. She earned about $700 in 2007 and we put that amount in as a startup. We'll do the same thing next year as she will have a similar income in 2008.

It is important to save for one's own retirement first. My wife and I each put back $300/month in our Roth-IRAs, so it could be argued we shouldn't start a Roth for our children if we are not maxing out our own. Some financial experts also say we shouldn't put away money in a college fund if we are not first maxing our Roth contributions, since we can borrow for college but not for retirement.

That all may be good advice if we lived in a vacuum, but our lives are a series of compromises and competing demands. If we can provide some seed money for our kids' retirement, pay for most of their college and still make a decent effort at funding our own retirement we'll be satisfied.

After all, if we wanted to be wealthy we wouldn't have had kids to begin with:)

No, I don't think I'd subsidize a child's retirement savings in a Roth IRA.

I have a few reasons.

1) I'm generally opposed to heavy cash subsidizes of children. I don't want them to build any reliance on such a thing.
2) I think college savings should be a priority for children over retirement accounts. (I'm assuming the Roth isn't meant for college, maybe I'm wrong)
3) My retirement savings comes first. I don't want to risk lacking for retirement and put any burden on my children to subsidize me in retirement.
4) I think children should enjoy their childhood. I'll encourage them to save and teach them good personal finances. But I think theres a point where you can go overboard and it might turn them against it. Retirement saving for children would come in as a very low priority to me.

Jim

Is the kid's college education already paid for? First car bought? First home paid off? Why on earth would anyone put money in a tax shelter they couldn't touch for half a century for someone who's still a dependent? Prioritize goals! A very young age is NOT the time to save money for retirement. America has been brainwashed by banks who are drooling to get their hands on this money that's yours but you can't touch it for half a century! Given the recent report that SP500 returns have basically been flat for decades, a house would be a much better investment over 40-50 years.

Jim,
I disagree with you on just about all accounts.

1) While I agree with not giving cash gifts to children, such a thing is teaching them to save at an early age. That is worth the cost of matching funds.
2) If you start on your retirement when you are 15, you will have so much of an easier time retiring when you are 65. It's never too early to start saving for retirement. That retirement could be the purchase of a home. It doesn't have to be invested in a Roth IRA for 50 years.
3) You would be hindering your child's learning of wise money matters because you want to make sure you have an adequate retirement? If that's the case, than don't have children at all. That's the best way to ensure an adequate retirement. There's no kids to pay for.
4) I say start teaching them to be frugal and start saving as early as possible. That way, they won't have troubles adjusting when they are older. It's never too early to start.

As long as my own finances and retirement savings were in good standing, I would absolutely offer some kind of incentive to my children for saving for retirement. I think dollar for dollar might be prohibitive, but I would sure try! I wouldn't limit this to just retirement savings though, I think these kinds of plans work out great for any type of saving. For example, when I have kids of driving age, I plan to match whatever they can save towards a car (or college, or whatever the thing they want is).

@pink panther
A very young age is EXACTLY the time to save for retirement. Consider that:

A $4500 contribution for 2 years at age 16 and 17 will yield over $1M at age 65 and that is without them saving another penny ever (at 10% return).

If you start contributing $5000/year at age 25, you will have $2.7M at age 65, but if you start at age 16 you will have $6.4M.

Contributing $20,000 over the 4 years you are in high school will be worth the same amount as contributing $190,000 from age 28 on.

The S&P has been flat for maybe 1 decade, but over 40 years, the 10% returns are not unreasonable. I think that providing security for your kids this way teaches them a lot more responsibility than paying for their college or new car.

My mom did when I started my IRA (at age 22). I was in a very tight financial situation at the time but really wanted to start saving for retirement, in addition to a regular savings account. My mom is a financial planner so she helped me open up a brokerage account until I could come up with the $2000 to open a Roth, and she matched my contributions until I had enough to open a Roth. Then I got a better job and maxed it out, and we're all very happy with the outcome. It took about 8 months for me to be able to open my IRA, and I don't think I would have even opened one if it weren't for my mom and her help.

Wisemoneymatters,

This is a matter of personal opinion. I respect your different opinion.

But let me restate my point so I make sure its clear:
I don't think funding a childs *retirement* saving should be a priority for either the child or their parent.

I might on the other hand match my childs contributions to their *college saving* fund. (I'm assuming the Roth in this discussion is for retirement not college)

I don't consider subsidizing a childs Roth IRA to be a requirement to teach them how to save and good money habits. I can teach them to save in other ways. If I want I can certainly teach them to save without cash matches too. My parents managed to do it and so can I.

Now this all doesn't mean they won't get money from me either.

My retirement comes chronologically before my children's retirement. So yes I absolutely think my retirement should be funded first. Making sure my retirement is secure so that I am not a burden on my children in my old age helps them too. This really doesn't make me a selfish jerk. I don't consider not funding a childs Roth to be "hindering" them in anyway.

I certainly understand that parents want to do everything they can to help their children. I don't fault anyone for wanting to do that. But many of us have different views on how best to help our children grow and learn.

Jim

I can't think of a better way to encourage your child to save. I know folks who have made the offer to their kids they will match the money they save for their first car. Great incentive to save.

I think this is a pretty good idea. My son will graduate from college in May. Depending on where his life takes him after that, I might consider some form of this idea as a way to encourage him to start saving for retirement. His plan for the future involves being the next Steven Spielberg. I see some table-waiting happening. Low paying jobs, coupled with student loan repayment may make it difficult for him to think about retirement saving for a few years. Alternatively, maybe he'll strike it rich and can supplement MY retirement savings! I'm going to give this some thought. Good topic.

I did just that when my son hit 16 years old and got his first job at Wal-Mart as a cart pusher. I told him I would match 50% of what he put in. We signed up with T. Rowe Price who would accept $50/mo auto investments. Every quarter we get a statement and I put in $75. He has a couple grand in there now and will be set for retirement, if he continues on this path.

I think that is an incredible idea. It's a wonderful way to encourage him to save and I hope he realizes just how great it is that you would do that. When it comes to retirement he'll have a giant leg up with that many years saved.

It is a great idea and I plan on doing the same with my kids when they are old enough to have earned income.

Having said that, it is also important to note that you should be funding your personal retirement and be saving for college before you are putting any of your funds to your kid's retirement. If our finalcial circumstances change for the worse when the time comes and we aren't able to do the above 2 first then we won't be matching retirement for dependant children.

I think helping fund your child's Roth IRA is a brilliant idea. I did this years ago, when my daughters first started earning income in high school, and my daughters, now 28 and 30, have sizeable Roth IRAs, unlike many of their peers, who probably haven't even started thinking about retirement, yet. In fact, their Roth IRA's are probably larger than the retirement accounts of many much older workers. This is not just something I have done for my kids; I have kept them in the loop on their Roth IRA accounts from the beginning, and they have learned a lot about the value of saving and investing.

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