Author Topic: Giving my little brother the gift of financial independence  (Read 5250 times)

TB_J

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Giving my little brother the gift of financial independence
« on: September 15, 2014, 02:40:46 AM »
Hi all,

I'm seeking some advice.

My younger brother (and my only sibling) turns 21 this month. He's currently studying an Engineering degree, living at home with my parents and has very few expenses. He travels a lot (from his own savings) and works for Apple earning good beer money for a student. I understand he has saved up about $6000.00 which he'll be using to purchase his fist car.

I'd like to do something special for his birthday & hopefully set him up on a journey to financial independence and a life free from financial burden.

After much thought, I have decided that I would like to help him open a brokerage account and give him some money to purchase his first index fund. I have spoken with my parents who think this is a great idea and would like contribute to this... we haven't discussed the specifics but I believe it might be a couple of thousand dollars all up.

This is all easy enough to do, however...  what I'm struggling with here is figuring out how to educate him and help him understand the importance and the significance of what we are doing (for his sake, not to blow our own trumpets).

How can I help my little brother understand the real value of his hard earned money? Particularly when his peer group appear to be concerned with having the latest gadgets and clothing etc.

I fear that if I try to force information down his throat, he will back away and become uninterested.. that's something that I've always been susceptible to.

I'm thinking perhaps showing him a few projections on a compound interest calculator could be start.

Any ideas would be appreciated? Are there any good case studies out there?

Thanks guys.


Anatidae V

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Re: Giving my little brother the gift of financial independence
« Reply #1 on: September 15, 2014, 05:55:54 AM »
It totally depends on how he best takes in information. Is it by playing with things? Roll out the calculators and graphs. Last year I gave my sister (for her 21st) Anita Bell's "Starting Out and Starting Over", plus " Your Money Or Your Life", because like me she's a reader. My SO I email links to videos and podcasts, because that's how he takes in info best. YNAB's podcast is pretty good, as is stuff by the Mad Fientist.

As an engineer graduating right now, he might be walking into a difficult market as well (my SO's having difficulty finding a job). That means it's more difficult to think about FI as a realistic possibility. Talk to him about your end game (whatever that looks like to you) and ask him about his. My sister came to me to look at her budget because she wanted to travel this year and have money left over, knew that I'm interested in money and wouldn't judge her for spending a ton on travel, and I think she's well on her way to treating her money with respect instead of blowing the lot. I doubt her financial journey will look the same as mine, though :)

matchewed

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Re: Giving my little brother the gift of financial independence
« Reply #2 on: September 15, 2014, 06:01:59 AM »
You can only lead the horse to water. There is no way to make him see what you want him to see other than to show him and move on. Set up the account, put whatever amount you want in there, write him a nice note in a card explaining what you're hoping, and move on w/ your life. If you're giving a gift, give the gift, don't attach all these emotional strings to it about it being about what you want the gift to be used for. That's unfair. It makes it not a gift but a leverage into making the other person behave the way you want them to. Give the gift with nothing other than a "wish you well" and move on.

zinnie

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Re: Giving my little brother the gift of financial independence
« Reply #3 on: September 15, 2014, 06:28:26 AM »
I tried this and failed with my own brother, but just wanted to mention that depending on how he is with money right now, consider a Roth or traditional IRA to make it hard to just spend on toys. Just make sure he made enough in beer money that year to cover whatever you all contribute for him...

My dad opened a Roth for me when I was in college and put a marginal amount of money in it. Just having the account set up for me probably got me started five years earlier than I would have.

You sound like a great sibling--here's hoping it sets him up well for the future!
« Last Edit: September 15, 2014, 06:31:59 AM by zinnie »

ken

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Re: Giving my little brother the gift of financial independence
« Reply #4 on: September 15, 2014, 08:36:38 AM »
What you are proposing is a wonderful gift and its perfectly alright to have some strings attached. Otherwise it is like pushing someone out of a plane before they fully understand how the parachute works.

Set it up in a tax deferred. retirement account. Consider helping him build discipline by offering to match some percentage of his contributions for the next couple years.

I agree with the suggestion of sharing your plan and goals. RE may not resonate with someone who hasn't started working yet. Share the websites others have suggested and couple key articles from MMM.

You'll have to explain what you are doing before you do it and have his signature since it would be using his SSN. He is an adult.

forummm

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Re: Giving my little brother the gift of financial independence
« Reply #5 on: September 15, 2014, 08:41:55 AM »
You can only lead the horse to water. There is no way to make him see what you want him to see other than to show him and move on.

Sigh. I've tried, for about 10 years, with my brother. He still doesn't get it. I got him started with a Roth, and he just cashed it out later when the market went down 5%. Maybe when I FIRE he'll start thinking differently.

Example: They had a car that worked just fine (maybe 3-5 years old). But then wanted to get a brand new car for "road trips" (because accelerating the depreciation by putting lots of miles on the new car is a great financial decision). So they went to a stealership and bought a brand new Altima (probably overpaying). And they owed more on the old car than the trade-in offer (which was probably low), so they folded the extra amount owed into the new car loan. They also had terrible credit so the loan ended up being at 27% interest, which I didn't even know was possible. Their car payment was more than my mortgage. They paid more than the cost of the car in interest. They had gap insurance and the car should have been totaled after an accident (not his fault), and could have just walked away from the crushing debt. But then he somehow ended up keeping the car and the huge 27% interest loan and the car hasn't worked right since. I estimated once that the car has cost him $100k (including not being able to buy a house, etc). He makes $30k/year. He probably spends my food budget on coffee.

plank

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Re: Giving my little brother the gift of financial independence
« Reply #6 on: September 15, 2014, 10:16:09 AM »
I would offer to match his contributions to a certain amount up to $x/year.  This way he has skin in the game and it's not just monopoly money to him.  I don't think it's unreasonable to tell him you will contribute as long as he doesn't take money out at all.  That way, he builds the habit of saving part of what he makes, which is really the ultimate goal.  Hopefully, by the time he is independent, he will still make the savings a priority and won't need your help.

RichMoose

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Re: Giving my little brother the gift of financial independence
« Reply #7 on: September 15, 2014, 11:12:34 AM »
You should give him a copy of the Australian Edition, The Wealthy Barber from David Chilton. It's an amazing book that's also an easy read and has some simple future value calculations in it. If he likes that book, then give him a Bogle book to read so he understands the benefits of index investing only.

I also like the idea of offering a matching type scenario. Say, here's a $1000 for your account to start. For the next 5 years we'll (you and mum and dad) top up 50% of your savings in this account up to a max of $x.

Good luck! I tried educating my younger brother who has earned buckets of money working on oil rigs the past few years. Showed him benefits of tax deferral, future value calculations, and so on. All that money never found it's way to an RRSP (despite the obvious tax benefits when earning such a high income), instead being spent on adventures in Thailand, heavy partying, failed university attempts, several vehicles, etc. "you have to enjoy your life as well" he says.

yandz

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Re: Giving my little brother the gift of financial independence
« Reply #8 on: September 15, 2014, 11:19:52 AM »
I would offer to match his contributions to a certain amount up to $x/year.  This way he has skin in the game and it's not just monopoly money to him.  I don't think it's unreasonable to tell him you will contribute as long as he doesn't take money out at all.  That way, he builds the habit of saving part of what he makes, which is really the ultimate goal.  Hopefully, by the time he is independent, he will still make the savings a priority and won't need your help.

+10  This a great idea.  I have some money invested for my nieces and nephews that I plan to give them....later (sometime in their 20s?), but hadn't determined exactly how to do it.  This is perfect.

plank

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Re: Giving my little brother the gift of financial independence
« Reply #9 on: September 15, 2014, 11:26:40 AM »
Thanks for the compliment.  Every once in a while, a good idea pops out between all the rubbish. ;)

RyanAtTanagra

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Re: Giving my little brother the gift of financial independence
« Reply #10 on: September 15, 2014, 12:25:45 PM »
Good advice above, I only want to add an additional book recommendation if you decide to give him one:  Debt is Slavery

http://www.amazon.com/Debt-Slavery-Other-Things-Taught/dp/0978545702

It's only like 120 pages but touches all the topics.  For someone that may not really be interested in PF it may be a little less daunting to read since you can read it in like 2 hours.

CommonCents

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Re: Giving my little brother the gift of financial independence
« Reply #11 on: September 15, 2014, 12:50:55 PM »
I would offer to match his contributions to a certain amount up to $x/year.  This way he has skin in the game and it's not just monopoly money to him.  I don't think it's unreasonable to tell him you will contribute as long as he doesn't take money out at all.  That way, he builds the habit of saving part of what he makes, which is really the ultimate goal.  Hopefully, by the time he is independent, he will still make the savings a priority and won't need your help.

+10  This a great idea.  I have some money invested for my nieces and nephews that I plan to give them....later (sometime in their 20s?), but hadn't determined exactly how to do it.  This is perfect.

+2

Perhaps a decreasing match:
e.g., here's a Roth IRA set up with $1000 for you as a pure gift!  We'll also match 1:1 anything you put in this year if you do not withdraw anything out (50%) and in the future years:
Year 2: Match 2:3 (40%)
Year 3: Match 1:3 (33%)
Year 4: Match 1:4 (25%)
Year 5: Match 1:5 (20%)

At the end of five years, you and family would be on the hook max for $8083 (3k+2k+1250+1k+833), and hopefully there would be sufficient time to show the benefits of investing, encourage habits of regular saving.

socaso

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Re: Giving my little brother the gift of financial independence
« Reply #12 on: September 15, 2014, 09:42:18 PM »
I would offer to match his contributions to a certain amount up to $x/year.  This way he has skin in the game and it's not just monopoly money to him.  I don't think it's unreasonable to tell him you will contribute as long as he doesn't take money out at all.  That way, he builds the habit of saving part of what he makes, which is really the ultimate goal.  Hopefully, by the time he is independent, he will still make the savings a priority and won't need your help.

+10  This a great idea.  I have some money invested for my nieces and nephews that I plan to give them....later (sometime in their 20s?), but hadn't determined exactly how to do it.  This is perfect.
+1 I love it! Somewhere out there in forum-land someone mentioned making a very effective slide presentation for their spouse explaining the value of saving to retire early. Perhaps you could introduce the matching contributions with a presentation with a Powerpoint presentation with charts that clearly illustrate the value of starting your savings early in life.

MooseOutFront

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Re: Giving my little brother the gift of financial independence
« Reply #13 on: September 16, 2014, 11:54:08 AM »
nice blueprint gizmo.  simple but effective steps.

GizmoTX

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Re: Giving my little brother the gift of financial independence
« Reply #14 on: September 16, 2014, 12:12:23 PM »
Thanks. I decided to move my post to Mini Money Mustache under the topic of How to teach about money, because my answer may not help the OP. Here it is, expanded:

We did a chore chart with stickers when our son was young to help him remember what he was expected to do & when. He earned a tiny age-appropriate reward only after he consistently met the challenge. Later on this became money paid weekly. In high school he had a monthly allowance for routine expenses like lunches & clothing items, because he needed practice in budgeting & spending. He did his own laundry from age 13. He wanted to earn the Entrepreneur merit badge in Boy Scouts which requires starting & running a business for 6 months; he decided to grow & sell tomatoes in the back yard, netting $400 each summer for 2 summers.

We matched our son's summer job earnings in a Roth IRA when he was in high school & beginning college. Last summer as a rising junior, he had an engineering internship that earned well over the Roth IRA limit, so we encouraged him to deposit the limit amount without any matching.

We started teaching our son about financial management at an early age. I took him to the bank to purchase I-bonds when he had accumulated enough, since they pay more than a savings account. When he was a HS freshman, we helped him open a bank account that included checks as well as a debit card. When he was old enough to drive a car & purchase gas, he added a credit card (with us) with the bank; we wanted an initial low limit, no annual fee, & it accumulated reward points. He has been responsible for paying the card balance completely every month, using his checking account online. He started using Mint in college & tracks roommate transactions with the Splitwise app. He recently qualified by himself for a much better reward credit card with no foreign transaction fees. BTW, he bikes to classes.

Every step has created the opportunity for learning & questions without overloading him with too much information all at once. He's leery of investing rather than saving, so that's our next step.