Author Topic: Helping my daughter grow her stache  (Read 5909 times)

DoItYOURSELF

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Helping my daughter grow her stache
« on: July 31, 2014, 09:14:13 PM »
My twelve year old daughter had her first job this summer babysitting for a neighbor.  I'm guessing she'll have about $2,000 after she's done.  I've been talking with her about thinking of her money as employees that can work for her.  After a particular bad day in which the kids were total brats, I told her to remember that next time she thinks about buying something and what she had to go through to get that money.  She seems to be catching on to the concept.

I want to help her invest her money in a way that gets her excited about investing.  A savings account or CD is too low of return and too boring.  I'd let her pick out some stocks of companies she is interested in, but given the short time frame until she'd need that money for college, I'm afraid she may lose money.  I also thought about Lending Club, but my State's laws don't allow investment in Lending Club. 

One idea is to have her put her money in a CD and my wife and I would contribute the extra so that she is getting a rate of return where it feels like she is accomplishing something.

Another idea I had is for her to buy a few head of cattle which would be raised by my dad who is a rancher.  She'd then pay my dad for feed and other expenses.  I think it would be a great education for her.  Plus, it would be a big kick for her to go out and see the cattle she owns.

What do the Mustachians think about these ideas?  Is there another way I could get her excited about investing that I'm not thinking about?

SDREMNGR

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Re: Helping my daughter grow her stache
« Reply #1 on: July 31, 2014, 11:04:26 PM »
I love the cattle idea.  It'll get her calculating her business costs vs. Income and get her started in business.  Whether she goes into farming or not, just learning the idea of input and output of running a business is great.  And she will be excited to see her cattle auctioned off! Or really sad maybe :)

mozar

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Re: Helping my daughter grow her stache
« Reply #2 on: August 01, 2014, 12:23:25 PM »
Is there a business she could start that you could help with? Lots of kids sell jewelry. I got 2k in mutual funds when i was 12 and learning about investing was plenty interesting. I still have it and its 7k 20 years later.

Catbert

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Re: Helping my daughter grow her stache
« Reply #3 on: August 01, 2014, 02:36:56 PM »
Cattle idea sounds fun...especially if she has any interest in ranching.  I'm assuming that you and your dad know that she'll make money on the deal. 

seattlecyclone

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Re: Helping my daughter grow her stache
« Reply #4 on: August 01, 2014, 03:05:43 PM »
The cattle idea is pretty cool as a way for her to earn some money, learn about business, and get closer to her grandfather. A Roth IRA wouldn't be a terrible idea either if you can find a way to use other funds for college expenses; opening a Roth IRA at the age of 12 will give her decades of tax-free growth on that retirement fund.

AH013

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Re: Helping my daughter grow her stache
« Reply #5 on: August 01, 2014, 03:29:14 PM »
The cattle idea is pretty cool as a way for her to earn some money, learn about business, and get closer to her grandfather. A Roth IRA wouldn't be a terrible idea either if you can find a way to use other funds for college expenses; opening a Roth IRA at the age of 12 will give her decades of tax-free growth on that retirement fund.

The one caveat being her income must have been reported.  Not saying to evade taxes, but for kids it can be a whole slew of issues for both parties if they just receive cash after each gig and don't know how up & up the family is going to be.  I still remember horror stories from both sides of the table -- from kids in my high school class who had the IRS coming after them because the hiring family claimed a tax-deduction for childcare expenses and the kid had to pay penalties, fines & taxes on unreported income, and from parents who had the IRS/DOL coming after them because a kid reported the income on their tax return and the IRS/DOL came after the hiring family for the employer portion of SS & Medicare payments.  Situations like that don't tend to lend themselves to repeat future business.

If she doesn't have a college fund, a 529 might be a great idea.  She could give you the money, and have you open up a 529 in your name with her as the beneficiary.  It might even net you a tax credit (depending on your state) which you could add to the fund to enhance the return.

Nords

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Re: Helping my daughter grow her stache
« Reply #6 on: August 01, 2014, 06:52:44 PM »
I'm guessing she'll have about $2,000 after she's done.
One idea is to have her put her money in a CD and my wife and I would contribute the extra so that she is getting a rate of return where it feels like she is accomplishing something.
You have a serious teachable moment here.

First, as another poster has suggested, declare her earned income on her own tax return.  The more earned income she declares, the more you can put into her Roth IRA.  Since she probably won't pay any taxes on anything up to $5500, you should take every opportunity to declare every bit of earned income that you can possibly (in good conscience) consider for her.  I'd add in any allowance money as well as cash earned for chores & home jobs.  Consider paying her for managing the household finances or running errands or washing cars.

Second, start her Roth IRA.  You'll have to be the subcustodian to a minor (probably to the age of 18), and the only place we found to do that in 2006 was T. Rowe Price.  Fidelity was adamant in their refusal, but you might find other places with cheaper expense ratios.

Third, give her a profit motive.  Tell her that you'll hand over some of her inheritance now (instead of when she's 82 years old) to make sure that she can put just as many dollars into her Roth IRA as she has earned income.  Her side of the deal would be to contribute an obscenely high savings rate of her own-- something like 60%-80%.  You could tell her that if she holds up her end of the deal then you'll gift her another $1000 to put into a CD ladder.  The compounding benefits of a Roth IRA at this age are too big to waste, and that's the phrase we used with our daughter when she started working (age 14).

Manage her material expectations (good luck).  For example, she'll probably want a cell phone with data.  Figure out how she can spend 5%-10% of her earnings to buy a low-end phone with low-end data, and then the rest is her funding problem.  Explain to her that she'd better think about long-term savings for her first car, and you're happy to help her with the CD ladder.  This might also be a good time to start a "teen clothing & toiletries allowance" where you guys stop buying her clothes and give her the money to do that.  You could start it with monthly or quarterly increments and work up to semi-annual & annual increments.  The idea is to reduce her temptation to go on a spending spree at the mall with her babysitting earnings, while also giving her the chance to handle appropriately larger sums of money.  We used to tell our daughter that she could look really good or smell really good, and the choices were up to her.  (For the other forum members, I'm not sure how well this would work with a teen boy.)  The idea is to give her the feeling that she's managing her money and not just turning it over to you to disappear until she graduates from high school-- which is nearly half of her life away.

If you haven't already read David Owen's "First National Bank of Dad", now is the time.

Thegoblinchief

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Re: Helping my daughter grow her stache
« Reply #7 on: August 02, 2014, 06:29:46 AM »
My kids (combined) had enough to buy into a $1,000 Vanguard fund. I encourage/require that they save at least half of what they earn around the house.

I'm constantly reminding them about the impact, financially and environmentally, of toys that break and whatnot. I use phrases like, when you're an adult and you have REAL expenses, you will want this money.

My 8 year old is just starting to understand deferred gratification, and knows we can't spend money because we're saving up (among other things) to visit grandparents over Christmas. The 4 and 6 year olds aren't quite there yet, but a 12 year old should be able to understand this easily.

Zette

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Re: Helping my daughter grow her stache
« Reply #8 on: August 02, 2014, 07:51:32 AM »
My dad put $1000 in a mutual fund in my name when I was 12, and throughout high school I contributed to it whenever I was working.  It was cool and very grown up just to have it even without a plan for what it was going to be used for.  I still have the fund 30 years later, now worth about $35k  (I stopped contributing in my 20's, when I had access to 401k, etc.) 

Basenji

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Re: Helping my daughter grow her stache
« Reply #9 on: August 02, 2014, 08:57:46 AM »
I want to help her invest her money in a way that gets her excited about investing.  A savings account or CD is too low of return and too boring.

One of the tenets of Bernstein's "Four Pillars" and the Boglehead message is yeah, slow and steady diversified investing should be boring. Al the hoopla of chasing returns is BS. Teach her that you don't get rich quick, but you do get rich by being "boring." Nords of course has great suggestions. Show her charts of starting now and compounding over 30 years, holy cow, if I had only started at 12!

DoItYOURSELF

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Re: Helping my daughter grow her stache
« Reply #10 on: August 02, 2014, 12:49:57 PM »
Thank you everyone for your thoughts and suggestions!

I've been approaching this from the goal of saving for college.  Since I have three other children and need to get some things in my own financial house in order first, I don't plan to give her any substantial help with college.  I hadn't thought about the Roth IRA and will have to dig into that further. 

okashira

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Re: Helping my daughter grow her stache
« Reply #11 on: August 02, 2014, 12:55:24 PM »
My twelve year old daughter had her first job this summer babysitting for a neighbor.  I'm guessing she'll have about $2,000 after she's done.  I've been talking with her about thinking of her money as employees that can work for her.  After a particular bad day in which the kids were total brats, I told her to remember that next time she thinks about buying something and what she had to go through to get that money.  She seems to be catching on to the concept.

I want to help her invest her money in a way that gets her excited about investing.  A savings account or CD is too low of return and too boring.  I'd let her pick out some stocks of companies she is interested in, but given the short time frame until she'd need that money for college, I'm afraid she may lose money.  I also thought about Lending Club, but my State's laws don't allow investment in Lending Club. 

One idea is to have her put her money in a CD and my wife and I would contribute the extra so that she is getting a rate of return where it feels like she is accomplishing something.

Another idea I had is for her to buy a few head of cattle which would be raised by my dad who is a rancher.  She'd then pay my dad for feed and other expenses.  I think it would be a great education for her.  Plus, it would be a big kick for her to go out and see the cattle she owns.

What do the Mustachians think about these ideas?  Is there another way I could get her excited about investing that I'm not thinking about?

You are right you don't want her to end up with an early memory of a stock loss.
Offer her an insurance policy (your own...)
You will cover all losses she realizes in her investments until age 19. Or something like that. She keeps all gains.

Nords

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Re: Helping my daughter grow her stache
« Reply #12 on: August 02, 2014, 01:39:54 PM »
I hadn't thought about the Roth IRA and will have to dig into that further.
This post has a bunch of the links that you'll encounter in your digging, including IRS Pub 15 and Pub 929:
http://The-Military-Guide.com/2014/05/15/start-a-roth-ira-for-your-kid/

If your kids have any skills with blogging or YouTube, then it's time to set yourself up with a Google AdSense account.  The reality is that everyone who's interested in blogging or making videos has the skills to succeed, and a little bit of revenue at their age might make a big impression on their self-confidence. 

EDIT:
Heh.  My daughter (now 21 years old) just posted Ron Leiber's latest NYT article, which is on Roth IRAs for kids: 
http://www.nytimes.com/2014/08/02/your-money/individual-retirement-account-iras/for-teenagers-starting-and-saving-in-a-roth-ira.html
She put it on my Facebook timeline with her comment "What a good idea! Oh wait..."
« Last Edit: August 02, 2014, 02:23:33 PM by Nords »

defenestrate

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Re: Helping my daughter grow her stache
« Reply #13 on: August 02, 2014, 09:55:07 PM »
Cattle is an interesting idea, my big question would be who takes on the risk of the cow dying, and how the rancher intends to charge her for maintanence. You could probably get up to 3 head at current rates (depending on how young you are purchasing the calf).

The good thing about a real investment, is it is more of a business lesson than an investment lesson, and this could be doubly valuable. I wish I had learned to do something of monetary value when I was younger. I had money, but I only thought money was there to spend--I had no idea I could take it, buy something, use it, and make more money...

DoItYOURSELF

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Re: Helping my daughter grow her stache
« Reply #14 on: August 04, 2014, 06:43:34 PM »
Cattle is an interesting idea, my big question would be who takes on the risk of the cow dying, and how the rancher intends to charge her for maintanence. You could probably get up to 3 head at current rates (depending on how young you are purchasing the calf).

I would estimate the risk of an animal dying at less than 5%.  Most likely her calf would not be any specific animal out of the herd, unless she really wanted to pick one out.  She would own a fraction of the herd.  If we wanted to get fancy, she would just loose her share of an animal that died.  But, when I was growing up, we just kept it simple.  I would pay for the animal and when it was sold, I would get the sale price back less some estimate of the feed, vaccinations etc.

Basenji

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Re: Helping my daughter grow her stache
« Reply #15 on: August 05, 2014, 05:33:18 AM »
Coming back to say, well done for teaching money management to your daughter. I forgot to tell you how admirable it is and important. In my family money was more dirty than anything and so I stumbled quite a bit with my money in early adulthood.  Pat yourself on t h e back.

Gone Fishing

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Re: Helping my daughter grow her stache
« Reply #16 on: August 05, 2014, 02:31:57 PM »
If the money is earmarked for college you can use a target retirement account for her projected first year of college (2020 for example) that will gradually become more conservative as she approaches college.  Just be sure to coach DCA in and DCA out.  I work with a lady who's son started college in 2008.  She sold everything right before his first year and took a 50% haircut.  The funds should have been invested more conservatively for an end point use, but if she had sold only what was needed each year, instead of all at once she would have faired much better.   I say diversify-put $1000 in Vanguard and buy one steer. Three lessons learned all at once...