Author Topic: When do you tell the kids they have money?  (Read 4384 times)

brewer12345

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When do you tell the kids they have money?
« on: April 14, 2014, 11:23:38 AM »
My 7 and 9 year old have been accumulating money since they were born, although they do not know it.  They are required to save some of each week's allowance and the excess goes into a checking account when it will not fit in their bank any more.  More substantially, as they have been given gifts over the years by friends and family, the money has gone into a balanced fund in a custodial account for each kid and the eldest has a portfolio of almost $10k.  We show them the money in the checking account from time to time because we want them to understand that the money they deposit is not gone and is still theirs.  They do not know about the custodial accounts.  When should I show them that?  My eldest is very interested in money and will want to start investing soon to learn about it.

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Re: When do you tell the kids they have money?
« Reply #1 on: April 14, 2014, 11:26:46 AM »
Now.  Ease them into what percentage of it they can use for investing, as they start to learn.

Plenty of successful people started investing at age 10-12.  It may work out, it may not, but there's no need to shelter them for too long, IMO.
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galliver

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Re: When do you tell the kids they have money?
« Reply #2 on: April 14, 2014, 11:48:27 AM »
A friend of mine recently paid off half her student loans by selling McDonalds stock she asked for as a birthday gift when she was 9.

I would have been overwhelmed at age 9 (or any age before college, probably) to find out I "had" $10k, and resentful if I was told what I could or couldn't use it for...not to mention I think it sets a bad precedent that one's child doesn't have autonomy over financial decisions; my parents made it clear that our money was truly ours to do with as we pleased and I think that's healthy. Maybe it would make more sense to contribute some of future monetary gifts to their checking account and give them more access to that instead?

avonlea

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Re: When do you tell the kids they have money?
« Reply #3 on: April 14, 2014, 12:45:31 PM »
Brewer12345,

I don't have any experience from which to draw in helping you determine the best age for a child to start learning about investing.  We haven't yet had either of our children make investing decisions. We plan to eventually.  If your older child seems ready, I think it's a great idea to seize the opportunity and start teaching her.  As far as revealing $ amounts goes, we showed our oldest the balance of his 529 when he was 10.  We thought he was ready at that time.  No regrets on that decision. 

I am hoping that Nords will find this thread soon.  I bet he'll have some great advice.

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Re: When do you tell the kids they have money?
« Reply #4 on: April 16, 2014, 09:33:05 AM »
My 7 and 9 year old have been accumulating money since they were born, although they do not know it.  They are required to save some of each week's allowance and the excess goes into a checking account when it will not fit in their bank any more.  More substantially, as they have been given gifts over the years by friends and family, the money has gone into a balanced fund in a custodial account for each kid and the eldest has a portfolio of almost $10k.  We show them the money in the checking account from time to time because we want them to understand that the money they deposit is not gone and is still theirs.  They do not know about the custodial accounts.  When should I show them that?  My eldest is very interested in money and will want to start investing soon to learn about it.
David Owen wrote "The First National Bank of Dad" with the various ideas he used on his kids.  He had a chapter about teaching them to invest in mutual funds-- one kid wanted to pick stocks but the other was apathetic and just used index funds.  He started them pretty early-- I think it was age 9 or 10.

NFCU will probably let you open a checking account for your nine-year-old, and they might even hand over an ATM card.  Our kid loved whipping out her checkbook to pay for Scholastic book fair purchases and lunch passes.  There were some tears over balancing her account by hand, but then she upgraded to Quicken and was much happier.  It helped her get ready for her first credit card at age 13.  The best thing about the checking account is that we went almost cashless-- I transferred her weekly allowance electronically so that it wouldn't burn a hole in her pocket.

You could divide the custodial funds into "checking account" and "investing account" and show them how to handle both.  You could decree that the investing account is to learn how to manage money, build up funds for college, or even save a little for retirement.  People used to give you money to run Wall Street investments, and now you could do the same for your daughter-- only for her own benefit and maybe an occasional profit-sharing dividend.

We adopted Owen's idea of the "Kid 401(k)". 

It started on our daughter's 8th birthday.  Along with the raise in her allowance, we told her that a second boost of her allowance was being set aside in a kid's version of a grownup's 401(k).  We said that we'd add parental matching funds to her contributions so that when she turned 16 years old she'd have [Dr. Evil voice] FIVE THOUSAND DOLLARS [/Evil] to buy herself a car.  She couldn't tap the funds until then (no 401(k) loans or early withdrawals) and she'd have to wait eight years (which to her at that age was an entire lifetime).  I created a spreadsheet graph that showed the age-vs-$$ curve and where she was on it.  As she got older we showed her how the numbers went into the formulas and compounded. 

Interestingly, this 401(k) idea squelched the "gimmes".  We were sitting around the parking lot at taekwondo one day and the 12-year-olds started talking about the cars they were going to get "soon".  As they described their Hummers & Escalades, one parent asked their kid "How are you going to pay for this?"  When the kids started pleading or asking about McDonald's jobs, our daughter said "Well, I have a Kid 401(k), and when I turn 16 years old it'll have $5000 in it and I'll just buy my own car."

That stopped the kids cold.  It stopped a lot of the parents, too.

Of course once she was convinced that the 401(k) was really legit, we started the discussion about how much it costs to insure and maintain a car.  She was horrified to watch gas prices go up.  We showed her how crowded the high-school parking lot was and how college made you pay for parking.  Then I explained how she could use bicycles & public transportation while re-investing her $5000 in a CD ladder.  I figured that at age 16 she'd either buy an island bomb or hold on to the money until she found something at college.

She blindsided us parents:  when she got her learner's permit, she asked if she could pool her Kid 401(k) with us to buy a used car.  She said that when she went to college (on the Mainland) then we'd buy her out of her share and she'd put the money back into her car fund.  We haggled hard on car washes, maintenance, and damage deductions.  She even offered to run errands. 

And that's how we bought our used Prius.  She owned a third of it (our most expensive car purchase ever).  My spouse assessed $250 damage for a parking-lot ding but otherwise our daughter took great care of that car.  She did all of our grocery shopping for almost two years.  When she left for college we bought her out of her share (minus the damage).  She set up $4500 in CDs in her credit union account and she used the remaining $250 to buy herself a nice bicycle.

As your kids reach the right age, you could also start paying them for various jobs.  When they have enough earned income then you could open a Roth IRA-- I think Vanguard or TRP will still let you subcustody a minor's Roth IRA:  http://the-military-guide.com/2012/03/26/starting-your-kids-roth-ira/

I am hoping that Nords will find this thread soon.  I bet he'll have some great advice.
Brewer's already given me great investing advice, and he taught me advanced analysis techniques as well as recommending McMillan's options textbook!

brewer12345

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Re: When do you tell the kids they have money?
« Reply #5 on: April 16, 2014, 10:27:16 AM »
Lots of interesting ideas.  Thanks, Nords and everyone.  I will need to think this through and come up with a plan.  In the meantime, DD is very eager to learn about investing so we will set up a shadow portfolio this summer as a learning tool.

Workinghard

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Re: When do you tell the kids they have money?
« Reply #6 on: April 16, 2014, 10:28:16 AM »
Our son also had a checking account and a credit account around the same age as Nord's daughter. He was homeschooled and we funded his checking account every year for educational expenses. Prior to that, we used to joke that if there was a class that taught you how to stand on your head, he would want to take it. Having his "own" checking account and writing out the checks to pay for classes and activities really helped him to consider the cost/benefit.  He would also talk to people and negotiate prices.

The credit card was in our name and we added his name to it. When he turned 18, he was able to get his own credit card because he had a credit history. Not that having a credit card is a necessity, but he did learn the necessity of paying it off every month and not carrying a balance before he moved away from home.

I will say that initially we did not set a strong enough boundary on his checking account and the purpose/use for it. He took several hundred dollars out of it and bought me a heart shaped necklace for my birthday. Hmm, you used my money to buy me a present from you. It took a long time to pay for that necklace out of his allowance. I still have it.

Having a good grasp of finances and real life skills, made it so much easier when he went away to college. He did not have the struggles that a lot of first-year students have. He did run into some problems when he went to pay for tuition with his credit card. They insisted he couldn't put that much on it, but he knew he was well within his maximum limits and was paying with a credit card to get the points.

As far as other money, he had a small inheritance that we were holding for him from both grandparents. It was ours to give to him when we felt he was ready. When we talk to him about it, he was thrilled to be able to fund a 2013 and 2014 Roth IRA to get started investing. I knew we had made the right decision when he took the additional amount that was left over and also invested it rather than adding it to his emergency fund. He figured he could continue to build his emergency fund from his paychecks.

Although he will never be as frugal as I am, it makes a parent happy to see their children making good choices and I know he has that first 100k goal.
« Last Edit: April 16, 2014, 10:30:37 AM by Workinghard »

Gin1984

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Re: When do you tell the kids they have money?
« Reply #7 on: April 16, 2014, 10:39:34 AM »
My 7 and 9 year old have been accumulating money since they were born, although they do not know it.  They are required to save some of each week's allowance and the excess goes into a checking account when it will not fit in their bank any more.  More substantially, as they have been given gifts over the years by friends and family, the money has gone into a balanced fund in a custodial account for each kid and the eldest has a portfolio of almost $10k.  We show them the money in the checking account from time to time because we want them to understand that the money they deposit is not gone and is still theirs.  They do not know about the custodial accounts.  When should I show them that?  My eldest is very interested in money and will want to start investing soon to learn about it.
David Owen wrote "The First National Bank of Dad" with the various ideas he used on his kids.  He had a chapter about teaching them to invest in mutual funds-- one kid wanted to pick stocks but the other was apathetic and just used index funds.  He started them pretty early-- I think it was age 9 or 10.

NFCU will probably let you open a checking account for your nine-year-old, and they might even hand over an ATM card.  Our kid loved whipping out her checkbook to pay for Scholastic book fair purchases and lunch passes.  There were some tears over balancing her account by hand, but then she upgraded to Quicken and was much happier.  It helped her get ready for her first credit card at age 13.  The best thing about the checking account is that we went almost cashless-- I transferred her weekly allowance electronically so that it wouldn't burn a hole in her pocket.

You could divide the custodial funds into "checking account" and "investing account" and show them how to handle both.  You could decree that the investing account is to learn how to manage money, build up funds for college, or even save a little for retirement.  People used to give you money to run Wall Street investments, and now you could do the same for your daughter-- only for her own benefit and maybe an occasional profit-sharing dividend.

We adopted Owen's idea of the "Kid 401(k)". 

It started on our daughter's 8th birthday.  Along with the raise in her allowance, we told her that a second boost of her allowance was being set aside in a kid's version of a grownup's 401(k).  We said that we'd add parental matching funds to her contributions so that when she turned 16 years old she'd have [Dr. Evil voice] FIVE THOUSAND DOLLARS [/Evil] to buy herself a car.  She couldn't tap the funds until then (no 401(k) loans or early withdrawals) and she'd have to wait eight years (which to her at that age was an entire lifetime).  I created a spreadsheet graph that showed the age-vs-$$ curve and where she was on it.  As she got older we showed her how the numbers went into the formulas and compounded. 

Interestingly, this 401(k) idea squelched the "gimmes".  We were sitting around the parking lot at taekwondo one day and the 12-year-olds started talking about the cars they were going to get "soon".  As they described their Hummers & Escalades, one parent asked their kid "How are you going to pay for this?"  When the kids started pleading or asking about McDonald's jobs, our daughter said "Well, I have a Kid 401(k), and when I turn 16 years old it'll have $5000 in it and I'll just buy my own car."

That stopped the kids cold.  It stopped a lot of the parents, too.

Of course once she was convinced that the 401(k) was really legit, we started the discussion about how much it costs to insure and maintain a car.  She was horrified to watch gas prices go up.  We showed her how crowded the high-school parking lot was and how college made you pay for parking.  Then I explained how she could use bicycles & public transportation while re-investing her $5000 in a CD ladder.  I figured that at age 16 she'd either buy an island bomb or hold on to the money until she found something at college.

She blindsided us parents:  when she got her learner's permit, she asked if she could pool her Kid 401(k) with us to buy a used car.  She said that when she went to college (on the Mainland) then we'd buy her out of her share and she'd put the money back into her car fund.  We haggled hard on car washes, maintenance, and damage deductions.  She even offered to run errands. 

And that's how we bought our used Prius.  She owned a third of it (our most expensive car purchase ever).  My spouse assessed $250 damage for a parking-lot ding but otherwise our daughter took great care of that car.  She did all of our grocery shopping for almost two years.  When she left for college we bought her out of her share (minus the damage).  She set up $4500 in CDs in her credit union account and she used the remaining $250 to buy herself a nice bicycle.

As your kids reach the right age, you could also start paying them for various jobs.  When they have enough earned income then you could open a Roth IRA-- I think Vanguard or TRP will still let you subcustody a minor's Roth IRA:  http://the-military-guide.com/2012/03/26/starting-your-kids-roth-ira/

I am hoping that Nords will find this thread soon.  I bet he'll have some great advice.
Brewer's already given me great investing advice, and he taught me advanced analysis techniques as well as recommending McMillan's options textbook!
That is a wonderful idea.  Thanks!

Nords

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Re: When do you tell the kids they have money?
« Reply #8 on: April 16, 2014, 10:52:53 AM »
Lots of interesting ideas.  Thanks, Nords and everyone.  I will need to think this through and come up with a plan.  In the meantime, DD is very eager to learn about investing so we will set up a shadow portfolio this summer as a learning tool.
Speaking of a kid's earned income, the whole project would make an excellent parent-kid blog.  It's a unique personal-finance topic.  If you set up a WordPress blog somewhere like Bluehost, or even another Blogger account, then advertisers will pay ridiculously high bids for your Google AdSense keywords. 

Your kid(s) could write (or dictate) a post or two a month about what they're doing, and you could write your own "guest posts" for the parents.  You could adopt a boilerplate format like the Dividend Growth Investor (http://www.dividendgrowthinvestor.com/) with your kids writing up their own analysis and how they feel about the process.  Or you could just blog about it as a parent, sort of a blog version of David Owen's writing about his kids.

They'll learn that they don't really understand their investing plan until they can write up the explanation.  They'll learn a lot about writing & blogging.  Throw in a Pinterest account, a Facebook fan page, maybe a short YouTube video or a podcast...

Eh, but you're probably not looking for a job!

That is a wonderful idea.  Thanks!
I strongly recommend using a library copy of that book.  He explains exactly how a kid perceives saving money (they think parents are crazy) and how to motivate them with compound interest, saving for toys, reselling old toys on eBay, and lots of other ideas.

Our daughter had a rocky first semester at college when she was running her own finances.  (Zip car rentals can be evil money-suckers, and "friends" persuaded her to go shopping at Nordstroms instead of Goodwill.)   However she straightened herself out during the second semester, and today she continues to surprise and impress us with her finances.  Her frugal skills are a lot better at her age than mine ever were.
« Last Edit: April 16, 2014, 10:58:57 AM by Nords »

greaper007

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Re: When do you tell the kids they have money?
« Reply #9 on: April 16, 2014, 11:31:06 AM »
I was a child model so my sisters and I were making our own money at 4 years old ($100 an hour in 1984).    I always knew how much I was making and that it was going into a bank account.    I just wish I knew where to put that money at the time.   My parents gave it to their investor who basically took it and put it in a checking account.   Apparently he forgot to invest it in the market for over a decade and it took me years to realize that.   Now I only have about $10,000 in that account.   I imagine if that was riding the market for the last 30 years I'd be pushing $60,000 or so.

Good for you for managing it well.   I say let them know now, but don't let them touch until their mid 20s, or if you both agree they have a good thing to spend it on.   Say school or starting a business.

Gin1984

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Re: When do you tell the kids they have money?
« Reply #10 on: April 16, 2014, 01:56:48 PM »
Lots of interesting ideas.  Thanks, Nords and everyone.  I will need to think this through and come up with a plan.  In the meantime, DD is very eager to learn about investing so we will set up a shadow portfolio this summer as a learning tool.
Speaking of a kid's earned income, the whole project would make an excellent parent-kid blog.  It's a unique personal-finance topic.  If you set up a WordPress blog somewhere like Bluehost, or even another Blogger account, then advertisers will pay ridiculously high bids for your Google AdSense keywords. 

Your kid(s) could write (or dictate) a post or two a month about what they're doing, and you could write your own "guest posts" for the parents.  You could adopt a boilerplate format like the Dividend Growth Investor (http://www.dividendgrowthinvestor.com/) with your kids writing up their own analysis and how they feel about the process.  Or you could just blog about it as a parent, sort of a blog version of David Owen's writing about his kids.

They'll learn that they don't really understand their investing plan until they can write up the explanation.  They'll learn a lot about writing & blogging.  Throw in a Pinterest account, a Facebook fan page, maybe a short YouTube video or a podcast...

Eh, but you're probably not looking for a job!

That is a wonderful idea.  Thanks!
I strongly recommend using a library copy of that book. He explains exactly how a kid perceives saving money (they think parents are crazy) and how to motivate them with compound interest, saving for toys, reselling old toys on eBay, and lots of other ideas.

Our daughter had a rocky first semester at college when she was running her own finances.  (Zip car rentals can be evil money-suckers, and "friends" persuaded her to go shopping at Nordstroms instead of Goodwill.)   However she straightened herself out during the second semester, and today she continues to surprise and impress us with her finances.  Her frugal skills are a lot better at her age than mine ever were.
I plan too when time allows.  :)

avonlea

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Re: When do you tell the kids they have money?
« Reply #11 on: April 17, 2014, 06:20:10 AM »
Thank you so much, Nords!!

Interestingly, this 401(k) idea squelched the "gimmes".  We were sitting around the parking lot at taekwondo one day and the 12-year-olds started talking about the cars they were going to get "soon".  As they described their Hummers & Escalades, one parent asked their kid "How are you going to pay for this?"  When the kids started pleading or asking about McDonald's jobs, our daughter said "Well, I have a Kid 401(k), and when I turn 16 years old it'll have $5000 in it and I'll just buy my own car."

That stopped the kids cold.  It stopped a lot of the parents, too.
Great story. :D

Workinghard, I appreciated all that you shared, too!

furrychickens

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Re: When do you tell the kids they have money?
« Reply #12 on: April 19, 2014, 09:09:12 PM »
My oldest is starting to understand that "money can make more money" at 8. The kids have a joint Vanguard account under my name.

I tried the allowance route, but the $ just burns a hole in their pocket when it is physical money.

Nords

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Re: When do you tell the kids they have money?
« Reply #13 on: April 19, 2014, 10:14:58 PM »
I tried the allowance route, but the $ just burns a hole in their pocket when it is physical money.
David Owen recommends that parents think of their kids with money in terms of running around lighting $20s on fire.  But it's the only way that kids get comfortable with carrying money, being aware of their personal safety, taking care of their valuables, and making change.  One of our daughter's friends wasn't allowed to carry money (that child's mother has a lot of psychiatric issues) and the friend was totally unfamiliar with the basics. 

Personally it got a lot easier for me when our daughter opened her own checking account and we could auto-transfer the money instead of having the traditional Saturday-morning allowance distribution.  She also preferred to visit an ATM rather than discuss her cash needs with me, so it helped limit her impulse spending and taught her to plan ahead.