Author Topic: Where to stache the kids' cash?  (Read 3711 times)

keepitsimple

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Where to stache the kids' cash?
« on: May 13, 2014, 10:33:32 AM »
My oldest son recently received several thousand dollars as a gift and I am trying to decide how best to handle.  My initial inclination was to put it into his 529 plan which we do not fund fully every year (still working on maxing out our 401(k), tIRA, Roth IRA, and HSA).  We plan on partially paying for college and making him work/earn scholarships/borrow for the difference.  Both of our children are currently in private school so we will continue to pay approx that amount as they move into college.

He does not currently have a checking, savings or investment account besides the 529 and is about 5 years away from entering college.  So my question is, should we put the money into the 529 or maybe use all/some for other accounts that could help him learn about investing/money management?

ADK_Junkie

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Re: Where to stache the kids' cash?
« Reply #1 on: May 13, 2014, 05:35:33 PM »
Going into 8th grade?  I think you should use the money as a learning situation and plan some investments, start with some broad index funds, but also think about investing some into individual companies/stocks.  Talk to your son about Companies that he really likes, knows, and/or has an interest in (steer him toward your basic consumer products like Kraft, Ford... etc and avoid tech like Apple (since the tech world moves very fast and you and your son may get flat-footed in the event of market/tech changes).  Bring him into an evaluation of each of those companies and select a company to invest a modest amount with.  Same with the index funds, talk about why they are considered "good investments". 

My grandmother introduced me to the investment world with a gift of 3 PepsiCo stocks many years ago, and its world has ever since fascinated me.  It will be good to start learning (or really observing) how stocks work and what drives their value.  Over time, he may realize there are many irrational factors that play into the value of an equity investment.  Personally, I use Scottrade for most of my personal investing needs (very low trading costs, NO maintenance fees, actual franchise/office locations in most of the country).  Also, Yahoo! Finance and Google Finance are great tools for basic-level research on individual stocks.

Also, as a side note, get him a checking account opened.  Its never to early to start understanding the fundamentals of money and the tools society uses to facilitate its use.

Gin1984

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Re: Where to stache the kids' cash?
« Reply #2 on: May 13, 2014, 06:17:25 PM »
I have to wonder why you are putting money in 529 at all, if you have not maxed out the other accounts.  That being said, private high school is more expensive than grammar school and for me it almost doubled from freshman to senior year. I would stash the money in your accounts and have there be an IOU for college.

keepitsimple

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Re: Where to stache the kids' cash?
« Reply #3 on: May 14, 2014, 08:53:15 AM »
@Gin1984, good observation.  We don't put any of "our" $ into the 529.  We started it when he was born as a receptacle for any $ gifts, plus it's linked to Upromise to get rewards deposits.  I did think about using the recent gift money towards maxing out our tax deferred, but I wanted to be able to show him some sort of statement (with his name on it) so he can see how interest/investment gains work.

@ADK_junkie, thanks for the advice.  Yes, he's just finishing 7th. The more I think about it the more I am leaning towards opening him a basic checking account with a few hundred, putting about $1000 into a Sharebuilder account I opened for him but never really used and the rest into the 529 (which is invested in VTSMX).  That ought to cover all the basics and get him started out on the right path to financial literacy.


Gin1984

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Re: Where to stache the kids' cash?
« Reply #4 on: May 14, 2014, 09:05:15 AM »
That makes perfect sense.  :). Thanks for being willing to explain.  Coming from someone who has a sharbuilder account (that I opened because of a money reward), they suck.  Don't use them.

keepitsimple

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Re: Where to stache the kids' cash?
« Reply #5 on: May 14, 2014, 11:24:30 AM »
That makes perfect sense.  :). Thanks for being willing to explain.  Coming from someone who has a sharbuilder account (that I opened because of a money reward), they suck.  Don't use them.

I did the same thing (who doesn't like free cash?).  Are they really that bad?  Maybe I'll look at Scottrade then...

Gin1984

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Re: Where to stache the kids' cash?
« Reply #6 on: May 14, 2014, 11:53:10 AM »
That makes perfect sense.  :). Thanks for being willing to explain.  Coming from someone who has a sharbuilder account (that I opened because of a money reward), they suck.  Don't use them.

I did the same thing (who doesn't like free cash?).  Are they really that bad?  Maybe I'll look at Scottrade then...
Seriously overpriced to buy and sell.  Why have him get into individual stocks, since most agree those are not a good idea?  Why not an index fund from fidelity or Vanguard.  Also, I don't know how your fiscal situation is set up but ANY money in his name is going to hurt his financial aid prospects.

cbgg

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Re: Where to stache the kids' cash?
« Reply #7 on: May 15, 2014, 03:57:31 PM »
I don't have kids, but I'll share what my parents did:

We opened a bank account when I was a little one (too young to remember, maybe about 5 years old?).  I was often given small cash gifts when I was a kid (for example, my grandma would give me $5) and by the time I was a pre-teen I'd often get cash gifts for birthdays, etc.  My mom would take me to the bank to deposit these in my savings account and get my bank book updated.

My parents always let me treat it as my own money.  They'd inquire, for example, they'd ask what I was going to do with my birthday money.  From a young age I was really interested in saving up for big purchases.  I can still remember buying my own bike at about age 12 by saving my birthday money.  By the time I was 15 I was eager to get a part-time job and earn more money with the goal of saving up for a car when I graduated high school.

Basically, I think your kid is old enough to have a good deal of input in what to do with the money.  You should maintain veto power if he wants to do something stupid, but I think that you create responsible adults by allowing children to exercise their decision making power in a safe environment.  This is a great opportunity to have a dialogue with him about saving for future spending, etc.

ASquared

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Re: Where to stache the kids' cash?
« Reply #8 on: May 18, 2014, 10:53:46 PM »
@Gin1984, good observation.  We don't put any of "our" $ into the 529.  We started it when he was born as a receptacle for any $ gifts, plus it's linked to Upromise to get rewards deposits.  I did think about using the recent gift money towards maxing out our tax deferred, but I wanted to be able to show him some sort of statement (with his name on it) so he can see how interest/investment gains work.




Second this - we do the exact same - Vanguard 529 for gifts/etc and Upromise.  The Upromise $ adds up, especially when you get grandparents/etc buying through it also.