Liz Pulliam Weston on the "Kiddie" 401(k)
Renato is a cardiologist at Wake Forest University medical school. He feels he’s a good saver coming from an immigrant family and he’s passing along those values to his children, ages 9 and 13. Renato has established a “Kiddie 401(k)” for his children. He matches what they put into the account and charges them a fee when they withdraw money. His kids can do what they want with the money they turn 18.
Question: My 13 yr old has somehow amassed $3000 from allowance and mowing lawns and birthday presents, etc. It’s in a savings account now, but I have been teaching him about stocks and bonds and the markets. He would like to use the money in college but may just keep on investing. How is the best way to help him learn about investing with this small but significant start?
Answer: It isn’t a good time to be a saver. It’s hard to get a decent yield.
What is your goal for the money? What is the timeline? Everything falls into place after addressing these questions. For instance, will he need the money at 18? If his goal is within 10 years I would say investing in the stock market isn’t appropriate. The stock market is too risky.
On the other hand, stocks are wonderful if the goal is to learn about the market. There is nothing more exciting than having a share of a company and getting its annual report and realizing that you are an owner. It’s a way of getting kids to understand how the economy works.
You could sign him up for a discount brokerage account and show him how to trade. You could also use Sharebuilder. There’s no account minimum. It’s a great place to learn the basics.
(Edited. You can hear more about Renato’s kids and money, as well as Weston’s complete answer, here.)
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