Have “The Talk!”

If your teenage kids or grand kids have a job, keep reading.  If you don’t have kids, but would like to one day, I guess you can keep reading.  If you want to have kids, why don’t you go practice, it’s more fun than reading blogs…

But since you’re here….

Now that we’ve defined the audience let’s get started:

If your teenaged kids or grand kids are working for pocket money, spending money, gas money, video game money or whatever the hell they spend their money on, I want you to pull them aside soon and have a very serious conversation.

Nope, not the one about how babies are made and the need for condoms to prevent STD’s.  You should’ve done that already.  (If you haven’t, you need to do it first.)  It’s hard to save money when you’ve got child support payments to make as a 16 year old….

If your kid does have a job though, getting back to our story, you need to have a very important conversation with him/her.

The Roth IRA for kids talk:

Don’t, don’t, don’t start with: “You need to save part of your money you make and open a Roth IRA!”

First, they will roll their eyes, then cross their arms, then will just want to walk away.   If you’re smart you’ve got them hemmed into a corner somewhere so they can’t leave…but they will be gone in spirit anyway.

How to get kids attention:

What you need to do, if you want their attention is ask them leading questions:

• Do you think Social Security will still be around when you need it?
• Do you think you can depend on  the guys in the US Congress or the White House to provide for you when you are grandpa’s age?
  

  Compound Interest Is Like a Rocket Launch

• Would you like to have a huge pile of money later for just a little bit of money now?  That is the magic of compound interest.
• Do you want to be able to afford a cute aid (male or female-I’m not sexist) to wipe your butt at home when you are older, or you wanna get whoever is working the midnight shift at the county nursing home for the broke?
• Do you want to be able to afford the biggest flat screen with 5000 channels  when you retire?

First, they will be so excited this isn’t another sex talk, they may actually appreciate what you are saying.

The point is, to get kids to do something even grownups who know better don’t do, you’ve got to be a great motivator and educator.  You’ve got to be the Dali Lama, Coach K,  Abraham Lincoln, the Pope, and Martin Luther King all rolled into one.  Yes, I know I’ve set the bar pretty high, but it’s a big deal.  (yes you can do this)

I think you get my drift.  You gotta figure out what motivates them-besides girls, boys, beer, fast cars and hangin….. Ask appropriate questions and then set the hook.

Once you get them on the right wave-length, you’ve got to explain why  it’s a good idea for them to save 5-10-15-20-25% heck why not 50% of their part-time earnings in a Roth IRA.

Benefits of a Roth IRA

• The money can be removed tax free when they retire.  Do you think taxes will be lower or higher in 40 years? That’s a big deal.
• The money contributed can be used for college or buying a home if needed without a penalty.  (Not ideal to remove the principal, but it can be done.) That’s a big deal.
• You are teaching  them to live (party) on less than they make.  This is a great lesson for a teen.  That’s a BIG deal.
• In just a few years, they will be one of the few twenty somethings that have saved anything for retirement.  Being a member of an exclusive group is cool.  The US Marine Corp bases their total recruitment on: The Few, The Proud, The Marines…. Your kid can be a member of: The Few, The Proud, A Young Roth IRA owner.  That’s a big deal. (yes I’m a personal finance nerd, what do you expect?)

You can use this article in Smart Money explaining the magic that is compound interest and Roth IRAs.  That $1,000 each year saved over three years in your teens can be $25,ooo to $90,000 in 40 years without adding another dime.( 5-8% growth respectively…)

Another great article with graphs for you math nerds about interest, simple and compound, is here.

Reader Questions:

What do you think?  Do you think you can convince, connive, counsel, control your kids into compound interest heaven that is a Roth IRA?  I think it’s worth a try, do you?

{Graph Credit: Kalid Azad-Better Explained Dot Com}

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Tags: can kids open a roth ira, Roth IRA for kids, teens and Roth IRA, the rules about ira for teens

This entry was posted on Tuesday, October 23rd, 2012 at 7:00 am and is filed under Personal Finance 101, Retirement savings. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.