One way for your children to avoid financial hard times when they get older is for them to learn about saving and investing strategies when they’re teenagers. Websites are more likely to hold their attention than a chat on the couch. Let’s take a look at a couple of informative websites that can help you teach your teenagers the importance of retirement savings:
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Choose To Save
Choose to Save, developed by the Employee Benefit Research Institute and its American Savings Education Council, promotes the idea that saving today is important to a secure financial future.
The Ballpark E$timate is an easy to use worksheet that helps people quickly identify approximately how much they need to save to fund a comfortable retirement. It takes complex forecasts such as projected Social Security benefits and earnings assumptions on savings and uses language and mathematics that is easy to understand.
The calculators web page includes links to a variety of online calculators including savings, mutual fund, Roth IRA, social security, stock, and retirement calculators.
TeenAnalyst
TeenAnalyst covers numerous important financial topics. The investing web page includes links to a number of valuable resources that provide a wealth of information on a number of different topics. These run the gamut, from lessons on compound interest to foreign investments to, of course, retirement savings.
Retirement Savings Topics
Here are some of the basic retirement savings-related subjects parents should discuss with their teenagers:
- Compound interest
- Stocks, bonds and mutual funds
- Risk and return
- Savings accounts, money market accounts, insured money and CDs
- Diversified portfolio
- Financial plan
- Investigate before investing
Roth IRA
Roth IRAs are good retirement savings plans for young people since they let people invest after-tax dollars now and withdraw the funds tax-free after the age of 59 1/2. Once they retire there is no requirement to take distributions. If teenagers are only working during the summer or just beginning their career they will likely be in a low tax bracket, which makes it a good deal to pay taxes on retirement savings now instead of when they are older and probably in a higher tax bracket. The power of compounding makes tax-deferred investments a good choice.
It’s a good idea to teach teenagers about retirement savings before they leave home. It will provide them with another valuable lesson in responsibility.
Thanks for the article. I agree that a Roth IRA is a great start to retirement. One other thought for the more involved investor is to consider a self-directed Roth IRA. That way you can have more control over your investments and have enough money to retire comfortably.
Brian – “they will likely be in a low tax bracket” – absolutely – remember, the teen/preteen still has her own standard deduction. $5800 in 2010 (or “earned income” + $300 whichever is less) so it would take quite a bit of hours worked to become taxable. Also, so long as you are reporting the income, the actual source of the Roth deposit does not need to be the same money earned.
In other words, my daughter babysat, we kept notes and check copies, documenting her income. It’s now fine that the money deposited into her Roth came from my checking account as a gift to her.
Great article.
Some great resources – thanks for sharing.
And I agree with Ben about self-directed Roth IRAs. Passive investing through mutual funds, etc. is better than nothing, but a kid who learns early on sound fundamental investing principles and who has the ability to invest in individual high quality companies will really be loving retirement.
Hi all,
Thanks for your great comments, and I hope you (and others) found some value from the article.
Best,
Brian
I think teaching retirement principles to teenagers is probably one of the more difficult topics for personal finance since the idea of retirement seems so foreign for anyone who hasn’t even started their working career yet to retire from.
However, if they catch on there are huge benefits (obviously) of starting early.