non-education account for kids?

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pidgeon
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non-education account for kids?

Post by pidgeon » Sun Oct 27, 2019 9:21 pm

I'm looking to create a savings account for my 8-year-old that will best demonstrate the magic of compound interest without needing to be used for education purposes like a 529. Ideally it's something with no minimums so that he can invest his allowance and watch it grow and then ideally be able to access as a teenager for any purpose (such as buying a car). A regular savings account doesn't grow noticeably enough at current rates, so something with Vanguard fund-buying capabilities would be nice.

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LadyGeek
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Re: non-education account for kids?

Post by LadyGeek » Sun Oct 27, 2019 9:48 pm

Welcome! Please see this wiki article: Accounts for children
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lakpr
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Re: non-education account for kids?

Post by lakpr » Sun Oct 27, 2019 9:56 pm

Savings accounts are paying a pittance nowadays. I opened UTMA accounts for my two kids $500 each, in a credit union that is paying 2% interest on savings accounts. You know that is one of the top rates in the nation. When they received the monthly statement and saw they earned 45 cents interest on that principal, they laughed uproariously, and made fun of my attempt to teach saving and "the magic of compound interest". "MOM,, dad got us earning 45 cents after one full month!"
Cue the jokes about digging up a mountain and catching a mouse!!

Just saying that your efforts may lead to some unintended consequences as they did in my case.... I gave up

Edited to add: just noticed you made the same remark about savings accounts not paying much. You might have better luck with opening a UTMA stock investing account at Fidelity, investing in their Zero funds. As the name implies, those funds have zero fees and zero minimums. You may be able to better explain the basics of stock investing to your kids -- that they now own a tiny slice of every public company in the US, be it Coca Cola, or Walgreens, or Apple, or Facebook, etc.
Last edited by lakpr on Sun Oct 27, 2019 10:03 pm, edited 1 time in total.

Grt2bOutdoors
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Re: non-education account for kids?

Post by Grt2bOutdoors » Sun Oct 27, 2019 10:00 pm

lakpr wrote:
Sun Oct 27, 2019 9:56 pm
Savings accounts are paying a pittance nowadays. I opened UTMA accounts for my two kids $500 each, in a credit union that is paying 2% interest on savings accounts. You know that is one of the top rates in the nation. When they received the monthly statement and saw they earned 45 cents interest on that principal, they laughed uproariously, and made fun of my attempt to teach saving and "the magic of compound interest". "MOM,, dad got us earning 45 cents after one full month!"
Cue the jokes about digging up a mountain and catching a mouse!!

Just saying that your efforts may lead to some unintended consequences as they did in my case.... I gave up
Sad, when kids aren’t grateful for an irrevocable $500 gift. :wink:
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Grt2bOutdoors
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Re: non-education account for kids?

Post by Grt2bOutdoors » Sun Oct 27, 2019 10:02 pm

pidgeon wrote:
Sun Oct 27, 2019 9:21 pm
I'm looking to create a savings account for my 8-year-old that will best demonstrate the magic of compound interest without needing to be used for education purposes like a 529. Ideally it's something with no minimums so that he can invest his allowance and watch it grow and then ideally be able to access as a teenager for any purpose (such as buying a car). A regular savings account doesn't grow noticeably enough at current rates, so something with Vanguard fund-buying capabilities would be nice.
No minimum- Schwab UTMA, use the Schwab total stock market index.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

HomeStretch
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Re: non-education account for kids?

Post by HomeStretch » Sun Oct 27, 2019 10:03 pm

Consider starting son with a local UTMA account so he can get comfortable with going in to make deposits, using an ATM, coin machine, etc. Once account balance grows and child is older, consider opening a UTMA account at perhaps Fidelity which has $0 account minimums and no trade fees to buy Vanguard ETFs.

growingup
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Re: non-education account for kids?

Post by growingup » Mon Oct 28, 2019 5:21 pm

I opened Schwab UTMA for my kids of similar age... but I do all of the investing for them now (100% in SWTSX Schwab Total Stock Market Index Fund). I like the idea of them understanding/managing the account themselves... I'm not sure they need to physically go to a bank or ATM. They are so used to everything electronic and online interfaces (they even do homework this way) that I think online banking can be just as real to them.

But I *am* wondering how to get them more involved. Maybe I'll let them pick a couple of stocks on their own to follow for fun and to compare to SWTSX. Then they can log on and check progress once/month?
I'm curious to hear what others do with kids this age group (7-10yo) to teach them about responsible financial management..

Makefile
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Re: non-education account for kids?

Post by Makefile » Mon Oct 28, 2019 6:01 pm

Consider a handful of $50 paper series I savings bonds purchased with tax refund using form 8888? Be aware of education tax benefits of NOT putting savings bonds in the child's name before doing more than a nominal amount however.

As to ETFs/mutual funds, obviously it would not matter with a small amount but consider the Kiddie Tax.

Re-titling securities from UGMA to individual after age 21 is a mess (medallion signature guarantee, etc.), having been on the receiving end of that. It does not matter any more with "covered" securities, but it didn't help either having no records of cost basis/dividend reinvestments, and two mergers as it was an individual stock.

You made a comment about using the money as a teenager to buy a car. Perhaps you would want to be cautious about putting much (or any) into stocks in the first place as that isn't too far away. Imagine unlucky timing and this person wanting to use the money during a 2000-2002 or 2008-2009 situation and then swearing off stock investing for life.

Flyer24
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Re: non-education account for kids?

Post by Flyer24 » Mon Oct 28, 2019 6:11 pm

I would use some caution about putting your kids’ money into the stock market. We are used to seeing growth the last few years. Can you child handle seeing the account drop significantly in a recession? Just something to think about.

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Wiggums
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Re: non-education account for kids?

Post by Wiggums » Mon Oct 28, 2019 6:39 pm

Flyer24 wrote:
Mon Oct 28, 2019 6:11 pm
I would use some caution about putting your kids’ money into the stock market. We are used to seeing growth the last few years. Can you child handle seeing the account drop significantly in a recession? Just something to think about.
My children have a balanced fund in their UTMA account. The price does not swing much.

NotWhoYouThink
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Re: non-education account for kids?

Post by NotWhoYouThink » Mon Oct 28, 2019 7:14 pm

It would be quite educational for them to see their balance drop as the market tanks. But they may learn all the wrong lessons either way.

In my opinion, you teach them age appropriate lessons, and the first one they need to learn about money is that when you spend it you don't have it any more, and that the way to have more money is to buy less stuff. And the way to have more fun is to buy more stuff. Good practice in decision making.

Grt2bOutdoors
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Re: non-education account for kids?

Post by Grt2bOutdoors » Mon Oct 28, 2019 8:16 pm

Flyer24 wrote:
Mon Oct 28, 2019 6:11 pm
I would use some caution about putting your kids’ money into the stock market. We are used to seeing growth the last few years. Can you child handle seeing the account drop significantly in a recession? Just something to think about.
Best time to learn is when they are young, it will immunize them when they are adults saving for retirement. They will know it's a behavioral mistake to run for the hills when the market drops. The best way to show them is to print out a statement showing the month to month swings, up and down how the account can make money and lose money, just by doing nothing except watch the paint dry on the wall. As Mr. Bogle aptly said "just stand there".
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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fortfun
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Re: non-education account for kids?

Post by fortfun » Mon Oct 28, 2019 8:55 pm

I know you said no 529 but I would re-consider that. I've enjoyed showing my kids the growth of their 529 accounts, while getting a state tax break, and letting their accounts grow (and spend) tax free. Maybe they already have a 529, and in that case, it doesn't matter. For my kids, their college education, is likely to be their largest expense. They are grateful that most of their instate tuition will be paid for with this account. If you already have a 529, please disregard this.

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