Convincing teenager to invest in Roth

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Topic Author
supersecretname
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Convincing teenager to invest in Roth

Post by supersecretname »

Both of my kids have summer jobs this year. I have told them that I will match contributions they make into the Roth. The older one, almost 17 male, is resistant to the idea of the Roth account. He likes the idea of investing, and wants to open a brokerage account instead. I already convinced him against Tesla and into the s&p500 index :/

He's concerned he might need/want the money at some point, and his main argument against the Roth is that he doesn't want to lock money up until he's 65. He says "If I can't get to it, it's not even mine, so why bother." I've tried explaining that he can pull out contributions if needed, and even the earnings with the penalty if it comes to that. I've tried explaining about tax rates and hedging and the time value of money and pretty much everything else. He gets it conceptually, but doesn't "get it" (queue White Men Can't Jump "you can listen to Jimi but you can't hear him.")

I appreciate the long-term planning and risk management are not a male teenagers strengths. But I think there must be the right combination of words that will give him the aha moment.
999
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Re: Convincing teenager to invest in Roth

Post by 999 »

Part of me thinks let him invest in something he can see (in his terms) the compounding effect.

Hands on lessons are usually the ones that stick.
KlangFool
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Re: Convincing teenager to invest in Roth

Post by KlangFool »

supersecretname wrote: Sat Aug 29, 2020 7:58 am Both of my kids have summer jobs this year. I have told them that I will match contributions they make into the Roth. The older one, almost 17 male, is resistant to the idea of the Roth account. He likes the idea of investing, and wants to open a brokerage account instead. I already convinced him against Tesla and into the s&p500 index :/

He's concerned he might need/want the money at some point, and his main argument against the Roth is that he doesn't want to lock money up until he's 65. He says "If I can't get to it, it's not even mine, so why bother." I've tried explaining that he can pull out contributions if needed, and even the earnings with the penalty if it comes to that. I've tried explaining about tax rates and hedging and the time value of money and pretty much everything else. He gets it conceptually, but doesn't "get it" (queue White Men Can't Jump "you can listen to Jimi but you can't hear him.")

I appreciate the long-term planning and risk management are not a male teenagers strengths. But I think there must be the right combination of words that will give him the aha moment.
supersecretname,

Ask him a simple question:


Where else can he get 100% return assuming that you match 100%?

If he put in $100, you kick in another $100. And, he can withdraw $200 at any time without tax and/or penalty. An example with real number will help.


Does he does not enjoy getting free/extra money?


KlangFool
HomeStretch
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Re: Convincing teenager to invest in Roth

Post by HomeStretch »

You tried. It’s his decision. Consider matching his contribution even if he uses a Taxable account rather than a Roth IRA. Your match can go to Roth IRA.
KlangFool
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Re: Convincing teenager to invest in Roth

Post by KlangFool »

999 wrote: Sat Aug 29, 2020 8:01 am Part of me thinks let him invest in something he can see (in his terms) the compounding effect.

Hands on lessons are usually the ones that stick.

He can invest whatever he wants in a Roth Brokerage account. The only difference is he does not need to pay taxes.


KlangFool
Last edited by KlangFool on Sat Aug 29, 2020 8:07 am, edited 1 time in total.
WarAdmiral
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Re: Convincing teenager to invest in Roth

Post by WarAdmiral »

The right combination of words: "The power of compound interest".

https://www.moneyunder30.com/power-of-compound-interest
caklim00
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Re: Convincing teenager to invest in Roth

Post by caklim00 »

KlangFool wrote: Sat Aug 29, 2020 8:05 am
supersecretname wrote: Sat Aug 29, 2020 7:58 am Both of my kids have summer jobs this year. I have told them that I will match contributions they make into the Roth. The older one, almost 17 male, is resistant to the idea of the Roth account. He likes the idea of investing, and wants to open a brokerage account instead. I already convinced him against Tesla and into the s&p500 index :/

He's concerned he might need/want the money at some point, and his main argument against the Roth is that he doesn't want to lock money up until he's 65. He says "If I can't get to it, it's not even mine, so why bother." I've tried explaining that he can pull out contributions if needed, and even the earnings with the penalty if it comes to that. I've tried explaining about tax rates and hedging and the time value of money and pretty much everything else. He gets it conceptually, but doesn't "get it" (queue White Men Can't Jump "you can listen to Jimi but you can't hear him.")

I appreciate the long-term planning and risk management are not a male teenagers strengths. But I think there must be the right combination of words that will give him the aha moment.
supersecretname,

Ask him a simple question:


Where else can he get 100% return assuming that you match 100%?

If he put in $100, you kick in another $100. And, he can withdraw $200 at any time without tax and/or penalty. An example with real number will help.


Does he does not enjoy getting free/extra money?


KlangFool
Good idea, but I'm assuming you can't contribute more to Roth than you make?
Topic Author
supersecretname
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Re: Convincing teenager to invest in Roth

Post by supersecretname »

WarAdmiral wrote: Sat Aug 29, 2020 8:07 am The right combination of words: "The power of compound interest".
He understands it, and that would happen in a brokerage or Roth.

caklim00 wrote: Sat Aug 29, 2020 8:08 am Good idea, but I'm assuming you can't contribute more to Roth than you make?
Correct, so it'd be max 50% of earnings
HomeStretch wrote: Sat Aug 29, 2020 8:06 am You tried. It’s his decision. Consider matching his contribution even if he uses a Taxable account rather than a Roth IRA. Your match can go to Roth IRA.
This might be the way to go. Thanks. Amazingly, that hadn't occurred to me :oops:
Topic Author
supersecretname
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Re: Convincing teenager to invest in Roth

Post by supersecretname »

KlangFool wrote: Sat Aug 29, 2020 8:05 am supersecretname,

Ask him a simple question:


Where else can he get 100% return assuming that you match 100%?

If he put in $100, you kick in another $100. And, he can withdraw $200 at any time without tax and/or penalty. An example with real number will help.


Does he does not enjoy getting free/extra money?


KlangFool
I tried exactly that. He's an obstinate teenager. To him if he can't get to all the money its worth 0.
livesoft
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Re: Convincing teenager to invest in Roth

Post by livesoft »

What else do you give him already? A car? Gas money? Insurance for the car? Cell phone data & minutes? Take those away and make him pay for them.

Later, if you want to, you can give him the money back if it goes into a Roth IRA.
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KlangFool
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Re: Convincing teenager to invest in Roth

Post by KlangFool »

caklim00 wrote: Sat Aug 29, 2020 8:08 am
KlangFool wrote: Sat Aug 29, 2020 8:05 am
supersecretname wrote: Sat Aug 29, 2020 7:58 am Both of my kids have summer jobs this year. I have told them that I will match contributions they make into the Roth. The older one, almost 17 male, is resistant to the idea of the Roth account. He likes the idea of investing, and wants to open a brokerage account instead. I already convinced him against Tesla and into the s&p500 index :/

He's concerned he might need/want the money at some point, and his main argument against the Roth is that he doesn't want to lock money up until he's 65. He says "If I can't get to it, it's not even mine, so why bother." I've tried explaining that he can pull out contributions if needed, and even the earnings with the penalty if it comes to that. I've tried explaining about tax rates and hedging and the time value of money and pretty much everything else. He gets it conceptually, but doesn't "get it" (queue White Men Can't Jump "you can listen to Jimi but you can't hear him.")

I appreciate the long-term planning and risk management are not a male teenagers strengths. But I think there must be the right combination of words that will give him the aha moment.
supersecretname,

Ask him a simple question:


Where else can he get 100% return assuming that you match 100%?

If he put in $100, you kick in another $100. And, he can withdraw $200 at any time without tax and/or penalty. An example with real number will help.


Does he does not enjoy getting free/extra money?


KlangFool
Good idea, but I'm assuming you can't contribute more to Roth than you make?
That is assuming he does not spend any of his salary.


KlangFool
KlangFool
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Re: Convincing teenager to invest in Roth

Post by KlangFool »

supersecretname wrote: Sat Aug 29, 2020 8:14 am
KlangFool wrote: Sat Aug 29, 2020 8:05 am supersecretname,

Ask him a simple question:


Where else can he get 100% return assuming that you match 100%?

If he put in $100, you kick in another $100. And, he can withdraw $200 at any time without tax and/or penalty. An example with real number will help.


Does he does not enjoy getting free/extra money?


KlangFool
I tried exactly that. He's an obstinate teenager. To him if he can't get to all the money its worth 0.

You could contribute to his Roth independent of whether he contributes anything.

KlangFool
OnTrack2020
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Re: Convincing teenager to invest in Roth

Post by OnTrack2020 »

Honestly, you are simply not going to get this across to him if he isn't already mentally engaged about finances and doesn't understand about compounding or time value at age 17. And I would tell you that the vast majority of kids out there don't. It also doesn't help that even with basic savings accounts, interest rates are sooooo low. Have this conversation with him again when he reaches age 22 or thereabouts.

I was having conversations about investing with my son/s when they were that age. They were having none of it----sigh.

The "aha" moment will come when they are earning their own money either through a full-time job or have graduated college and are earning money.
I will say that there is a definite "growing up" process in those early 20s that simply was not there in the teen years. :happy
KlangFool
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Re: Convincing teenager to invest in Roth

Post by KlangFool »

OP,


In my case, I contribute the maximum of my kid's earning to my kid's Roth IRA and put into a Vanguard mutual fund.


KlangFool
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goingup
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Re: Convincing teenager to invest in Roth

Post by goingup »

You've planted the seed. At 17, he'll be one of the rare teenagers who has even heard of a Roth!

There are lots of money lessons to learn for a kid with his first summer job that don't involve saving for retirement. I can remember the thrill of summer job paychecks as well as the disappointment that they weren't enough to buy all the stuff I wanted.
whereskyle
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Re: Convincing teenager to invest in Roth

Post by whereskyle »

supersecretname wrote: Sat Aug 29, 2020 7:58 am Both of my kids have summer jobs this year. I have told them that I will match contributions they make into the Roth. The older one, almost 17 male, is resistant to the idea of the Roth account. He likes the idea of investing, and wants to open a brokerage account instead. I already convinced him against Tesla and into the s&p500 index :/

He's concerned he might need/want the money at some point, and his main argument against the Roth is that he doesn't want to lock money up until he's 65. He says "If I can't get to it, it's not even mine, so why bother." I've tried explaining that he can pull out contributions if needed, and even the earnings with the penalty if it comes to that. I've tried explaining about tax rates and hedging and the time value of money and pretty much everything else. He gets it conceptually, but doesn't "get it" (queue White Men Can't Jump "you can listen to Jimi but you can't hear him.")

I appreciate the long-term planning and risk management are not a male teenagers strengths. But I think there must be the right combination of words that will give him the aha moment.
He can be rich later, or he can be rich never. He certainly can't just instantly become rich now, so later or never are his only options.

Tying up relatively small amounts of money when one is young is a surefire way to get rich later. Not tying up money when one is young is not a surefire way to get rich.

Have you given him the little book of common sense? The miracle of compounding over time hits home in the first few pages.

In truth, investing outside of a tax-advantaged account makes very little sense. Time is the most important ingredient. He is thinking that he will want the money in 10 years or so. The money might double, heck it might even triple, or it can go nowhere, but it just won't be a meaningful gain in the small amounts that I expect he is dealing with. Sit him down with some compound interest calculator charts and he should see that doubling his money doesn't make a huge difference. It's the 20x or even 30x growth that he should be aiming for at his age. He'll see that time is what gets him to seven figures. Any return within 20 years may be impressive, but it just won't be magical the way a 30-plus year timeframe virtually guarantees you a higher than 10x-your-contribution return.
Last edited by whereskyle on Sat Aug 29, 2020 8:39 am, edited 2 times in total.
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OnTrack2020
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Re: Convincing teenager to invest in Roth

Post by OnTrack2020 »

KlangFool wrote: Sat Aug 29, 2020 8:26 am OP,


In my case, I contribute the maximum of my kid's earning to my kid's Roth IRA and put into a Vanguard mutual fund.


KlangFool

KlangFool, can you expand upon this? Can we open an account for them in their name as they are over age 21? Or does the child open it up, and then we just put money in every so often?
pasadena
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Re: Convincing teenager to invest in Roth

Post by pasadena »

I understand the need to have a little fun with new money when you're not used to have it, and I understand wanting to be able to take advantage of it ("if I can't access it it doesn't exist"). He's 17. What is important at his age is to learn to save and make the money grow. That's the first step, Roth or not will come later.

Let him use a brokerage account, match in the Roth. Make sure he understands that there is a distinct possibility of losing money quickly and that this event wouldn't deter him from future investments.
NotWhoYouThink
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Re: Convincing teenager to invest in Roth

Post by NotWhoYouThink »

OnTrack2020 wrote: Sat Aug 29, 2020 8:23 am Honestly, you are simply not going to get this across to him if he isn't already mentally engaged about finances and doesn't understand about compounding or time value at age 17. And I would tell you that the vast majority of kids out there don't. It also doesn't help that even with basic savings accounts, interest rates are sooooo low. Have this conversation with him again when he reaches age 22 or thereabouts.

I was having conversations about investing with my son/s when they were that age. They were having none of it----sigh.

The "aha" moment will come when they are earning their own money either through a full-time job or have graduated college and are earning money.
I will say that there is a definite "growing up" process in those early 20s that simply was not there in the teen years. :happy
I agree. You can plant the seeds now. You can even force things by cutting back on other support until he does what you want him to. But as with other things you have to choose your battles. This is not the hill I would choose to die on.
typical.investor
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Re: Convincing teenager to invest in Roth

Post by typical.investor »

supersecretname wrote: Sat Aug 29, 2020 7:58 am Both of my kids have summer jobs this year. I have told them that I will match contributions they make into the Roth. The older one, almost 17 male, is resistant to the idea of the Roth account. He likes the idea of investing, and wants to open a brokerage account instead. I already convinced him against Tesla and into the s&p500 index :/

He's concerned he might need/want the money at some point, and his main argument against the Roth is that he doesn't want to lock money up until he's 65. He says "If I can't get to it, it's not even mine, so why bother." I've tried explaining that he can pull out contributions if needed, and even the earnings with the penalty if it comes to that. I've tried explaining about tax rates and hedging and the time value of money and pretty much everything else. He gets it conceptually, but doesn't "get it" (queue White Men Can't Jump "you can listen to Jimi but you can't hear him.")

I appreciate the long-term planning and risk management are not a male teenagers strengths. But I think there must be the right combination of words that will give him the aha moment.
The Bank of Dad should say “look son, a ROTH is the right thing to do for tax reasons. Look, please just contribute and if you need all the money (which means earning too), I’ll let you keep the earnings in so we don’t have to pay penalties and I will just loan you the cash from my account”.

He’s probably really Just thinking about needing to spend it.

Yeah, maybe I’m not the best Dad but it’s what I’d try.
Grt2bOutdoors
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Re: Convincing teenager to invest in Roth

Post by Grt2bOutdoors »

Ask your son to do this: starting out with exactly one penny, each succeeding time to double it, so that the next entry is 2 pennies, then 4 pennies and so on. Do it 30 times. The ending calculation is the power of compounding. Now imagine it tax-free!! He can trade his time for money now, but if he invests it in a tax free account, his money can buy him time!
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SethJane42
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Re: Convincing teenager to invest in Roth

Post by SethJane42 »

I didn't read al the replies, OP, and perhaps someone already said this. Roths don't lock up money at all, you can withdraw any contributions without penalty at any time, but have to pay taxes on earnings that are withdrawn early:

https://www.schwab.com/ira/roth-ira/withdrawal-rules
helloeveryone
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Re: Convincing teenager to invest in Roth

Post by helloeveryone »

supersecretname wrote: Sat Aug 29, 2020 7:58 am Both of my kids have summer jobs this year. I have told them that I will match contributions they make into the Roth. The older one, almost 17 male, is resistant to the idea of the Roth account. He likes the idea of investing, and wants to open a brokerage account instead. I already convinced him against Tesla and into the s&p500 index :/

He's concerned he might need/want the money at some point, and his main argument against the Roth is that he doesn't want to lock money up until he's 65. He says "If I can't get to it, it's not even mine, so why bother." I've tried explaining that he can pull out contributions if needed, and even the earnings with the penalty if it comes to that. I've tried explaining about tax rates and hedging and the time value of money and pretty much everything else. He gets it conceptually, but doesn't "get it" (queue White Men Can't Jump "you can listen to Jimi but you can't hear him.")

I appreciate the long-term planning and risk management are not a male teenagers strengths. But I think there must be the right combination of words that will give him the aha moment.

See if he’s willing to compromise and put half of what he plans on investing into roth and other half into taxable. It might be a good lesson annually when he sees that he has to pay taxes on the dividends. Win win
lazynovice
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Re: Convincing teenager to invest in Roth

Post by lazynovice »

At 17, what is his tax rate? Probably zero? Capital gains rate is probably zero too?

Until he has to pay taxes on the brokerage earnings and capital gains, he will not see the benefit of the Roth. If he puts the money in an S&P 500 fund and does not sell, he is going to have very little taxable income each year, probably none until he gets an internship. As long as he has earned income, he still has the option of selling out of taxable and contributing to a Roth.

ETA: But I would not give the match if he doesn’t put it in the Roth.
Last edited by lazynovice on Sat Aug 29, 2020 9:38 am, edited 1 time in total.
livesoft
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Re: Convincing teenager to invest in Roth

Post by livesoft »

In order to refute the "lock money up" argument, one could tell him: "If you ever need the money you put into your Roth IRA, I will give it to you at that time, but if you don't put your money in a Roth IRA, I won't be doing that. I'm doing this to help you understand that your money is not locked up until you reach age 65, besides it's age 59.5 anyways."

But if you were my dad, I would be asking you, "Hey Dad, when you were my age, what did you do with your money? Did you save it all? What did you buy at that time?"
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FoolMeOnce
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Re: Convincing teenager to invest in Roth

Post by FoolMeOnce »

SethJane42 wrote: Sat Aug 29, 2020 9:21 am I didn't read al the replies, OP, and perhaps someone already said this. Roths don't lock up money at all, you can withdraw any contributions without penalty at any time, but have to pay taxes on earnings that are withdrawn early:

https://www.schwab.com/ira/roth-ira/withdrawal-rules
That point is right there in the OP itself...
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Re: Convincing teenager to invest in Roth

Post by CyclingDuo »

supersecretname wrote: Sat Aug 29, 2020 7:58 amI appreciate the long-term planning and risk management are not a male teenagers strengths. But I think there must be the right combination of words that will give him the aha moment.
Maybe you need to use some visuals. This is one of my favorites, as it shows the power of starting early even with only $3K per year into the Roth between the ages of 15-20, then switching to the full amount at age 21 of $6K.

Image

Have your son read If You Can by Bill Bernstein: https://www.etf.com/docs/IfYouCan.pdf?_ ... _ZnjpK7uCb

Call us cruel parents, but we made our teenagers work during high school and college and contribute to their Roth IRA accounts. Tough love - if you will - that will pay handsome dividends over the coming decades. They are both 10 and 12 years beyond that first teenage job and the Roth accounts are doing quite well. "Nail it down while you can" would be my suggestion with him. Once the Roth is funded, or partially funded, if he then wants to go with a small starting taxable account he can.

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Last edited by CyclingDuo on Sat Aug 29, 2020 9:42 am, edited 2 times in total.
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KlangFool
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Re: Convincing teenager to invest in Roth

Post by KlangFool »

OnTrack2020 wrote: Sat Aug 29, 2020 8:34 am
KlangFool wrote: Sat Aug 29, 2020 8:26 am OP,


In my case, I contribute the maximum of my kid's earning to my kid's Roth IRA and put into a Vanguard mutual fund.


KlangFool

KlangFool, can you expand upon this? Can we open an account for them in their name as they are over age 21? Or does the child open it up, and then we just put money in every so often?

The latter.


KlangFool
SethJane42
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Re: Convincing teenager to invest in Roth

Post by SethJane42 »

FoolMeOnce wrote: Sat Aug 29, 2020 9:39 am
SethJane42 wrote: Sat Aug 29, 2020 9:21 am I didn't read al the replies, OP, and perhaps someone already said this. Roths don't lock up money at all, you can withdraw any contributions without penalty at any time, but have to pay taxes on earnings that are withdrawn early:

https://www.schwab.com/ira/roth-ira/withdrawal-rules
That point is right there in the OP itself...
Should I delete my comment?
oldfort
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Re: Convincing teenager to invest in Roth

Post by oldfort »

supersecretname wrote: Sat Aug 29, 2020 7:58 am I appreciate the long-term planning and risk management are not a male teenagers strengths. But I think there must be the right combination of words that will give him the aha moment.
I'll be the contrarian and agree some with your teenage son. Most of the people I've known would have wanted or needed to spend whatever money they had at 17 long before they hit 59 and a half: college tuition, college living expenses, a car, an engagement ring, wedding/honeymoon, or a downpayment on a house/condo.
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Re: Convincing teenager to invest in Roth

Post by Dottie57 »

livesoft wrote: Sat Aug 29, 2020 8:17 am What else do you give him already? A car? Gas money? Insurance for the car? Cell phone data & minutes? Take those away and make him pay for them.

Later, if you want to, you can give him the money back if it goes into a Roth IRA.
I actually like this in theory. However sometimes the cell phone and car are often a convenience for parents too.

I also have to say my parents didn’t take things away either - but I was a good kid. :shock:
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Re: Convincing teenager to invest in Roth

Post by Dottie57 »

Duplicate
Last edited by Dottie57 on Sat Aug 29, 2020 10:01 am, edited 1 time in total.
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Re: Convincing teenager to invest in Roth

Post by geerhardusvos »

supersecretname wrote: Sat Aug 29, 2020 7:58 am Both of my kids have summer jobs this year. I have told them that I will match contributions they make into the Roth. The older one, almost 17 male, is resistant to the idea of the Roth account. He likes the idea of investing, and wants to open a brokerage account instead. I already convinced him against Tesla and into the s&p500 index :/

He's concerned he might need/want the money at some point, and his main argument against the Roth is that he doesn't want to lock money up until he's 65. He says "If I can't get to it, it's not even mine, so why bother." I've tried explaining that he can pull out contributions if needed, and even the earnings with the penalty if it comes to that. I've tried explaining about tax rates and hedging and the time value of money and pretty much everything else. He gets it conceptually, but doesn't "get it" (queue White Men Can't Jump "you can listen to Jimi but you can't hear him.")

I appreciate the long-term planning and risk management are not a male teenagers strengths. But I think there must be the right combination of words that will give him the aha moment.
He can open up a Roth IRA at one of the sexy brokerages... It will be indistinguishable from investing in a taxable account, except that he will reach the contribution limit. If he does, just have a taxable brokerage at that same provider
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pasadena
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Re: Convincing teenager to invest in Roth

Post by pasadena »

G*d, people. He's 17. There are other important lessons to be learnt here, and retirement may not be the most important at this stage. Let the kid enjoy some of the fruits of his labor and take responsibility for it. He's ok with saving and investing the money. He knows the ins and out of Roth vs brokerage. He made a decision. We're asking him to leave money out for use in 50 years, and honestly, at 17 I would have said no. Forcing him might just end up having the opposite effect and he'll end up spending it all on a new console.

Dad matching was a great idea, let's not have perfect be the enemy of (very) good. Brokerage, have fun, learn with Dad, lessons on real life investing that will pay off for the rest of his life. Dad can match in Roth. Compromise.
oldfort
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Re: Convincing teenager to invest in Roth

Post by oldfort »

CyclingDuo wrote: Sat Aug 29, 2020 9:41 am
Maybe you need to use some visuals. This is one of my favorites, as it shows the power of starting early even with only $3K per year into the Roth between the ages of 15-20, then switching to the full amount at age 21 of $6K.

Image

CyclingDuo
These charts must be designed for kids who have mom and dad pay all their bills. How many college students are earning enough to pay tuition/living expenses, and then sock away $6k/year into a Roth? How many high school students earn enough to cover their spending money, gas, and insurance, while socking $3k/year into a Roth? No one gets a job at 15 anymore.
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Cheez-It Guy
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Re: Convincing teenager to invest in Roth

Post by Cheez-It Guy »

If he's set on stock picking, taking KlangFool's idea a bit further (making matching parallel contributions to a Roth IRA), invest in an S&P 500 or total market fund, and make it a contest to see who gets the better return. Of course, this could very easily backfire over the short-term, so you'd need to evaluate over a period of years like Warren Buffett's S&P 500 bet against the basket of hedge funds some years back. Spoiler alert, he won easily. In this case, even if you lose, he wins! I wish I knew what a Roth IRA was in high school and college. Oh well. Only missed a few years, and they were very low income years. But still. . .

As others have pointed out, Roth IRA and "Brokerage" are not mutually exclusive.
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CyclingDuo
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Re: Convincing teenager to invest in Roth

Post by CyclingDuo »

oldfort wrote: Sat Aug 29, 2020 10:07 am
CyclingDuo wrote: Sat Aug 29, 2020 9:41 am
Maybe you need to use some visuals. This is one of my favorites, as it shows the power of starting early even with only $3K per year into the Roth between the ages of 15-20, then switching to the full amount at age 21 of $6K.

Image

CyclingDuo
These charts must be designed for kids who have mom and dad pay all their bills. How many college students are earning enough to pay tuition/living expenses, and then sock away $6k/year into a Roth? How many high school students earn enough to cover their spending money, gas, and insurance, while socking $3k/year into a Roth? No one gets a job at 15 anymore.
Well, isn't a fiscally sound couple encouraged to figure out how they are going to cover the children's expenses before having children in the first place and save to pay for their college educations if they could do that? :D

Check and check. That's what we did.

:sharebeer

The chart only says $3K a year into the Roth until age 21 - not $6K in those early years. Even if they were only to stash away $1K a year, that's also a great start compared to saving $0. A high school student does not necessarily have to earn enough money to cover all of their spending money, gas, insurance, etc... during high school. Parents cover most of that, but having them work to learn the value of a hard earned buck, teaching them to save some of that, and also have some leftover for discretionary spending is a valuable lesson for them to learn before they get out on their own. At least that was always our premise (and I did the same when I was in high school working several jobs as well as in college when home on breaks). I always had my kids join in on doing their taxes to learn about the larger picture.

Wow! Not sure I agree with your premise that no one gets a job at 15 anymore. I don't even know where you came up with that notion. Our town and area is filled with kids age 15, 16, 17, 18 working in the service and retail industry during the summer, weekends, evenings, holiday breaks, etc... at ice cream shops, fast food, restaurants, sandwich shops, lawn and gardening service, grocery stores, and what not. Our kids worked during high school at a clothing store in a mall, an ice cream shop, Subway, a restaurant waiting tables, a movie theater, babysitting, etc..., and had paid internships throughout college in addition to working during the summers and holidays. Some of that money always went into a Roth IRA. Some of it went for discretionary spending.

Obviously, it's not a requirement for a high school kid to save money, but we chose to include in our children's education the importance of earning a buck and establishing a routine way to save part of their earnings to build their nest egg for the future. Thus far, it has been working quite well for them.

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
getthatmarshmallow
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Re: Convincing teenager to invest in Roth

Post by getthatmarshmallow »

So, a couple thoughts:
  • Let him know he can buy individual stocks in a Roth
  • Let him know he can remove the contributions from the Roth before 65.
  • Suggest that he save 15% of what he's making in the Roth, which you match, and if with the rest he wants to pick stocks instead of buying things, that's fine.
. That sets the habit of saving without being overbearing.

One wants to avoid being the bankers singing about tuppence, after all.
oldfort
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Re: Convincing teenager to invest in Roth

Post by oldfort »

CyclingDuo wrote: Sat Aug 29, 2020 10:53 am Wow! Not sure I agree with your premise that no one gets a job at 15 anymore. I don't even know where you came up with that notion. Our town and area is filled with kids age 15, 16, 17, 18 working in the service and retail industry during the summer, weekends, evenings, holiday breaks, etc... at ice cream shops, fast food, restaurants, sandwich shops, lawn and gardening service, grocery stores, and what not. Our kids worked during high school at a clothing store in a mall, an ice cream shop, Subway, a restaurant waiting tables, a movie theater, babysitting, etc..., and had paid internships throughout college in addition to working during the summers and holidays. Some of that money always went into a Roth IRA. Some of it went for discretionary spending.
CyclingDuo
Only one third of 16-19 year olds have a paid summer job. A 15-year-old is much less likely to have a paid summer job than those in the 16-19 year old age group.
https://www.pewresearch.org/fact-tank/2 ... obs-in-us/
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CyclingDuo
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Re: Convincing teenager to invest in Roth

Post by CyclingDuo »

oldfort wrote: Sat Aug 29, 2020 11:03 am
CyclingDuo wrote: Sat Aug 29, 2020 10:53 am Wow! Not sure I agree with your premise that no one gets a job at 15 anymore. I don't even know where you came up with that notion. Our town and area is filled with kids age 15, 16, 17, 18 working in the service and retail industry during the summer, weekends, evenings, holiday breaks, etc... at ice cream shops, fast food, restaurants, sandwich shops, lawn and gardening service, grocery stores, and what not. Our kids worked during high school at a clothing store in a mall, an ice cream shop, Subway, a restaurant waiting tables, a movie theater, babysitting, etc..., and had paid internships throughout college in addition to working during the summers and holidays. Some of that money always went into a Roth IRA. Some of it went for discretionary spending.
CyclingDuo
Only one third of 16-19 year olds have a paid summer job. A 15-year-old is much less likely to have a paid summer job than those in the 16-19 year old age group.
https://www.pewresearch.org/fact-tank/2 ... obs-in-us/
I would say that one of the main issues for a 15 year old is their lack of being able to drive. They can drive at 14 in our state with a permit that requires a licensed adult in the car, but can drive on their own at age 16. I remember well shuttling our kids to and from their first jobs at age 15 in the summer. Was relieved and thankful they could drive themselves at age 16 and beyond.

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
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Tamarind
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Re: Convincing teenager to invest in Roth

Post by Tamarind »

I don't think the tax savings will sink in until after he's done his own taxes for the first time. Withheld tax may be invisible to a teenager.
retire2022
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Re: Convincing teenager to invest in Roth

Post by retire2022 »

Op

I know of two teenage boys in the mid 1990's who did this they both have accounts between 100K-300K it was invested in Vanguard SP500. They are both adults 38 and 32 and thanked me for influencing their decision.
Bobby206
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Re: Convincing teenager to invest in Roth

Post by Bobby206 »

HomeStretch wrote: Sat Aug 29, 2020 8:06 am You tried. It’s his decision. Consider matching his contribution even if he uses a Taxable account rather than a Roth IRA. Your match can go to Roth IRA.
This is exactly what I was going to say. Plus, since you know how good the Roth is match it at 2 for 1 or something so you can come up with a way to fully fund it. When he starts to see that Roth build, in the coming years, he'll see the value and hopefully he'll keep it up. My parents did that for me and it worked. I kept the IRA going after they stopped funding.
chipperd
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Re: Convincing teenager to invest in Roth

Post by chipperd »

Haven't read all the posts but agree with Klangfool that a 100% match is a good idea.
Also, he can access the funds if "needed" : first house (contributions and 10k in earnings) and education (not earnings) penalty free.
The roth is a great deal for college as well as retirement funds owned by the student aren't considered in the FAFSA.
That means you are doubling his house down payment and college fund. That's all he'll really "need" money for anyway right?
No rule that says all earned income via summer/p.t. jobs needs to go into the Roth, just a percentage that matches the comfort level.
Our kids did anywhere from 50-75 percent of their earnings under the above scenario.
Buy_N_Hold
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Re: Convincing teenager to invest in Roth

Post by Buy_N_Hold »

HomeStretch wrote: Sat Aug 29, 2020 8:06 am You tried. It’s his decision. Consider matching his contribution even if he uses a Taxable account rather than a Roth IRA. Your match can go to Roth IRA.
I second this thought! One day he will appreciate the Roth, even if he doesn’t quite yet.
“To turn $100 into $110 is work. To turn $100 million into $110 million is inevitable.” -Edgar Bronfman
desiderium
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Re: Convincing teenager to invest in Roth

Post by desiderium »

KlangFool wrote: Sat Aug 29, 2020 8:26 am OP,


In my case, I contribute the maximum of my kid's earning to my kid's Roth IRA and put into a Vanguard mutual fund.


KlangFool
This is what I did. For a number of years I had to really push them to sit down once a year and look at what had happened with their money. Eventually the light went on, and they are now avid savers and long term investors.
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GerryL
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Re: Convincing teenager to invest in Roth

Post by GerryL »

You made the offer. He takes you up on it or he doesn't. You don't really need to negotiate. Try again next year.
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supersecretname
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Re: Convincing teenager to invest in Roth

Post by supersecretname »

One thing I hadn't seen mentioned is that in a taxable account, he could tax gain harvest annually. His income will be under the 12k limit, so there should be no taxes. I need to read up on the Kiddie Tax more, but at first glance, if he stays under $2200 in unearned income, we should be good.

In addition to mitigating the potential drawbacks of a taxable account, it would provide a very concrete lesson on taxes.

And just to wrap things up, I think I'll have him do what he wants (taxable) and just match in the Roth. Seems like a win/win, and as someone mentioned, can't let the perfect be the enemy of the good.
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bottlecap
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Re: Convincing teenager to invest in Roth

Post by bottlecap »

A Roth doesn’t lock it up until you’re 65. You can pull it out at any time. You can pull the principle out without penalty after 5 years.

JT
ccf
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Re: Convincing teenager to invest in Roth

Post by ccf »

supersecretname wrote: Sat Aug 29, 2020 7:58 am Both of my kids have summer jobs this year. I have told them that I will match contributions they make into the Roth. The older one, almost 17 male, is resistant to the idea of the Roth account. He likes the idea of investing, and wants to open a brokerage account instead. I already convinced him against Tesla and into the s&p500 index :/

He's concerned he might need/want the money at some point, and his main argument against the Roth is that he doesn't want to lock money up until he's 65. He says "If I can't get to it, it's not even mine, so why bother." I've tried explaining that he can pull out contributions if needed, and even the earnings with the penalty if it comes to that. I've tried explaining about tax rates and hedging and the time value of money and pretty much everything else. He gets it conceptually, but doesn't "get it" (queue White Men Can't Jump "you can listen to Jimi but you can't hear him.")

I appreciate the long-term planning and risk management are not a male teenagers strengths. But I think there must be the right combination of words that will give him the aha moment.
I've always been pretty frugal and savings minded but I can't think of any way I could have been convinced to put a significant chunk of earnings into a retirement account at 17. I worked when many friends didn't because I wanted money of my own. You can take money out of a Roth but that isn't what you are trying to teach.

What if you multiplied your match? Like he puts away 10% of his earnings and you do a 3x match or something like that.
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