Convincing teenager to invest in Roth

[SchruteB&B]

I think posters suggesting he put his part of the money in a brokerage account and you put the match in a Roth have suggested a good compromise.

For my teens, the big selling point I made was: the money is going into the Roth tax free AND will come out tax free when they are retired. They both thought that was great. They kind of feel like they’re “getting away” with something.

[fyre4ce]

It might be also worth explaining that retirement accounts are the government's way of incentivizing people to save for their own future. In the bad old days, people who undersaved and ran out of money when they were old had no safety net, and the results were never good. People petitioned their governments to help those in need, and at some point the government realized it was cheaper to offer tax incentives for people to save for their own retirement, than it is to take care of people who didn't save adequately. That's why retirement accounts exist, and it's also why they have strict limits on how much can be contributed. Take advantage!

It may be hard to think that far ahead, but he'll presumably want to eat, travel, etc when he's >59.5? What about all the tax drag that that brokerage account will be generating when he's in his 20's, 30's, 40's that can be avoided by putting it in a Roth instead? Compared to many types of accounts, a Roth IRA actually has really good liquidity, as the principal can be pulled out any time tax and penalty free.

I'd tell him that putting the money in Roth is clearly the right thing to do. In order to encourage him, you're offering the match, which has no downsides because he still has exactly the same amount of money outside the IRA, plus the money inside. But, if he decides to not take the match and invest on his own, that's his choice.

[l1am]

I don't think he's going to come around until older. When I was in my early/mid 20's, I chose not to take a company 401k match which wouldn't been 5% higher effective salary plus the compounding effects.

I kick myself now, but my mindset was that I was very young and very far away from retirement and wanted the money NOW. At 17, there is no way I would've wanted my money in a retirement account, even with a generous match.

It isn't a completely outrageous position. He earned his money and wants to play around with it now, and enjoy it now while young. It's so far away for all he knows the 401k might be worthless by the time he retires.

[Katietsu]

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.

I think this is a wise choice. In my opinion, teaching him it is OK to withdraw money from a retirement account unless there is a true emergency is potentially more harmful to his long term financial future than not starting the Roth at all. I would stop emphasizing the ability to get your contributions back out before retirement from a behavioral finance point of view.

I did not save in a retirement account until 27 and had a match. It was more important to have money to buy a car, to get an apartment, buy a mattress that did not sound like straw when one rolled over, etc. and do it all without debt. I also think some of the illustrations about compounding are overblown when applied to 18 year olds with professional careers in their future. They ignore inflation and personal wage growth. That said, love your current plan of getting that Roth started but more from a good habit view than the actual dollars.

[GMT-8]

I guess once you are generous it is hard to turn off the tap because they know you are the emergency fund ...

For what it's worth, my parents used this argument on me:

"Save whatever you think you will need, because you will never get anything from us once you leave home."

and I never did. They were honest, and not being mean, just being poor. Thus I learned how to save, and started an IRA at 23.

GMT

[eggraid101]

My teenage kids have jobs, and we have somehow convinced them to put a portion of the savings in a Roth. They have been doing it for a few years now, and it has really reinforced itself now that there have been some real gains. I tell them now and then now and then how much they have put in and how much they have gained in the market. It is pretty powerful for them to hear that the money that they contributed has helped them 'make' $2000.

[txchris]

Supersecretname,
A 17 yr old who has a summer job, wants to open a brokerage account, and invest in the S&P 500 is like a four yr old who can read. He is well ahead of the game. Tell him how proud you are of his industry and maturity. Kudos to you! As suggested above, you can revisit the issue of Roth contributions later. In the meantime, if you like, you can open a custodial Roth IRA and contribute however much you want to up to the lesser of the contribution limit or his total earnings.

[J295]

“Convincing a teenager”.
Good luck with that one

We did Roth and investment accounts for all of our kids when each started junior high. Each was a 50% match.

We didn’t necessarily need each of them to be convinced of anything, just to join in. Now with the youngest one at age 30 everyone has a nice little nest egg that has grown over time.

Some bought index funds by default, others bought stocks in companies they recognized such as McDonald’s, Nike, Disney, etc., and one even bought stock in a company when he heard that Warren Buffett owned that stock.

Education and a bit of financial reward along the way.

If your son doesn’t buy into the idea of a Roth, put it in a taxable. Don’t let perfect get in the way of a good plan.

It’s a good thing you are doing for him.

[DCChak]

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.



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.

Um, yeah. Just like most tax maneuvers, they are available only to those with enough income/wealth to take advantage of them. It's better for the parents to match their children's income through a Roth IRA than to hold the funds within the estate to potentially be subject to estate tax.

It might be also worth explaining that retirement accounts are the government's way of incentivizing people to save for their own future. In the bad old days, people who undersaved and ran out of money when they were old had no safety net, and the results were never good. People petitioned their governments to help those in need, and at some point the government realized it was cheaper to offer tax incentives for people to save for their own retirement, than it is to take care of people who didn't save adequately. That's why retirement accounts exist, and it's also why they have strict limits on how much can be contributed. Take advantage!

+1

[arcticpineapplecorp.]

this slide (link below) shows (similarly to what cyclingduo posted) the power of working smarter, not harder. You can have more money and save less...simply by starting earlier!



source: http://www.darwinsfinance.com/start-inv ... y-amazing/

While he may understand compound interest as you say, there are really three variables with investing:
1. amount of money invested
2. amount of time money is kept invested
3. rate of return on money invested over time

it's #2 that's critical and why the saying is "Time is wasted on the young." If you can get him to understand the benefit of time and tax free accounts (Roth) that's key. As Celia says, "A dollar invested in a Roth is more valuable than a dollar inversted in tax deferred, A dollar invested in tax deferred is more valuable than a dollar invested in taxable." So why invest in taxable instead of tax free (Roth), regardless of his tax bracket now. If it's higher later when he sells he's incurring taxes that he wouldn't if utilizing Roth.

Also, it sounds like this is about the fact he might have spending needs he wants this money for. Doesn't sound like he's defined those spending needs. Perhaps ask him what he has in mind. Maybe he shouldn't be invested if he will need money in the next few years. Even in a brokerage account he should understand he can't take risk with stocks with money he might need in the short term.

[Helo80]

What worked for me when I was 14-ish mowing neighborhood yards (and doing quite well, tbh) was my dad said, "Do you want to be a millionaire when you retire?" And then he showed me all the math how the money today, growing at 8%, would be worth all this when I'm 60.

[oldfort]

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.



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.

Um, yeah. Just like most tax maneuvers, they are available only to those with enough income/wealth to take advantage of them. It's better for the parents to match their children's income through a Roth IRA than to hold the funds within the estate to potentially be subject to estate tax.

If the OP is in federal estate tax territory($23 million for a couple, reverting back to $12 million for a couple in 2026), the OP can afford to pay for professional tax planning advice.

[illumination]

It's a hard sale, I know I wasn't thinking about my retirement at 17. And considering most of his real needs are being paid by you, a job at that age is usually just "mad money" to blow on stupid things. He probably doesn't really "need" a job, so in his mind he's working now for something he won't see until he's an "old man".

You might consider just using the opportunity and going 100% out of pocket for him into the Roth on your end as a gift for him later in life. But I don't know if that's a wrong life lesson for your style of parenting or if it's not in the budget. When my kids get their first part time jobs, I just plan to max out on my end their Roths for that year to get the ball rolling. Almost like a mini trust account that can grow tax free.

[biker2035]

Both my minor teenage kids are employed and I fully fund their Roth IRA's. I figure if I can get them started while I can afford it, it will pay in the long run for them. If they need it down the road, no worries. Better return than the banks offer.

[dogagility]

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.

Seems to me his goal for this money is different from your goal. He wants to grow it to spend it in the near future. You would like to grow it for him to spend it in retirement.

Until the goal is reconciled with the investment process, there will be a disconnect.

[Redlion]

When you are 14 its hard to imagine what a 4% withdrawal from a Roth is going be like in 50 years, Good advice but a little to premature for a teenager. When I was a teenager my Financial situation in my 60s was that last thing on my mind.

[Lee_WSP]

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.

Give him a percentage of his contributions as cash to incentivize them. Ie, you put in $100 into your Roth, and not only will you get to pull it out in 5 years if needed, but I'll give you $X in cash or Tesla stock or whatever.

[long_drink]

I don't have teenagers yet, but I think it may be impossible to convince them that saving money now for when they're 65 is worthwhile. If they think 30 is old, how do you think they feel about 65? Yes, I know they can withdraw contributions before that, but that's not a practice I want to encourage.

When my kids are old enough, I intend to force them to invest some high percentage in an IRA (50% probably). That leaves enough to have fun with. I'll probably max the rest of the IRA's out for them, assuming their income is high enough.

[GerryL]

I don't have teenagers yet, but I think it may be impossible to convince them that saving money now for when they're 65 is worthwhile. If they think 30 is old, how do you think they feel about 65? Yes, I know they can withdraw contributions before that, but that's not a practice I want to encourage.

When my kids are old enough, I intend to force them to invest some high percentage in an IRA (50% probably). That leaves enough to have fun with. I'll probably max the rest of the IRA's out for them, assuming their income is high enough.

The responses I've read about "kids don't think about saving for the future" all seem to be missing that the OP has TWO kids. It is only the older who is resisting.

[arcticpineapplecorp.]

I don't have teenagers yet, but I think it may be impossible to convince them that saving money now for when they're 65 is worthwhile. If they think 30 is old, how do you think they feel about 65?

ask them how they will support themselves when they're 65?

if they say social security, show them how little it pays and how much monthly bills run. Ask them what they'll do then.

If they say they'll don't have to think about it because they'll just work til they die, show them the employees who either became disabled or laid off. Then ask them what they'd do then.

people who don't think about the future are those least prepared to deal with it.

[palaheel]

Isn't 17 a good age to make investing mistakes? Over the next 50 years, and education now might be very valuable and relatively inexpensive.

[Cam894]

He has a valid argument. Because you are skipping a step. Have him save up an emergency fund/cash pile/buffer (whatever you want to call it). Then he will be less resistant to “locking money away”. He could always invest in both if he is worried.

What were you spending your money on at his age?

[oldfort]

I don't have teenagers yet, but I think it may be impossible to convince them that saving money now for when they're 65 is worthwhile. If they think 30 is old, how do you think they feel about 65?

ask them how they will support themselves when they're 65?

if they say social security, show them how little it pays and how much monthly bills run. Ask them what they'll do then.

If they say they'll don't have to think about it because they'll just work til they die, show them the employees who either became disabled or laid off. Then ask them what they'd do then.

people who don't think about the future are those least prepared to deal with it.

inheritance from mom and dad

[arcticpineapplecorp.]

Isn't 17 a good age to make investing mistakes? Over the next 50 years, and education now might be very valuable and relatively inexpensive.

you don't need to make mistakes that others have already made.

in fact, if you do that, you haven't learned anything.

there's no problem making a mistake that hasn't been made before (and learn from, so as to not repeat), but to repeat mistakes others already have (so you don't have to) makes no sense.

If you set your kids up for success, there's no need for them to make mistakes, is there?

[illumination]

To me the Roth IRA is such a gift in the tax code, and one that you "lose" an opportunity with every year, that I think I would put money in there even if my kid wasn't mature enough to see the merit in it now (assuming this wasn't a financial hardship for the family to contribute) Not much different than people that put money in a 529 for their kid or pay for a really expensive college. But I know that's not everyone's parenting style, some might think that's too much of an indulgence. As long as I felt confident they would leave it in there, I would just put all I legally could.

I can honestly understand a teen's perspective, I wouldn't be too hard on a 17 year old not understanding retirement planning or getting excited by it. This stuff didn't click for me until my late 20's.

[savingacorns]

OP . . .

Maybe this phrasing will work on your son.

"The Roth IRA contribution limit is $6k per year, assuming you earn $6k in your summer job. I am offering a 100% match on your contribution to a Roth IRA, up to $3,000.00 USD, in exchange for you agreeing not to withdraw anything you contribute or its growth for a minimum of ____ years. That means you need to save at least $3k this summer, which will earn you a 100% guaranteed, immediate return on. Anything you earn in excess of $3k is up to you whether to spend it or save it. If you do not see the mathematical SLAM DUNK that a 100% match is, and thus do not take advantage of this huge opportunity to better your life, then I am disappointed in your mathematical and financial sense."

Finally, perhaps after this thread attracts many comments (and, correspondingly, many perspectives), you should print it out and show it to your son. The thread will be many financially literate people stating frankly that your son is thinking about this wrong and that he should do some work to learn more about this topic. Simply put, your son, like all people, is playing the game of finance whether he knows it or not. He can start paying attention at age 17 and have an easier road to becoming wealthy, or he can start paying attention at 27 or 37 or 47 - each one day later, it is more difficult to become wealthy or well-off or comfortable.

[jason2459]

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.

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.



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.

CyclingDuo

I didn't read every post but scanned through looking to see if anyone posted the "If you can". So, bumping this to the second page and another suggestion that he read that.


And if he doesn't want to read have him watch through some videos like this one. https://youtu.be/Subw82ohjn0
They also have this split up by age group but does a good job of showing what will happen the longer you wait.

[Ladeedaw]

I haven't seen this argument mentioned yet. One way I sell my teenage nieces and nephews on it, in addition to matching their contributions, is to do a quick explanation on taxes and explain that each person is only allowed to contribute so much each calendar year in tax advantaged. And once you miss the years from say, 17-25 years old, you can't go back and contribute for those years; the tax advantage for past years is lost. This has the effect of making it seem like a deal they need to jump on right now to not lose out on. So far, so good.

[redmaw]

I have to say, you are all wrong.

You are applying the priorities of a 30+ year old to a 17 year old. A 17 year old has a lot of financial priorities that need to come before retirement savings. Off the top of my head... 1st car (and associated expenses), college, living expenses in college, emergency fund, first apartment furnishings, etc. Some of this may be mitigated by the bank of dad, but I assume not all of it. All of those expenses are likely more than the teen is making, and more immediate need than retirement savings. I would also challenge you to go do an actual estimate of the likely tax benefits of using a roth at this point. Use real $ figures... it will be very very low if this teen uses any of this savings before they graduate college in what 5 or 6 years? I doubt they break the 0% cap gains rate in that time, which means savings in a brokerage versus roth is pretty much the same tax wise (as long as the money seasons at least a year before used), but he can get to the earnings without penalty. This seems like exactly the position the 17 year old is taking, and it is in no way unreasonable.

We all wish we had started our Roth accounts sooner, so we assume that not doing it was a mistake, but our backward look does not include what it would have taken to actually do that (i.e. how much longer it would have taken to pay off debt, or build the E-fund, or replace the deathtrap car etc). Sure it beats the alternative of blowing the money on video games or fast food, but those aren't the only choices.

My suggestion is to teach your 17 year old how to think about financial decisions, but in the end let him decide rather than trying to get him to make a specific decision. Teach him to fish as it were. Explain budgeting and the need to set saving goals, it sounds like he wants to save, so he is ahead of most in that area (not most teens, most people period). I would try get him to think through what he is saving for, and split out long term (retirement, house, etc) and shorter term savings goals (car, college expenses, etc). Once you get there, and he agrees some percentage of his earnings are going to be savings which will not be touched for a long time, discuss the options for where to put those funds. He might even get to roth on his own at that point, and he might not, but if can clearly explain why he is making the decision, and its based on real facts, he will be more than fine going forward. If he is against any long term savings this is a different issue than roth versus brokerage. I would point out its not going to get easier to save for the long term when he has real living expenses and the habit needs to start now. In the end if he just won't make the decision on his own, you can make it mandatory...no long term savings, no job. It's a bit authoritarian, but its a start.

[infotrader]

I was in the same situation many 10 years ago, and it was pretty easy.
As long as he will be filed as your dependent and you know the money he has made for the year, you open a Roth IRA account under his name and put the exact amount of money he has made in the year.
He can do whatever he wants to do with the money from his paycheck.
You can discuss the topic with him again once he gets a real job.

I have talked to many people about the Roth concept, all grownups, and I can tell you that most people will pass the idea and invest in taxable or tax deferred account instead.

[savingacorns]

Redmaw,

In all ideal world, the $6k roth contribution by this 17-year old will not be withdrawn for 50+ years, or, better yet, it will be passed down to a beneficiary of this 17-year old in 60+ or 70+ or 80+ years from now.

$6,000 compounded at 5% over 60 years would be $112,000. The tax savings if that sum was withdrawn in that year would be around, say, 33% of the total, $37,000. All from a summer job waiting tables or whatever.

Ideally, the teen will secure huge scholarships for college. Possibly, the teen will choose to live at his parents' home for portions of college and post-college, if possible, and thus have low living expenses. If not living at his parents' house, perhaps he will secure low rent (around $400-500 per month by living with many roommates). Ideally, the teen will also be working during college and earning in excess of spending, so the teen will be saving money EVERY year for the rest of his life. Finally, the teen seems to have a great father willing to smartly invest in his son's financial future, provided that the son makes reasonably sensible financial choices.

In my opinion, the above would be boglehead maximums that we are all striving for.

[redmaw]

Redmaw,

In all ideal world, the $6k roth contribution by this 17-year old will not be withdrawn for 50+ years, or, better yet, it will be passed down to a beneficiary of this 17-year old in 60+ or 70+ or 80+ years from now.

$6,000 compounded at 5% over 60 years would be $112,000. The tax savings if that sum was withdrawn in that year would be around, say, 33% of the total, $37,000. All from a summer job waiting tables or whatever.

Ideally, the teen will secure huge scholarships for college. Possibly, the teen will choose to live at his parents' home for portions of college and post-college, if possible, and thus have low living expenses. If not living at his parents' house, perhaps he will secure low rent (around $400-500 per month by living with many roommates). Ideally, the teen will also be working during college and earning in excess of spending, so the teen will be saving money EVERY year for the rest of his life. Finally, the teen seems to have a great father willing to smartly invest in his son's financial future, provided that the son makes reasonably sensible financial choices.

In my opinion, the above would be boglehead maximums that we are all striving for.

There are serious problems with this line of thought. Let's ignore the ideal world comments. Unless mom and dad are paying for everything this kid wants until they are launched around 25-30 years old (since that seems to be what it takes when mom and dad pay for everything), they will have real, necessary expenses before they get a real job. Sure scholarships are nice, and so is income in college (i had both) but they are rarely enough to cover everything. In which case, you are withdrawing from the roth and paying a tax penalty, or are going into debt to preserve the roth account.

Second, you are frankly wrong about the tax savings. 35% tax rate is only really possible on ordinary income, or if tax laws are changed. Under current law , the federal taxes owed on 6k which grew to 112k, and was withdrawn in a single year, at the top long term gains rate is (112k-6k)*.2 = 21.2k. I guess this ignores some of the phase out rules, so its possible it could cost more, but highly probable it would cost less (taking advantage of the 0% bracket for the next 6 years for a start). By the way this amounts to 12/month over 60 years by simple multiplication, saving an extra $5/month would outweigh the maximum tax benefit of the roth acount.

This goes back to my original point, you are better off teaching him principals, and how to make good decisions than driving him to make this one decision in the same way you would.

I was in the same situation many 10 years ago, and it was pretty easy.
As long as he will be filed as your dependent and you know the money he has made for the year, you open a Roth IRA account under his name and put the exact amount of money he has made in the year.
He can do whatever he wants to do with the money from his paycheck.

Congratulations, you convinced your teen to accept free money.

[mc2]

Find some youtuber that's a financial "influencer" and let your kid watch some of those videos. After watching someone who speaks his language and is in his world, he will pick up some info. Then ask him for advice on how to solve one of your financial problems, which would be whether you need to contribute to an IRA vs something else. Ultimately, he might then start looking at his investing in an IRA as something that he knows about and is a smart move that he discovered on his own.

Too bad people are so dang stubborn and just don't accept great advice from others.

[mak1277]

I think the fact that the kid wants to invest the money (in anything) is amazing. When I was 17, every cent I made went to gas and beer. Heck, when I was 29, I was still spending pretty much all my money on that (and not saving a nickel in retirement).

[oldfort]

I haven't seen this argument mentioned yet. One way I sell my teenage nieces and nephews on it, in addition to matching their contributions, is to do a quick explanation on taxes and explain that each person is only allowed to contribute so much each calendar year in tax advantaged. And once you miss the years from say, 17-25 years old, you can't go back and contribute for those years; the tax advantage for past years is lost. This has the effect of making it seem like a deal they need to jump on right now to not lose out on. So far, so good.

I realize bogleheads is Lake Wobegon, but for most people this is a non-issue. If you have $19500 in a 401k and $6k in a IRA, you have $25500 in tax advantaged space per person per year. After you get to 50, you get an additional $7500 in tax advantaged space. For the vast majority of people, they will have more tax advantaged space than they have savings to make contributions with.

[JBTX]

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

This is what I have done for my daughter. My hope is whenever she sees it next or down the road the value of appreciation sinks in. I did put some in around March 20 and it went up 40-50%. She has no idea that she theoretically could pull the contribution out, and I'm not going to tell her.

[JBTX]

Best way to make an impact. Open smartphone calculator, turn sideways for additional functions. Type in 1.07, for 7% annual return, then xy ( X to Y Power) then 40 for 40 years. That gives you about 15. $1 at 7% over 40 years =$15.

Do this with $5000 every year for 15-20 years and you may get to $1 million.

So he can buy a smart phone now, or a car in 40 years.

He can buy a car now, or (another) house in 40 years.

[StealthRabbit]

I think posters suggesting he put his part of the money in a brokerage account and you put the match in a Roth have suggested a good compromise.
...

This is what I did...

Kids had control of their earnings and I contributed to their Roth (up to their top earnings or allowable max IRS contribution. )

It was MY investment in them (it was not THEIR money to spend, it was an investment in their future()
I should have kept that up after they left home, pretty ez for us to do, not so sure about them as they have +/- yrs but overall doing very well in their investments.

[Cam894]

Isn't 17 a good age to make investing mistakes? Over the next 50 years, and education now might be very valuable and relatively inexpensive.

you don't need to make mistakes that others have already made.

in fact, if you do that, you haven't learned anything.

there's no problem making a mistake that hasn't been made before (and learn from, so as to not repeat), but to repeat mistakes others already have (so you don't have to) makes no sense.

If you set your kids up for success, there's no need for them to make mistakes, is there?

Perhaps the child doesn’t buy into indexing right away.

[arcticpineapplecorp.]

Isn't 17 a good age to make investing mistakes? Over the next 50 years, and education now might be very valuable and relatively inexpensive.

you don't need to make mistakes that others have already made.

in fact, if you do that, you haven't learned anything.

there's no problem making a mistake that hasn't been made before (and learn from, so as to not repeat), but to repeat mistakes others already have (so you don't have to) makes no sense.

If you set your kids up for success, there's no need for them to make mistakes, is there?

Perhaps the child doesn’t buy into indexing right away.

which begs the questions:
1. what has the child "bought" into?

2. how did the child come to buy into that strategy and not indexing?

3. Does the child have actual evidence that indexing is inferior?

4. what such evidence is there, other than anecdotal of course?

5. if the child has no evidence except anecdotal, should the child be so certain of his/her beliefs or open to evidence showing indexing is the better choice?

[Mr.BB]

Forget about explaining tax rates, etc. Show him with an online calculator how their savings will grow from their current age to 65 (at 7%).
Then show them the difference if he waits a few years for savings and then even a longer time and how much money he will lose over time by starting later in life. Straight up numbers is one thing kids can wrap their heads around.

[oldfort]

Forget about explaining tax rates, etc. Show him with an online calculator how their savings will grow from their current age to 65 (at 7%).
Then show them the difference if he waits a few years for savings and then even a longer time and how much money he will lose over time by starting later in life. Straight up numbers is one thing kids can wrap their heads around.

The hidden assumption in these start investing at 17 and see how much you'll have at 65 scenarios is it completely ignores any potential spending needs between 17 and 65. These scenarios only become feasible if mom and dad are able and willing to pay almost all the bills until the kid, what finishes college and maybe grad school? If mom and dad can afford this, they can stick another $6k into VTSAX themselves and the kid can get whatever it grows to in 50 years as part of their inheritance. This might not be the most tax efficient strategy, but the tax drag can be a lot less than people make it out to be. The estate gets a step up in basis, so this takes care of long-term capital gains. Assuming a qualified dividend rate of 15% and a dividend yield of 2%, the tax drag is in the ball park of 0.3% a year or 30 basis points.

[Actin]

Children are your property. You don't convince them to do things, you tell them what to do. You don't convince your children to not eat poison.

[Mr.BB]

Forget about explaining tax rates, etc. Show him with an online calculator how their savings will grow from their current age to 65 (at 7%).
Then show them the difference if he waits a few years for savings and then even a longer time and how much money he will lose over time by starting later in life. Straight up numbers is one thing kids can wrap their heads around.

The hidden assumption in these start investing at 17 and see how much you'll have at 65 scenarios is it completely ignores any potential spending needs between 17 and 65. These scenarios only become feasible if mom and dad are able and willing to pay almost all the bills until the kid, what finishes college and maybe grad school? If mom and dad can afford this, they can stick another $6k into VTSAX themselves and the kid can get whatever it grows to in 50 years as part of their inheritance. This might not be the most tax efficient strategy, but the tax drag can be a lot less than people make it out to be. The estate gets a step up in basis, so this takes care of long-term capital gains. Assuming a qualified dividend rate of 15% and a dividend yield of 2%, the tax drag is in the ball park of 0.3% a year or 30 basis points.

I think the point here is just to show the kid what investing early and often can do in the long term. If they can't wrap their head's around the basic numbers, all the tax implications don't matter if they don't save.

[willthrill81]

Assuming 7.2% real returns (for illustrative purposes), $100 invested when you're 17 is like $400 when you're 37, $800 when you're 47, $1,600 when you're 57, and $3,200 when you're 67.

If that's not motivating, I don't know what is. It was certainly motivating to me when I was 17.

[Ladeedaw]

I haven't seen this argument mentioned yet. One way I sell my teenage nieces and nephews on it, in addition to matching their contributions, is to do a quick explanation on taxes and explain that each person is only allowed to contribute so much each calendar year in tax advantaged. And once you miss the years from say, 17-25 years old, you can't go back and contribute for those years; the tax advantage for past years is lost. This has the effect of making it seem like a deal they need to jump on right now to not lose out on. So far, so good.

I realize bogleheads is Lake Wobegon, but for most people this is a non-issue. If you have $19500 in a 401k and $6k in a IRA, you have $25500 in tax advantaged space per person per year. After you get to 50, you get an additional $7500 in tax advantaged space. For the vast majority of people, they will have more tax advantaged space than they have savings to make contributions with.

Agree with you completely. But OP didn't ask for reasons why a 17 year old *should* invest in a Roth. Other responders covered many reasons well. OP asked how to convince a teenager to do a Roth, and I'm just trotting out a sales trick that worked for me and my teenagers: make something seem scarce or like the deal will expire and people want it more.

[TimeTheMarket]

They are at different points in their lives. It will be literally impossible to geT them go see the benefit of long term investing as you do. Do you remember being 17? I do. Long term investing? Hell no.

[palaheel]

Isn't 17 a good age to make investing mistakes? Over the next 50 years, and education now might be very valuable and relatively inexpensive.

you don't need to make mistakes that others have already made.

in fact, if you do that, you haven't learned anything.

there's no problem making a mistake that hasn't been made before (and learn from, so as to not repeat), but to repeat mistakes others already have (so you don't have to) makes no sense.

If you set your kids up for success, there's no need for them to make mistakes, is there?

Perhaps the child doesn’t buy into indexing right away.

which begs the questions:
1. what has the child "bought" into?

2. how did the child come to buy into that strategy and not indexing?

3. Does the child have actual evidence that indexing is inferior?

4. what such evidence is there, other than anecdotal of course?

5. if the child has no evidence except anecdotal, should the child be so certain of his/her beliefs or open to evidence showing indexing is the better choice?

To quote Mark Twain: “When I was a boy of 14, my father was so ignorant I could hardly stand to have the old man around. But when I got to be 21, I was astonished at how much the old man had learned in seven years.”

When I was that age, I thought I had a lot of things figured out, and I was completely wrong. It wasn't my family's fault, it was an immature, arrogant, inexperienced mind. There are some lessons one has to teach oneself. They may differ from person to person, but there's always something.

[MikeG62]

...But I think there must be the right combination of words that will give him the aha moment.

When you find those words let me know.

I have two young adult daughters (oldest is 27 and youngest is 24). The oldest has pretty close to zero interest in learning about investing. She will pretty do whatever I suggest (and would rather do that than to try to learn about something that she feels is over her head, despite my attempts to show/convince her it is not). The youngest thinks my way to invest (index-based investments) is old and outdated and way too slow a way to grow her money. I've shown her the growth in some of my investments over the last 15-20 years and she yawns and says I would would have done much better had I bought individual stocks (Apple, Amazon, Tesla, Facebook, etc...). She is right. I've tried to tell her those companies are hard to spot in advance, but she waves that away as not useful information to her. Instead she will periodically ask me what I think about this stock or that stock. My answer is always "I have no idea" and suggest that if she wants to invest that way to ask her boyfriend (who works on wall street). Thankfully, she has not pulled the trigger on individual stocks yet - this is at least partly due to the fact that she works in an industry (and for a company) that limits to a great degree the individual stocks she can buy (to the extent the firm has any relationship with the company). I also think she is not willing to be all that aggressive despite what she says. Fortunately, she has a great job (career path) that pays quite well and she has accumulated quite a sizable pile of cash (in CD's or online savings accounts) in addition to her workplace retirement plan. I am hopeful she will see the light before losing a lot of money chasing winners. We will see.

Bottom line is I have concluded there is only so much I can do. You can lead the horse to water, but can't make them drink... Eventually I think the younger one will come around and allowing this to play out (her to learn from her own mistakes and/or realize it's not as easy as she thought or that she doesn't have the stomach for the potentially large volatility she'll have to live with investing in individual stocks) is much easier than arguing with her and creating disharmony in the household.

[dogagility]

The only thing motivating to a typical teenager is the shiny object in front of their eyes. This retirement abstraction we all obsess over... not so interesting.