Where do you keep your kids' money?

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y5a5gdqwty
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Where do you keep your kids' money?

Post by y5a5gdqwty » Wed Jan 05, 2011 12:16 am

Hi All,

We have two small kids (8 and 9 y.o.), each of which saved about $500 from allowances, birthdays presents, etc. At first, they used to keep their cash in plastic containers in small bills and coins. That wasn't a good idea as they used to count them too often, lose bills, etc. So, when they had about $300 each, we suggested them to give the money to their parents and just remember the amount. Now the kids give all their new cash to us, but remember how much they own.

I was thinking to teach them about investments/ stock market and by them some mutual fund/ETF with these money. So, instead of just remembering their "number", they could watch their money grow (or decline) with the market.

Here is more detailed plan and few more questions to you:

We're planing to use our taxable brokerage account as it would be too much overhead if opening two new separate accounts just for that purpose and the small amount of money.

Want to buy ETFs instead of mutual funds because of the small amount. Also want to buy a different ETF for each kid so they can clearly see which one they own. Don't want to buy the same mutual funds that we already own in the account for the same reason.

Could you suggest two good diversified ETFs so that each kid has his own fund and see how his "portfolio" fluctuates independently from other investments in the account. We don't own ETFs ourselves, only mutual funds.

Have any of you done that? Any other ideas?

Thanks for your help.

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camper
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Post by camper » Wed Jan 05, 2011 12:28 am

We use a 529 plan for our son. We also have a savings account set up for him for future spending money.It depends on what your plans are for the money down the road. Will it be for education or just saving for spending money?
My goal: "One day I might wake up and decide to call in "rich"!" :D ~posted by bhsince87

y5a5gdqwty
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Post by y5a5gdqwty » Wed Jan 05, 2011 12:40 am

We don't have specific plans for the money. It's kids' money, so theoretically they can spend them any time they want. However, the kids are not spenders as they managed to accumulate about $500 each from small birthday gifts and allowances, they like to see their money grow and compare who saved more :-)

So, we expect they won't spend the money any time soon, especially if the money will be invested and we'll teach them about the markets...

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camper
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Post by camper » Wed Jan 05, 2011 12:57 am

Well if you want the money available to them when they want it, I wouldn't suggest a 529 plan then.
Vanguard Total Stock Market VTI
Vanguard Total World Stock VT
My goal: "One day I might wake up and decide to call in "rich"!" :D ~posted by bhsince87

sscritic
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Post by sscritic » Wed Jan 05, 2011 1:23 am

In the 19th century, they had these things called passbooks. You took money to the bank, gave it to the teller, and he wrote the amount of the deposit and the total in the account in ink in your passbook and initialed the entry. You took your passbook home, where you could look at it and notice that the total had grown over time as you made more and more deposits. This was considered educational by the unenlightened parents of the time.

I am similarly unenlightened. I always thought passbooks were a good idea. I learned the basic concept of saving using a passbook, and so did my children. With interest rates as low as they are today, your children will learn that the rate of saving is more important to the growth of their account than the rate of return. Is that such a bad lesson to learn?

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simplesimon
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Post by simplesimon » Wed Jan 05, 2011 1:46 am

I grew up with a savings account my father opened for me when I was a little kid. I had a passbook that the teller would stick into a machine and it would print the transaction right on there. This was in the early 90's.

To be honest, I didn't really learn anything all those years. I worked at a local grocery store in high school and all I knew was I had $X and clothes, yearbooks, computer games, and the like cost $Y. I waited until X>Y then I bought it. :lol:

y5a5gdqwty
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Post by y5a5gdqwty » Wed Jan 05, 2011 2:17 am

Thank you for your responses!

camper: Thanks for your suggestion. Yes, I think VTI and VT will serve the purpose. Why it didn't occur to me before? Probably I was too focus on balanced ETFs (with some bonds) to reduce fluctuations because the time horizon is uncertain. But with this amount of money I now think these two ETFs should be fine. I would need to talk to the kids and have them choose which ETF each of them will be using.

sscritic: Thanks for the interesting passbook analogy. This what we are currently doing, except the passbook is virtual. However, tone difference between 19th century and now is inflation. In 19th century money were backed by gold, so inflation was not big problem. So we want them to know about inflation and why the money need to be invested. Actually, the older kid already complains that their passbook money don't earn interest :)

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Post by DP » Wed Jan 05, 2011 2:28 am

Hi,
Rather than having our young children keep more cash then we thought they needed on hand we had them make deposits in the bank of "Mom and Dad". We keep a check register for each and they can make deposits and withdrawals at any time. Helps them not to lose their money as well as learn how to keep a check register. Other funds are deposited in the bank and they also have a share in my brokerage account.

Don

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Post by y5a5gdqwty » Wed Jan 05, 2011 2:40 am

DP wrote:Other funds are deposited in the bank and they also have a share in my brokerage account.Don


Don, how do you keep track of kids' share in your brokerage account? Do you use separate mutual funds or do you keep track of their percentage in your account? I imagine that calculating their percentage could be very complex, especially if you regularly make deposits into the account either for yourself or for the kids...

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Post by neatep » Wed Jan 05, 2011 7:44 am

Tell your kids to buy some sort of console or some other fun toy.

For a child of that age, 500$ is a huge amount of money, and with a good toy they can get hundreds of hours of play time and enjoyment out of it.

If they invest it into any fund that returns 7% a year, when they are 19, they will have $1000.

$1000 for a 19 year old (who can get a job), means a lot less than $500 to a child.

Teach them about investing in other ways. Let them have fun now. (or let them spend the money and you invest the same amount into a fund or something as a treat for good saving practices).

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Where do you keep your kids' money?

Post by johnubc » Wed Jan 05, 2011 8:16 am

Teach them to save their money, so that they can buy something of more value in the future. You can allow them to spend some of the money now, for instant pleasure - but saving for their own future needs to be instilled when they are young. I know of many 45 year olds that still do not understand that they need to start saving.

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Kenkat
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Post by Kenkat » Wed Jan 05, 2011 9:29 am

I wasn't really comfortable investing my kids' money in something risky where they couldn't fully understand the risks they were taking. So, that ruled out any type of stock investment.

I use an approach similar to DP. My kids can make a deposit to "the bank". I track their deposits as a liability account in Quicken (since I owe them the money) and pay quarterly interest based on the highest yielding of either Vanguard Prime MM or ING Direct (the two places we keep cash).

Periodically as the amount builds up, I will buy US Savings Bonds for them although I haven't done this lately as the EE bonds are not a very good deal anymore and the fixed rates of I Bonds (lately under 1% - currently 0%) don't seem great either. They both do have some of the old 3.4% fixed rate I bonds tho!

Best regards,
Ken

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Post by Rodc » Wed Jan 05, 2011 9:33 am

To keep things simple and to avoid too much loose cash, we keep Excel passbooks to the bank of Mom and Dad. This also avoids the inevitable problem of different people having different memories.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Post by sscritic » Wed Jan 05, 2011 10:05 am

I don't see the point of the bank of mom and dad. Even in the internet age, you should be able to open an account in their names at a online bank if going to the neighborhood brick and mortar bank is too much work for you.

A passbook is something you hold in your hand.
A passbook has the seal or logo of the bank on it.
A passbook is official, not something hokied up by mom and dad.

Seriously, would you rather get a graduation certificate from a school with the school's seal on it or a certificate mom and dad wrote in crayon?

I repeat that I think you should teach them that multiple deposits is what grows their accounts, not interest. Are you saving for retirement by adjusting your asset allocation to get a better return or by actually saving, putting more aside each month? If this is their money and you really want a brokerage account, open a proper UTMA account.

P.S. I don't see how holding a fund teaches anything about inflation. Going to movies and noting the price teaches inflation (and popcorn prices and candy prices). Take a regular event in their lives and have them watch the prices. Just yesterday, my daughter got the new American Girl catalog in the mail. She commented in front of the 5 and 7 year old that the price had gone from $95 last year to $100 this year. The 5 year old (to be sure she was understanding the consequences properly) asked if 100 was more than 95. We asked the 7 year old how much more 100 was than 95. They learned about inflation. They also know that we didn't buy new annual passes to Disneyland because the price has gone up so much over the last few years. They also know the price of parking at Disneyland has gone up. Real experiences in their lives teach them about real inflation. How would they learn about inflation from holding VFINX?

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Post by RadAudit » Wed Jan 05, 2011 10:20 am

I opened a savings account for each kid at the credit union. (The credit union had a deal for a slightly better interest rate for kids than for regular customers, although that wasn't germane to the decision.) And at an early age they began to understand about making periodic deposits to the account.

On the other hand the grandparents opened a DRIP in a UGMA for them and one kid sold the stock as soon as he could get his hands on it. (The company cut it's dividend and the price took a 50% hit.)

I guess kids learn what they learn no matter what we try to teach.
FI is the best revenge. LBYM. Invest the rest. Stay the course.

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Post by sscritic » Wed Jan 05, 2011 10:25 am

One more comment from the old fuddy duddy.

You impart values by the time you spend. If you take the time to go to the soccer game but don't take the time to go to the bank, you have sent a message to your children about what is important.

My 5 year old granddaughter is learning to read (or "decode" as they call it in education-speak) and is working from her pre-decodable books (that means they put in pictures next to the words to help with the decoding). I told her on the phone a week ago that I would like to hear her read. Yesterday, she came to visit. I asked if she had brought her books to read to me. She didn't have them, and I said that I would like to hear her read when we went back to her house. When we got there, we did other things with the family, but before I left I said to her, "There is one more thing that Grandpa would like you to do." She looked a little puzzled, and I gave her a hint that it was something we had already talked about. She then got a big smile and ran to get her books. We sat together and she read and I praised. She knows that reading is valued by the time her parents spend with her reading, the time her aunts and uncles spend with her reading, and the time her grandparents spend with her reading. She doesn't learn that reading is important by people telling her that reading is important.

I will get off my soap box now.

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SpringMan
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Post by SpringMan » Wed Jan 05, 2011 10:30 am

sscritic wrote:In the 19th century, they had these things called passbooks. You took money to the bank, gave it to the teller, and he wrote the amount of the deposit and the total in the account in ink in your passbook and initialed the entry. You took your passbook home, where you could look at it and notice that the total had grown over time as you made more and more deposits. This was considered educational by the unenlightened parents of the time.

I am similarly unenlightened. I always thought passbooks were a good idea. I learned the basic concept of saving using a passbook, and so did my children. With interest rates as low as they are today, your children will learn that the rate of saving is more important to the growth of their account than the rate of return. Is that such a bad lesson to learn?

I agree, however my familiarity with these passbooks came in the 20th century being born in 1947.

We also used Uniform Gift To Minors Act accounts set up for our children. The downside of these is the kids own the money at 18 and can in theory do what they want with it. The plus side is the investments are taxed at the child's rate. Today my older son has 529s set up for his kids, our grandchildren. I don't think 529s were available when we invested for our kids.
Best Wishes, SpringMan

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Post by Jacobkg » Wed Jan 05, 2011 10:36 am

I remember biking to the local bank branch every week to deposit my $3 allowance and getting my passbook stamped. Every month there was the excitement of seeing an extra line in the book listing my interest.

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LH
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Post by LH » Wed Jan 05, 2011 11:27 am

invested in my sports car and new boat!

(just kidding) 529s. Also just started a UGMA account.

I went with VTI, vanguard total. My original desire, was to go with SPY, sp500, because that is reported all the time, the kid would see it when she watches news in the morning with the wife. But spy was like 120 or something, so went with VTI.

VTI was 60. The kid had given me 40 saved from prior bdays, christmases etc, so I gave them 30 each for christmas for the account only. and bought a single share of VTI for the one kid,9 years old. The 7 year old, is not as interested as yet.

ten buck commission, was stupid per se financially, but its a learning exercise, and it shows that fees are important. stocks must be bought long term, etc. VTI is basically equivalent to sp500 that is reported more or less.

Its kinda a "bad time" to some extent now kid wise, and savings account wise, high inflation, is a good motivator, with high savings interest rates and such, one gets that great feeling as a kid watching investment nomnally "grow" while you do nothing (real terms, I dunno if mine as a kid did much, may well have lost real term). Today, the rates are kinda low, I guess one could do a CD or something for the kid.

Anyway, I bought a share of exxon in 1984, and still hold it now, its about 51 shares.
Last edited by LH on Wed Jan 05, 2011 11:40 am, edited 1 time in total.

sscritic
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Post by sscritic » Wed Jan 05, 2011 11:35 am

SpringMan wrote:I agree, however my familiarity with these passbooks came in the 20th century being born in 1947.

I am right there with you SpringMan. I only used the term 19th century because I was afraid too many of these young whippersnappers would think that the term 20th century referred to the 1990s. :)

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Post by Horatio » Wed Jan 05, 2011 11:42 am

There are different philosophies about where to put the money: 529's vs UTMA account vs "bank of mom and dad." All have their pros and cons.

As a parent of 9 year old twins I will add one other angle to consider:
I would not recommend investing them in different funds/ETF's. Invariably they will grow at different rates. One kid will have more money than the other at any given time. How will your kids react to that?

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Post by Rodc » Wed Jan 05, 2011 11:46 am

A passbook is something you hold in your hand.
A passbook has the seal or logo of the bank on it.
A passbook is official, not something hokied up by mom and dad.


And it no longer exists. :roll:

Personally, I don't think my kids care one bit if their savings account is hokied up or not.

They save for things they want. They can pop open an electronic pass book I made, or one on a bank's web site, and see how their savings are coming along towards a goal. Their motivation, their excitement, their lesson on how savings works and how it feels to accomplish a goal are all exactly the same either way.

I don't generally care either. I do check book, budgets, monitor savings across accounts, projections of cash flow and progress towards saving targets in excel sheets I made.

I guess I'm an old fuddy duddy Luddite too. I don't need no fancy "official" web site or dedicated software, I can do it myself. :)
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Post by sscritic » Wed Jan 05, 2011 11:53 am

Rodc wrote:
A passbook is something you hold in your hand.
A passbook has the seal or logo of the bank on it.
A passbook is official, not something hokied up by mom and dad.


And it no longer exists. :roll:

Try your local credit union.
The best time to teach kids about saving is now! Their very own Little $avers account will help do just that. Your child will learn the importance of saving, and how deposits and interest help their account grow!

Low $5 minimum to open and earn interest
$10 membership fee waived
Parent, Legal Guardian, or Immediate Family Member (with verbal or written consent from parent or legal guardian) must be joint owner
Telephone and Online banking (at discretion of joint owner)
Account will automatically convert to Teen $avers account once child turns age 13

Your Little $aver will get:
Their very own savings passbook
Gift when they open their account
Gift when they come in to a branch
And more!

At the very least, get statement mailed to you from the bank or credit union. Give your child a folder to keep the statements in (another good habit). The child can look at his statements as often as he could look at a passbook.

P.S. Google search "own savings passbook" (with the quotes) and you will find many other kid oriented accounts with passbooks.
http://www.google.com/search?hl=en&rls= ... assbook%22

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Post by markcoop » Wed Jan 05, 2011 12:06 pm

I too use the bank of Mom and Dad. I have a spreadsheet that shows all their money and transactions (deposits, withdrawals, interest) in an easy to read format. I show it to them and sometimes print it out.

In addition, for larger amounts of money, I use a short term bond fund. I don't want to take chances with their money. A bond fund is perfect because it is tax-inefficient. I want something tax-inefficient because the first $850 (or whatever it is) income per year is tax-free.
Mark

DP
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Post by DP » Wed Jan 05, 2011 12:23 pm

abudanadam wrote:
DP wrote:Other funds are deposited in the bank and they also have a share in my brokerage account.Don


Don, how do you keep track of kids' share in your brokerage account? Do you use separate mutual funds or do you keep track of their percentage in your account? I imagine that calculating their percentage could be very complex, especially if you regularly make deposits into the account either for yourself or for the kids...


Hi,
I just keep track of their percentage and adjust when deposits or withdrawals are made.

Don

Rodc
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Post by Rodc » Wed Jan 05, 2011 12:26 pm

Give your child a folder to keep the statements in (another good habit).


While we can get paper statements our credit union and most other former paper generators prefer to have you go electronic.

I no longer keep mine in paper. I keep them in an electronic folder and I keep a full back up on-line. My house can burn down and I still have my records in two places on-line.

While keeping records is a good habit, when still in single digits age wise I taught the kids to use Excel, another good skill.

I also show them how investments work on-line, they know a bit about risk and reward, and how to check how the market is doing.

I have nothing against passbooks, had one as child and teenager. I don't think they do much that can't be done by other methods, possibly better.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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fundtalker123
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Post by fundtalker123 » Wed Jan 05, 2011 12:27 pm

simplesimon wrote:To be honest, I didn't really learn anything all those years. I worked at a local grocery store in high school and all I knew was I had $X and clothes, yearbooks, computer games, and the like cost $Y. I waited until X>Y then I bought it. :lol:


Actually, you knew a lot more than you know because most adults don't wait until X>Y, they just buy whatever they want with a credit card. . .

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Re: Where do you keep your kids' money?

Post by jon-nyc » Wed Jan 05, 2011 12:30 pm

abudanadam wrote:I was thinking to teach them about investments/ stock market and by them some mutual fund/ETF with these money.



The problem I would have with this is that, since I picked the ETF and essentially pushed them down the path of investing in it, I would feel responsible for any losses. But if I make them whole on their loss, then that's not a very good lesson.

HopeToGolf
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Post by HopeToGolf » Wed Jan 05, 2011 1:24 pm

As a kid, I loved my piggy bank, passbook savings account and Christmas Club. While I do spend, those things helped me learn how to save.....Thanks Mom.

I am trying to figure out the best ways to instill the concept of saving in my son. For now, we decided to use his bank in his room and let him save for things and buy them (lego cars, books, etc.). Any major gifts (>$50) hit the 529. Sorry son but you do not get to see that cash.

A bit off topic but the game Monopoly Junior is pretty cool...

My 5 (soon to be 6) year old got it as a Christmas gift from his uncle and loves it.....what freaked me out was his love of "cash" and when he tried to buy an amusement from the "bank" by handing "it" an imaginary credit card along with cash. Unfortunately, he sees his parents using cash back cards and rarely using cash so he does not realize the bills are paid in full at the end of every month.

The game reinforces/teaches lessons related to counting, math, handling money, strategy, and the value of things. We enjoy it for what it is (a game that we all play and enjoy as a family) but I am still trying to figure out if it is teaching my kid behaviors I do not yet want him to learn.

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Post by Grt2bOutdoors » Wed Jan 05, 2011 1:36 pm

HopeToGolf wrote:As a kid, I loved my piggy bank, passbook savings account and Christmas Club. While I do spend, those things helped me learn how to save.....Thanks Mom.

I am trying to figure out the best ways to instill the concept of saving in my son. For now, we decided to use his bank in his room and let him save for things and buy them (lego cars, books, etc.). Any major gifts (>$50) hit the 529. Sorry son but you do not get to see that cash.

A bit off topic but the game Monopoly Junior is pretty cool...

My 5 (soon to be 6) year old got it as a Christmas gift from his uncle and loves it.....what freaked me out was his love of "cash" and when he tried to buy an amusement from the "bank" by handing "it" an imaginary credit card along with cash. Unfortunately, he sees his parents using cash back cards and rarely using cash so he does not realize the bills are paid in full at the end of every month.

The game reinforces/teaches lessons related to counting, math, handling money, strategy, and the value of things. We enjoy it for what it is (a game that we all play and enjoy as a family) but I am still trying to figure out if it is teaching my kid behaviors I do not yet want him to learn.


Easy solution - let him buy the amusement park with the "imaginary credit card" - but charge him 23.99% annual interest on the purchase amount, when he defaults on the payment of said interest and loses his amusement park, he will understand the true ramifications of buying on credit. :wink:

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Post by Ananth720 » Wed Jan 05, 2011 2:45 pm

I heard an interesting story on a podcast where a father used similar seed money to also teach his kids about investment vehicles like 401k's. He told the kids that for every dollar they put in, he would match it up to a certain limit per year. But, for every dollar they took out he would take out an extra dollar. He gave them a goal of 18 years of age as the "retirement" point where they could use that money for whatever they wanted (senior trip, car, college expenses.) My kids are really young but I plan on doing this when they get older.

ING Direct offers a service called ShareBuilder that does not have any account minimums and you can invest in stocks, mutual funds, and ETFs. (The podcast I listened to mentioned this service, NPR's Market Place.) I have not used their service, but it sounds like a good option with the amount of money your kids have to invest. Here is some information on minimum balances from their website:

Does ShareBuilder require a minimum investment?
While there is no minimum investment requirement to buy stocks and ETFs through ShareBuilder, your investment must be more than the commission for each trade. If you invest in mutual funds, there may be investment minimums required by the fund family.

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Post by Ozonewanderer » Wed Jan 05, 2011 3:35 pm

Buy them some Disney stock. They will love the annual reports.

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Random Musings
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Post by Random Musings » Wed Jan 05, 2011 3:48 pm

Where do I keep my kids money? Their money is kept in accounts under their names.

529 money is my money going toward them.

RM

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Post by BuckRogers » Wed Jan 05, 2011 4:00 pm

I opened an account for each of them at ING Direct.

They will be able to access their account online to view balances, but will need help from Mom or Dad to do anything (money can only be moved or withdrawn from parent's portal, not from their portal).

When they turn 18, the account automatically evolves into a checking account and they have full access without restriction.

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Kenkat
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Post by Kenkat » Wed Jan 05, 2011 4:20 pm

sscritic wrote:I don't see the point of the bank of mom and dad. Even in the internet age, you should be able to open an account in their names at a online bank if going to the neighborhood brick and mortar bank is too much work for you.

A passbook is something you hold in your hand.
A passbook has the seal or logo of the bank on it.
A passbook is official, not something hokied up by mom and dad.

Seriously, would you rather get a graduation certificate from a school with the school's seal on it or a certificate mom and dad wrote in crayon?

I repeat that I think you should teach them that multiple deposits is what grows their accounts, not interest. Are you saving for retirement by adjusting your asset allocation to get a better return or by actually saving, putting more aside each month? If this is their money and you really want a brokerage account, open a proper UTMA account.


Unfortunately, a passbook is something that doesn't pay much interest. From Bankrate.com:

Total Bank Average 0.09%
Total Thrift Average 0.21%
National Average 0.18%

http://www.bankrate.com/brm/publ/passbk.asp

Would you rather earn 0.21% or a floating rate based on the higher of Vanguard MM Prime or ING Direct (currently 1.1% since Prime MM stinks right now)? It's not too much work to go to a brick and mortar - it's just that it's not a good place to put your money.

As far as opening an Internet account in their name, yes, I could - but - what does that become to them? An electronic entry based on cash they give me. What is their account in Quicken? An electronic entry based on cash they give me.

My kids go to the bank with me. We deposit checks. We roll change. I give them cash in exchange for coins. We get suckers. Even the 14 year old will still take one quietly...

They ask me to look up their balance in Quicken. When we do, we also talk occasionally about the mortgage and the HELOC and the various investment accounts and net worth that are all in Quicken. I tell them how much interest they earned last quarter (the 11 year old got over $5). There's all kinds of financial dealings going on and they get it. No passbook needed.

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Post by y5a5gdqwty » Thu Jan 06, 2011 1:56 am

Thank you all for the interesting discussion and sharing your experiences. I talked to the kids about VTI and VT ETFs and they were very exited about that idea. In their own words, one kid will own a small piece of US economy and the other will own a small piece of world economy. I explained to them that these two funds will fluctuate differently and may lose value, but they seem to be okay with that and asked me to put all their money ($500 each) to the funds. They even went ahead and checked the funds at yahoo finance. As for telling the kids to buy some sort of console or some other fun toy, they don't want to spend the money. In their on words: "Why to spend our money if we can wait for the next Christmas and ask Santa Claus to give us that toy for free" :P

I just want an extra assurance from you about the choice of ETFs. Is the VTI + VT (as camper suggested) the best choice given the constraints? What about VTI + VEU combination? As I noted in the opening post, the constraints are: Each kid will have a portfolio consisting of a single ETF (for simplicity); Each kid will own a different ETF (so that they can track their portfolios easily); The investments will be held in my brokerage account.

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LH
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Post by LH » Thu Jan 06, 2011 11:41 am

Ozonewanderer wrote:Buy them some Disney stock. They will love the annual reports.


Whats up with the annual reports?

Grt2bOutdoors
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Post by Grt2bOutdoors » Thu Jan 06, 2011 3:29 pm

LH wrote:
Ozonewanderer wrote:Buy them some Disney stock. They will love the annual reports.


Whats up with the annual reports?


They have pictures of your favorite Disney characters.

MP173
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Post by MP173 » Thu Jan 06, 2011 9:11 pm

I gave my son 10 shares each of McDonalds, Microsoft, and Exxon Mobil about a year ago. These came from my DRP accounts and were transferred to DRP accounts opened for him.

He has a rather thriving lawn mowing business and the deal I made was that periodically he would invest in one of the stocks and I would match $1 to $1.

He puts most of his earnings in his savings account and saved about $2000 this year.

We discuss his three stocks when it is time to invest. Using the Morningstar "fair value" feature, he purchases the stock which is "on sale".

Lately it has been XOM. MCD is fully valued. We discuss dividends and he sees how the returns are his profits in the companies and are used to purchase more stock. I hope he understand this down the road....knowing him, he will.

Ed

walk-on
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Post by walk-on » Wed Jan 12, 2011 6:13 pm

My kids are a little older than yours at 12 and 13 but I started investing for them when they were around 5 and 6. They both have around $500 at any given time that they keep in their room.

We have an agreement that any time they want to invest some of their money, I will match the investment. I have custodial accounts setup for them at Sharebuilder (ING Direct) and they are both invested in the Vanguard Total World Stock Index Fund (VT). This is held separately from the 529 savings program for college.

I wouldn't ask them to invest all of their money, just like we don't as adults, but I do encourage $50 here and there. I wish I could have seen my own face last year after my son was bragging about having over $400 and I said he should invest some of it. He showed up about five minutes later with a wad of cash and I thought, "now where am I going to come up with $400 as a match to invest for him?" Thankfully it was only $100 that he wanted to invest. We also have another rule that they never spend more than half of their money so I had a quick out on that one!

DP
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Post by DP » Wed Jan 12, 2011 9:24 pm

I like the matching investment idea. I may try that, thanks.

Don

PedXing
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KidsSave software

Post by PedXing » Thu Jan 13, 2011 5:21 pm

I have no connection to the product below, just a satisfied user.

If you are willing to part with $19.95 for the convenience, there is a program out there called KidsSave (http://www.kidnexions.com/) they we have used for over a year with our 10 and 11 year old. You get to be the banker and set whatever interest rate you want. Your kids get their own password to check their own account balances. We use allowances, and they can be scheduled to automatically populate. Above and beyond expected chores, we occasionally offer to pay our kids for odd-jobs which they/we can enter into their balance. Sometimes we let them take out money in cash, but usually they want to buy something from amazon.com or from the local Walmart. I can handle the actual payment and then they deduct it from their account. We actually set up 2 accounts, and their allowance gets split between the two. One account they are allowed to freely spend, the other not - long-term savings for as yet to be determined goal; part of the idea is to illustrate the point that regular savings adds up.

As seen by the multiple posts above, there are many ways to handle this that don't cost money. I find this convenient for the parent a good learning tool for the child. In a few years we'll consider when it is appropriate to transition them to using a real bank.

bandoba
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Post by bandoba » Thu Jan 13, 2011 6:56 pm

I am newbie on this forum and this is great topic. I would like to open accounts for our 6 year old twins too. Thanks for the tip about ShareBuilder, I will have to check that out.

As for the type of the account, I don't see any mention of Roth IRA. Is that because of the withdrawal limitations? I just read today that minors can deposit maximum of $5000 in income into their Roth IRA for tax year 2010. Though I am not sure if the gifts given to kids by parents or someone else can be considered as their income?

BTW, when investing into stock funds/ETFs, are you all referring to regular taxable account on kids's name as primary owner and parent as secondary?

walk-on
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Post by walk-on » Fri Jan 14, 2011 2:38 pm

In order to qualify for Roth IRA, I believe the child needs to have earned (taxable) income and can only contribute up to the amount they earn.

I keep my kids' accounts in taxable custodian accounts. Once they start earning income, I'll probably setup a Roth IRA for them and transfer the money from the taxable account to the Roth IRA.

Stoutboy
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Post by Stoutboy » Mon Jan 17, 2011 8:21 am

We're having our first kid in May so this thread has been interesting to me. I don't like the idea of the Bank of Mom and Dad either. I've decided on a somewhat different approach. I'm going to start a fund for him with 10K (so I can get Admiral shares) in Vanguard Total Stock Market Index. Every time he receives money as a gift, I'm going to deduct 25% of it for 'taxes'. I'll use that money to buy additional shares, and I plan to match it by a factor of two. When he's old enough to spend money, he can use the 75% however he likes--though I hope he'll put most of it in his stock fund to receive the higher match from me. We'll see how it goes...

katon
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Re:

Post by katon » Mon Oct 10, 2016 9:28 am

y5a5gdqwty wrote:Thank you all for the interesting discussion and sharing your experiences. I talked to the kids about VTI and VT ETFs and they were very exited about that idea. In their own words, one kid will own a small piece of US economy and the other will own a small piece of world economy. I explained to them that these two funds will fluctuate differently and may lose value, but they seem to be okay with that and asked me to put all their money ($500 each) to the funds. They even went ahead and checked the funds at yahoo finance. As for telling the kids to buy some sort of console or some other fun toy, they don't want to spend the money. In their on words: "Why to spend our money if we can wait for the next Christmas and ask Santa Claus to give us that toy for free" :P

I just want an extra assurance from you about the choice of ETFs. Is the VTI + VT (as camper suggested) the best choice given the constraints? What about VTI + VEU combination? As I noted in the opening post, the constraints are: Each kid will have a portfolio consisting of a single ETF (for simplicity); Each kid will own a different ETF (so that they can track their portfolios easily); The investments will be held in my brokerage account.


thanks for the post.
i am also interested in doing something like this. I am a bit confused why not to invest only in VT ... i see that the ETF Fund total net assets are
for VT ~ 9 Billion $
for VTI ~ 430 billion $

why this huge difference ?

azanon
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Re: Where do you keep your kids' money?

Post by azanon » Mon Oct 10, 2016 9:42 am

y5a5gdqwty wrote:Where do you keep your kids' money?


Two places. For his allowance, I just use a (USAA) Savings account, that comes with a ATM cash card. I choose to do an allowance for him so that he can learn to manage his money, and so he realizes there's a cost to purchases (so it's his balance that gets smaller if he buys something, not mine).

For college, I invest in our state 529 plan.

Prior to 18, I don't see any reason to make it more complicated than that.

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gasman
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Re: Where do you keep your kids' money?

Post by gasman » Mon Oct 10, 2016 9:52 am

Earned income- Roth IRA

unearned income: 1. UGMA Account @ Vanguard. Opened when infants. Invested in Vanguard Intermediate term Corporate to make use of the tax benefit every year. Used the account during high school years to pay for private school tuition. 2. 529.

bubbadog
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Re: Where do you keep your kids' money?

Post by bubbadog » Mon Oct 10, 2016 8:44 pm

I have custodial accounts with Vanguard for my two kids invested in total stock market index. They are permitted to invest whatever amount they choose from babysitting/etc. and I will match that amount. They also invest some of the money received for Christmas, birthdays, etc. The kids really seem to like it and it has been a great real world learning experience for them.

bad78andy
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Re: Where do you keep your kids' money?

Post by bad78andy » Wed Oct 12, 2016 8:31 am

We have UTMA/UGMA accounts at the local bank. All the gift money goes there. Anything over the minimum limit is transferred to their VG UTMA/UGMA account, in a 60/40 split of Total Stock/ Total Bond Index funds. We'll be closing the local bank accounts soon. It'll be Vanguard only.
Lump sum given to Florida Prepaid College Tuition Plan for 4-year undergraduate degree.
Money is not for keeping, I like to make it work. :sharebeer

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