Help me get my young-adult daughter to save.

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Lazareth
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Help me get my young-adult daughter to save.

Post by Lazareth » Mon Dec 30, 2019 11:14 am

My parents did not run my young life but thankfully I enjoyed saving more than borrowing and have enjoyed a life free of significant financial stress. Now, I don’t want to run my 22 year-old DD's life either, BUT I do want to incentivize her to open and contribute to a Roth.

I’ve not given up on leading-by-example but I am considering a direct approach that I present here for Boglehead review. I propose to offer her something of this nature:
  • For tax-year 2019 (before April 15, 2020) she opens and funds a Roth IRA at Vanguard, Fidelity or Schwab. The choice of institution and the dollar amount for 2019 are up to her. I will match.
  • For five years beginning with tax year 2020 I will match Roth contributions IF and when she shows that she contributed half of the maximum allowed (currently $2,750).
The objective is to get the Roth started and instill an overall savings discipline. Side note: In 2020 she plans to complete her bachelor’s degree at the local university she’s been attending while living at home and working P/T as her studies allow. No college debt.
a/66, retired, married, enjoy p/t employment.

HomeStretch
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Re: Help me get my young-adult daughter to save.

Post by HomeStretch » Mon Dec 30, 2019 11:41 am

Matching daughter’s Roth IRA contribution is a reasonable gift IMO.

I do the same for my kids and gifted “The Bogleheads’ Guide to Investing” book too.

OnTrack2020
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Re: Help me get my young-adult daughter to save.

Post by OnTrack2020 » Mon Dec 30, 2019 11:48 am

When is she graduating? If mid-year and she takes a full-time position, the employer may offer a 401k with match.

Also, I know our son had the opportunity to open a 401k while working part-time. Am wondering if your daughter has that option?

I'm not saying not to do this, I think it's great--am just wondering if she already has that opportunity where she is currently working?

Isabelle77
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Re: Help me get my young-adult daughter to save.

Post by Isabelle77 » Mon Dec 30, 2019 11:52 am

HomeStretch wrote:
Mon Dec 30, 2019 11:41 am
Matching daughter’s Roth IRA contribution is a reasonable gift IMO.

I do the same for my kids and gifted “The Bogleheads’ Guide to Investing” book too.
Yes, match it. My parents matched my 401K contributions for 2yrs as a college graduation gift. The deal was that if I put in 15% of my paycheck, they would gift me 7.5% back in cash. It was an excellent way to start saving.

ddurrett896
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Re: Help me get my young-adult daughter to save.

Post by ddurrett896 » Mon Dec 30, 2019 11:54 am

Lazareth wrote:
Mon Dec 30, 2019 11:14 am
  • For five years beginning with tax year 2020 I will match Roth contributions IF and when she shows that she contributed half of the maximum allowed (currently $2,750).
This is what my parents did and what I plan on doing.

I'd also show her the video below:
https://vimeo.com/6211687

MotoTrojan
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Re: Help me get my young-adult daughter to save.

Post by MotoTrojan » Mon Dec 30, 2019 11:55 am

IRA limit is $6000 right now.

livesoft
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Re: Help me get my young-adult daughter to save.

Post by livesoft » Mon Dec 30, 2019 11:57 am

You might as well gift the entire Roth IRA contribution to start with. That way there will no twisting of arms. It can be very difficult for a college student to make any IRA contribution. In a few years, then you can start the match thing. Tell her now that the match thing will start in a few years.
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Dottie57
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Re: Help me get my young-adult daughter to save.

Post by Dottie57 » Mon Dec 30, 2019 12:04 pm

For videos, the John Goodman talking about the power of FU really resonated with me. Maybe a bit extreme for your daughter but the idea is good.

I think matching for a couple of years is great. I would eliminate requiring a minimum amount. Just doubling her money should do the trick.

TSR
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Re: Help me get my young-adult daughter to save.

Post by TSR » Mon Dec 30, 2019 12:10 pm

I would honestly suggest that you pick the institution and the fund (a target date fund), then explain why you did it. For people that age, the overwhelming part is not the saving so much as the "getting up to speed." It's a lot to ask of someone to research why they should choose x or y brokerage and x or y fund. Just open the thing and fund it, telling her that you'll help her in the ensuing years. My dad opened a Roth for me with $1,000 in it maybe 20 years ago. I've since changed the funds and disagree with his choice. But I would not have done it if he left it all to me to do.

H-Town
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Re: Help me get my young-adult daughter to save.

Post by H-Town » Mon Dec 30, 2019 12:15 pm

I might have a different view on this than others. First, I would help to put her in position to take charge of her finance, spending, check book/bank reconciliation, etc. You can be involved as much as you want. Once she demonstrates the ability to live below her means and have it as her principle, that's when she is ready to save and invest.

Personally, I wouldn't give her the impression that I would give/gift money to her. I don't want to rob her opportunities to learn how to fend for herself financially and emotionally. Saving money is hard, especially at young age when we work minimum wage jobs while in school. But this is the right time to learn as she still have you as the support system. Once she learns this skillset, it will set her for life.

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dm200
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Re: Help me get my young-adult daughter to save.

Post by dm200 » Mon Dec 30, 2019 12:31 pm

A real challenge, in my opinion and experience!

Despite our/my doing a lot of things to educate/motivate our son to save, I/we have generally been unsuccessful. He is now in his early 40's and married (for the first time) a little over a year ago.

One thing I tried (when he was first working) was to establish an IRA for him at Vanguard. I actually put money into it (cannot remember now how much). Then, not only did he not "get the message" and save even a small amount each year - he contacted vanguard and withdrew all the money.

Time will tell, but I/we are hoping his wife will be a positive force in his saving.

Rus In Urbe
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Re: Help me get my young-adult daughter to save.

Post by Rus In Urbe » Mon Dec 30, 2019 12:32 pm

TSR
I would honestly suggest that you pick the institution and the fund (a target date fund), then explain why you did it. For people that age, the overwhelming part is not the saving so much as the "getting up to speed." It's a lot to ask of someone to research why they should choose x or y brokerage and x or y fund. Just open the thing and fund it, telling her that you'll help her in the ensuing years. My dad opened a Roth for me with $1,000 in it maybe 20 years ago. I've since changed the funds and disagree with his choice. But I would not have done it if he left it all to me to do.
+1
This is a good idea. Young people, faced with too much information, are deer-in-headlights. (Hint: all people react the same way, young or old). Opening an account and funding the "base" of it, will give her a sense of surety; then the deal is, a match up to the annual limit. This will encourage her, unless she's got some money issues developing.

It's so hard for kids that age to save. It certainly was for me, and I'm a life-long saver! There is so much you "want" and the feeling of finally being "free" as an adult can bring on some unwise spending. So be supportive and encouraging, and yes, the video about compounding interest should be inspiring to her. Sit down with her sometime and show her the calculator site: https://www.investor.gov/additional-res ... calculator Work through with her how much she will have if you and she "collaborate" for the next five (or ten) years in establishing the foundation for her retirement.

Good luck to you----and to her! Rus :beer
I'd like to live as a poor man with lots of money. ~Pablo Picasso

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dm200
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Re: Help me get my young-adult daughter to save.

Post by dm200 » Mon Dec 30, 2019 12:43 pm

Rus In Urbe wrote:
Mon Dec 30, 2019 12:32 pm
TSR
I would honestly suggest that you pick the institution and the fund (a target date fund), then explain why you did it. For people that age, the overwhelming part is not the saving so much as the "getting up to speed." It's a lot to ask of someone to research why they should choose x or y brokerage and x or y fund. Just open the thing and fund it, telling her that you'll help her in the ensuing years. My dad opened a Roth for me with $1,000 in it maybe 20 years ago. I've since changed the funds and disagree with his choice. But I would not have done it if he left it all to me to do.
+1
This is a good idea. Young people, faced with too much information, are deer-in-headlights. (Hint: all people react the same way, young or old). Opening an account and funding the "base" of it, will give her a sense of surety; then the deal is, a match up to the annual limit. This will encourage her, unless she's got some money issues developing.
It's so hard for kids that age to save. It certainly was for me, and I'm a life-long saver! There is so much you "want" and the feeling of finally being "free" as an adult can bring on some unwise spending. So be supportive and encouraging, and yes, the video about compounding interest should be inspiring to her. Sit down with her sometime and show her the calculator site: https://www.investor.gov/additional-res ... calculator Work through with her how much she will have if you and she "collaborate" for the next five (or ten) years in establishing the foundation for her retirement.
Good luck to you----and to her! Rus :beer
For so many folks today, it seems nearly impossible to choose deferring a purchase vs. the immediate ability to have that item right now - on credit. Almost no business promotes thrift and deferring a purchase. Who makes money when folks defer a purchase? The answer is the individual consumer. BUT - the individual consumer is not bombarded with advertising and promotion of deferral and thrift.

At one time, generations ago, most individuals paid cash for that new car. Then, car loans of 24-36 months were common. Now, today, an 84 month (seven years) car loan has become common - and I have heard of eight year car loans starting to appear. At least, though, cars today do last longer than in previous generations.

Triple digit golfer
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Re: Help me get my young-adult daughter to save.

Post by Triple digit golfer » Mon Dec 30, 2019 12:49 pm

Tell her you'll match her contributions only if she reads this and follows it:

https://www.etf.com/docs/IfYouCan.pdf

Afty
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Re: Help me get my young-adult daughter to save.

Post by Afty » Mon Dec 30, 2019 12:53 pm

At that age, I remember being very worried about locking money away for decades in retirement accounts. It wasn't clear from the OP, but it sounds like you are planning to match Roth contributions with additional Roth contributions. What if instead you matched with cash that your daughter could use for whatever she wants? Then there would be no downside to her at all, and it would get her in the habit of making contributions.

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dm200
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Re: Help me get my young-adult daughter to save.

Post by dm200 » Mon Dec 30, 2019 12:55 pm

One principle I have always tried to follow is: "Pay Yourself First". With setting a payroll deduction to a savings account at a credit union or bank coming out of your pay before you receive it - this can be helpful.

Try to live, for example, on 90-95% of your net paycheck instead of 100%.

Another technique - if you are spending 100% of your net pay is to put all of any net raise you receive into savings - and keep doing that until, say, 5-10% of your net pay is going to savings.

Another technique, if you are paid every two weeks is to budget each month for two weeks' pay. Then, on the two months each year that you receive a third paycheck - put that third one into savings. Every eleven years, you will have three months with three pay checks. Although weekly paychecks have become rare, if you are paid every week, budget four seeks pay every month - and put the fifth one (about every three months) into savings or reduction of debt.

MarkVH0518
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Re: Help me get my young-adult daughter to save.

Post by MarkVH0518 » Mon Dec 30, 2019 1:55 pm

H-Town wrote:
Mon Dec 30, 2019 12:15 pm
I might have a different view on this than others. First, I would help to put her in position to take charge of her finance, spending, check book/bank reconciliation, etc. You can be involved as much as you want. Once she demonstrates the ability to live below her means and have it as her principle, that's when she is ready to save and invest.
I'm with H-Town - The most important lesson is living below her means. Once she notices she has some savings she may well ask you how to invest it.
If you decide to gift, I suggest a gift without strings. Just propose an investment that you recommend for her.

Mark

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Phineas J. Whoopee
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Re: Help me get my young-adult daughter to save.

Post by Phineas J. Whoopee » Mon Dec 30, 2019 3:10 pm

I suggest leaving your adult descendant to manage her own life.
PJW

Barcelonasteve
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Re: Help me get my young-adult daughter to save.

Post by Barcelonasteve » Mon Dec 30, 2019 3:33 pm

I suggested something like this to a friend who promised his daughter $50k if she went to a lower cost state school. My suggestion was for him to contribute 80% against her 20% in a Roth the first year, with his contributions decreasing each year as hers increased over several years. I have no idea what he ended up doing.

He had already made the promise, so I volunteered one idea. I have mixed feelings about doing something like that, though. On the one hand, helping a child who may not even conceive of being older and needing a retirement plan to start early is a great gift. On the other, how would you feel if your child contributes her half, but also has high credit card debt at high interest rates or something? Will you bug her to find out? Will you feel the need to impose more conditions on your contributions to the point where you’re trying to manage too much of her decision-making?

Quaestner
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Re: Help me get my young-adult daughter to save.

Post by Quaestner » Mon Dec 30, 2019 3:45 pm

You might reduce your contribution more slowly? Next year if she saves 1k, you give 5k, 2021 if she does 2k, you do 4k, 2022 you do 3k and she does 3k, etc. Seems like you might need to be flexible depending on her initial salary, the complexities of a 401K/403b employee match, grad school and such. If you can see that she is a responsible saver, and you can afford this, then it makes sense to me to shelter more money from taxes and accelerate the inheritance. I do something similar with my daughter (a saver). It's an experiment in progress. I wouldn't recommend this for all kids (it won't work with my son). Good communication, and realizing her spending priorities are not yours are key.

invest4
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Re: Help me get my young-adult daughter to save.

Post by invest4 » Mon Dec 30, 2019 4:16 pm

dm200 wrote:
Mon Dec 30, 2019 12:31 pm
A real challenge, in my opinion and experience!

Despite our/my doing a lot of things to educate/motivate our son to save, I/we have generally been unsuccessful. He is now in his early 40's and married (for the first time) a little over a year ago.

One thing I tried (when he was first working) was to establish an IRA for him at Vanguard. I actually put money into it (cannot remember now how much). Then, not only did he not "get the message" and save even a small amount each year - he contacted vanguard and withdrew all the money.

Time will tell, but I/we are hoping his wife will be a positive force in his saving.
Encouragement and motivation can be good. However, as I am sure all have seen...many people are simply unwilling or incapable no matter what you do. I just look at my own children and see the differences. One asked me to open a Roth IRA for her (high school with part time job) with very little prodding. One of the others is on the right path (college with part time job), but the thought of something like that is far from the mind.

I also try to check my own biases toward saving, etc. My first reaction was 'great idea'. Of course, that's because I would have needed very little encouragement to grab on to what is being generously offered by OP with both hands.

H-Town wrote:
Mon Dec 30, 2019 12:15 pm
I might have a different view on this than others. First, I would help to put her in position to take charge of her finance, spending, check book/bank reconciliation, etc. You can be involved as much as you want. Once she demonstrates the ability to live below her means and have it as her principle, that's when she is ready to save and invest.

Personally, I wouldn't give her the impression that I would give/gift money to her. I don't want to rob her opportunities to learn how to fend for herself financially and emotionally. Saving money is hard, especially at young age when we work minimum wage jobs while in school. But this is the right time to learn as she still have you as the support system. Once she learns this skillset, it will set her for life.
Chicken or egg? Does she demonstrate the ability to LBYM before providing some additional incentive such as the one proposed or vice a versa as OP has proposed? I think a number of approaches can work...OP will have to determine which is best.

delamer
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Re: Help me get my young-adult daughter to save.

Post by delamer » Mon Dec 30, 2019 7:45 pm

If there is a high probability that your daughter is going to inherit a large sum of money when you (and/or your spouse) die, then I’d be more generous with your match.

Put $2 in the IRA for every dollar she contributes. Or even fund the whole thing.

Gifting the money now gets it out of your estate, as another poster commented.

birnhamwood
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Re: Help me get my young-adult daughter to save.

Post by birnhamwood » Mon Dec 30, 2019 7:56 pm

Congratulations on your daughter's graduating without student loan debt.

Like you, we incentivized our son with a dollar for dollar match.

It worked and, in his forties, he now has a high net worth.

And is incentivizing his own children.

It works!

janezoey
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Re: Help me get my young-adult daughter to save.

Post by janezoey » Tue Dec 31, 2019 12:43 pm

I would just do the entire $6K and pick Vanguard Target Fund. (The interface for Vanguard is more intuitive than Fidelity.) When I was 22, right out of college, in the summer of 2008, I managed to contribute up to the limit of a Roth IRA. But then the market crashed two months later and I chickened out. I barely contributed anything in the next decade. I very much regret that. I probably would have around $110k today instead of $40k.

So when my kids earn a paycheck, I'm going to help them out if I can afford it because at 20-something, putting money into the stock market can be unnerving even if you know your time horizon is 30-40 years out. I also see it as an overall family self-preservation strategy. If my kids feel secure in their retirements, maybe, just maybe, they might be able to take some time off to care for us when we're really old. Or if they have young children of their own, it might give them some breathing space to figure out of they want to stay at home for a few years. I know being in the sandwich generation right now, I wish I had more options.

FI4LIFE
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Re: Help me get my young-adult daughter to save.

Post by FI4LIFE » Tue Dec 31, 2019 1:47 pm

Whatever you choose, I would suggest constant reinforcement. Sometimes people need real world examples, either positive or negative. You know what makes her tick so find stories that will resonate with her. Accept the fact that she may or may not take your advice.

oldfatguy
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Re: Help me get my young-adult daughter to save.

Post by oldfatguy » Tue Dec 31, 2019 1:51 pm

22? Then butt out, in my opinion.

warner25
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Re: Help me get my young-adult daughter to save.

Post by warner25 » Tue Dec 31, 2019 2:03 pm

dm200 wrote:
Mon Dec 30, 2019 12:31 pm
One thing I tried (when he was first working) was to establish an IRA for him at Vanguard. I actually put money into it (cannot remember now how much). Then, not only did he not "get the message" and save even a small amount each year - he contacted vanguard and withdrew all the money.
Sorry, I had to laugh at this. My own dad thought he was doing something great by purchasing a whole life policy when I was a child and paying the premiums for 20 years. When I graduated from college, he proudly told me about it and gave me control to keep it up. To his dismay, I immediately took the cash value.

I put the money into my Vanguard account that I had created for myself, as I was already lurking on this forum. I thought it was nice to get that ~$5k gift, but I wondered how much more money I'd have if my dad paid those 20 years of premiums into a Vanguard mutual fund instead.

So basically, I thought I was smarter than my dad. Maybe your son thought the same and put the IRA money into his day-trading account.

msk
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Re: Help me get my young-adult daughter to save.

Post by msk » Tue Dec 31, 2019 2:09 pm

Two routes:
1. Explain to her why saving and investing 30% of after tax income should be a lifetime strategy. It can be painless since I expect that 70% of her after-tax income once she gets a job will probably be more comfortable than how she lived as a student. So, it could be a seamless transition.
2. If she is the only child, does she actually have to save anything? How high is the probability that what she inherits from you is enough to FIRE the instant she gets the inheritance? If that is the case then you have to introduce her gradually to shepherding an inheritance, perhaps by gifting her some amount regularly into some brokerage account under her control.

Arabesque
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Re: Help me get my young-adult daughter to save.

Post by Arabesque » Tue Dec 31, 2019 2:11 pm

I just sat down with my 23 yo daughter and started her savings. It was easy with holiday down time. First I sent her this link https://www.daveramsey.com/blog/how-tee ... llionaires and one to Bogleheads. After reading the Dave Ramsey page, she wondered why I didn’t start her with her HS job!!!

From a just out of college job, last year, she had a Vanguard acct (target date fund). So we decided she should start a Roth with Total Market. All you wonderful Bogleheads made it easy.

Even though some think saving should start in HS, I’m more relaxed. Let kids learn to learn to budget , spend, save at their own pace.

Katietsu
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Re: Help me get my young-adult daughter to save.

Post by Katietsu » Tue Dec 31, 2019 2:33 pm

I am a bit confused by the 2019 contribution. If she is a 22 year old college student about to graduate in 2020, she is likely to need her earnings to pay for current expenses and save for expenses to get started in life. Where is she supposed to take the funds from for the Roth?

Unless she is richer than the typical college student, I agree with just opening a Roth with her that you fund to whatever level you are comfortable. If it makes sense, you could do a match in the future. But often the first couple of years after graduation, there are better uses for money than a Roth, IM0.

soccerrules
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Re: Help me get my young-adult daughter to save.

Post by soccerrules » Tue Dec 31, 2019 2:44 pm

I have done a Dad Savings match for my kids when they were teens.

I added the stipulation on any match the money I matched and the match had to stay in the account for 12 months. My thought is if they can't touch it for 12 months they are less likely to touch it later. You might consider this for the Roth?

The Common Sense Investing Guide and showing her what compounding interest can do for her starting now versus waiting 10 years. Eye Opener.
Don't let your outflow exceed your income or your upkeep will be your downfall.

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