I’m going to go with a quick post today. I’ve been working on the last update of 2020, but this question came up and gave me some pause. We’ll push that update to Wednesday.
For the last five years, I have been investing our kids’ money. They were ages 2 and 3 when I started. It was enough money from grandparents and such to get started, but also not any money that they’d miss. That’s a great thing about investing money when the kids are so young… they don’t need the money.
Now they are 7 and 8 and thanks to investment gains have a nice portfolio. They also don’t know about this money as it was all managed behind the scenes by me. They know about savings accounts and are super proud to be hundredaires. They don’t know that they are multi-thousandaires.
It occurred to me that they are old enough to keep some money in their savings and perhaps save for things they want. They seem to have nearly everything, but when you are an 8-year-old having 21 stuffed Pokemon is better than 20. They might also notice if I keep sweeping money out of their savings into the Robinhood account where I invest their money. This led me to ask my wife about how much we should keep around in savings. This led to her saying, “Why don’t you tell them what you are doing?”
It all makes perfect, but now I’m left with the puzzle of explaining the stock market and index funds to a 7 and 8-year-old. I think I can walk them through it, but hopefully, I can find a good video on YouTube. Of course, if you are reading this, please make use of the comments to let me know if you’ve found yourself in a similar situation.
I’m hoping it goes well and they can see how much free money they’ve made. I’m afraid that they’ll want to take it all out and spend it on Pokemon cards. It will be tempting for them I’m sure. At least at this time, they still have enough Christmas presents that they haven’t even opened up yet.
Do you have young kids at home? Do you sweep some of their savings into a brokerage account? If so, how much money to keep in savings and how do explain what you are doing, so they realize that is going to be very helpful down the line?
Our son knows he has a Roth IRA and a UTMA. Occasionally, he’ll check with me how much money he has. These accounts are with Fidelity and they’re invested in an index fund and a few shares of DIS. I’m quite happy with Fidelity. It’s easy to invest there for kids.
I explained individual stocks and index fund a few times, but he doesn’t quite get it 100% yet.
Lazy Man says
I wish I had started the UTMA with Fidelity. I did a Robinhood in my name just to get it going quick. They each have a 50% share since I put the same money in for both of them and invest it as one pot. I’ll have to separate it out down the line and then pay taxes on it myself (which shouldn’t be too much with long-term capital gains and maybe tax-loss harvesting).