When it comes to taking control of your financial life, there are many lessons learned in the last 10 years from watching the economic state of affairs of this country. Many point to changes in regulations, the role of technology in investing on Wall Street, and a wide range of philosophies on what makes for sound financial practices, but there is one refrain cutting through all these discussions: it’s never too early to start saving for the future.
The Washington Post
published an interesting interview with Robert Reynolds, president and CEO of Putnam Investments, who took “it’s never too early” to the extreme. “Why Your Baby Needs a Retirement Account”
certainly grabs your attention and might make you chuckle at the thought, but it does raise an interesting question: Why do so many people consider investments the exclusive domain of adults?
From a practical sense, having available funds for substantial investing often goes hand in hand with the very adult world of earning a salary. It is also true there are some exceptionally complicated investment instruments in the financial world, but even then those are only truly available to specific sector on the investing world to understand and utilize.
Once you understand the fundamental mechanics of how saving and investing works, you will find yourself realizing if your child can grasp how to work your iPad, play extensive games of Yu-Gi-Oh!, or even follow a season of football with both ease and enthusiasm - then why hesitate to teach them how to invest?
The world of smart phones and powerful mobile devices, exclusive trading cards, and professional sports is one where money and decision making is involved. There are rules to learn, subtleties to grasp, and many other skills required for success and enjoyment. Opening up the world of investing and financial literacy to young minds isn’t really all that far beyond these things.
Pint-sized profit earners
There are many ways to get children started learning about finances. That early savings account seeded with birthday card money and the earnings from doing chores or mowing lawns can turn into an IRA opened with the funds from the first real paycheck of an after school or summer job. The only requirement for a child opening an IRA is that he or she has earned income. This income can come in many forms. For example, some parents use their children’s photos in their company’s marketing materials and pay their child a royalty fee for using the image. Of course, your child’s earned income can’t exceed the income limits for an IRA holder…but that shouldn’t be a problem.
Without a doubt, you will see how important, character-building lessons on personal responsibility, the rewards of delayed gratification, and the benefits of hard work get passed on to your child or grandchild as they learn how to grow and manage their accounts.
While a child can learn to connect the products they use to companies’ traded stocks, one of the benefits of alternative investments is that they can be more direct and uniquely tangible. With strategies such as partnering in investments through undivided interest, even an account with a smaller amount of funds can get started. When alpacas, racehorses, windmills, oyster beds, coconut plantations, and beautiful houses are all just a small portion of the things you can invest in, it’s easy to get a child interested and excited about learning. The answer to “What did you do on summer vacation..?” becomes something that changed your child’s life forever.
(To see this idea in action, read about Equity Trust client Brittany, who has a head-start on her retirement savings as a teenager).
Our Senior Account Executives and Operations teams are here to answer your questions. Schedule an IRA checkup
with one of our representatives and discover more of what’s possible.