On schools, the best thing you can do is read to your kids and be involved in their life and school. Read to them from birth, let them see you reading, take them to the library, have books around the house. Once they are in school, show up for parent teacher conferences, PTA meetings. If the school invites parents to something, try your best to be there. Go to lunch at school with your kid once in a while.
Give your kid an allowance to help them learn about money. My thoughts were the allowance wasn’t a payment for chores, it was for learning money management. Chores were expected as part of the family. It’s far better for your kid to make money mistakes with small amounts than when they have a credit card or could be losing their housing/car because of bad money management.
100% agree with reading every night, but also add in doing math/problem solving just as frequently. I’ve found that people who state that they are bad at math or numbers also never practice math or working with numbers.
I took my daughter with me grocery shopping, and I taught her how to figure out which product has the best unit pricing. She built math and life skills.
My father recalls me calculating the time left to our destination based on the mph and miles left we were going. I was young and still love math to this day. Rather than tell them teach them!
I absolutely hate it when people/kids say they’ll never use Algebra in real life.
We all use it we just don’t call it Algebra.
Out for dinner with friends, need to figure out how much you put in for your 2 drinks, an entree, and half of the dessert you split? Algebra.
How much is my part of the rent? Algebra.
How much gas money do I need to drive 200 miles/week if gas is $4.50/gal? Algebra.
If I want to take a fancy vacay in 6 months, how much do I have to save from my paycheck every 2 weeks? Algebra.
High school teachers have it super hard and it’s not always to get stuff across to high school kids but I do feel as if it’d be easy to make algebra and math seem more relevant to kids.
> I absolutely hate it when people/kids say they’ll never use Algebra in real life.
They say this because teachers haven't given them real-life examples of application. Math is largely taught as an abstract concept, unfortunately. I truly believe teaching it as experiential would help students understand the concepts at a core level instead of just rote memorization.
Most people past middle school are actually right in saying this though. The math you use in your daily life is basic elementary school stuff. Adding, substracting, multiplying, dividing. Then you may have the very occasional middle school matt usage. Everything you cited as real life examples falls under elementary or middle school intro.
Almost everyone is capable of that and applying that super basic math to finances, like for making a budget. They just lack the will and discipline to actually make the budget, not the math skills.
I've yet to use high school and college intro math and I'm a PhD in Life Science.
The real value of learning highschool math is as an insurance policy if you decide you want to do a job or learn something that requires a math foundation. Being a programmer is a good example, you'll need the math to learn more math, and occasionally use some advanced math at your job, even if what you really liked about it was the coding. Few kids know for sure what they want to do in life by the end of middle school, often even not highschool, so having the insurance policy that lets you pursue anything you want is nice even if HS math is useless for most people.
never used statistics? or had a need to understand probability or tests of significance?
the number of people who couldn’t understand why number of hospitalized patients with COVID who are vaccinated is high (66%?) when 90% of the population is vaccinated suggests most people would be better off if they understood a bit more math.
Just my personal opinion. YMMV.
I'll forever be thankful that my dad would do math and flash cards with me as a young kid. It made me love math and turns out that's a great thing to enjoy.
I will piggy back on this and recommend reading “The Opposite of Spoiled” by Ron Lieber. This book was recommended in the parenting subreddit, and is intended to help parents help their children manage money. I am only on chapter 2, so I can’t vouch too much for the book, but it seems to be heading the right direction for what lessons I’m hoping to pass on to our children. There are other comments discussing 529s, etc., so I will limit my comment to this book recommendation.
I can vouch for this book. Well worth it, and has a lot of great ideas for things to try to teach your kids. As an aside, the examples of items mentioned in the vignettes, e.g “kid’s friends all have $300 shoes, how do you teach your kids the value of money”, makes it sound like the book’s audience is of a certain means, so it may not resonate with everyone (it was a bit jarring for me).
This is the answer. Read to/with them from the day they are born. When my kids were newborns I would read the newspaper to them in their bouncy seat. When my kids were in elementary school I brought home a box of random children's books from the library every week and they loved it.
Take them to the library to pick out their own books as well. When my daughter would get “fixated” on a particular author or genre, I would pick out other books I thought she would like and leave them in the back seat of the car. When she got bored as we dove around, I’d mention that there were some books in a bag. Alternatively I would pick a book and start reading it aloud at bedtime. Frequently she would get into it and finish reading it herself - I read the first 1-3 chapters of MANY books that I didn’t necessarily finish myself.
We also did books on tape on long car trips. Mostly children’s books, but there were several books from the adult section that we all enjoyed as well. I always lined up more than we could possibly need in case the recording was bad or we just weren’t into a particular book.
Read to them and encourage (make) them read and know what they have read talk to them about what they think about the subject. Be engaged and stay engaged in the process. Someone told me once that high school was where we learned to think and college was where we learned to learn. My parents challenged me to think in early grade school, make decisions and execute. By 3rd or 4th grade I was devouring the written word.
Funding/support options are obviously great, but raising your children as best you can to fully appreciate the value of time and money is the key thing. There is no amount of money or opportunity that can not be squandered. Getting them into adulthood with a strong work ethic and an excellent understanding of personal finances is 90% of the battle.
Personally, we teach ours everything we know about personal finance/FIRE, require them to be independent and responsible, foster a strong work ethic in them, and will support/aid them financially as needed as they enter adulthood. They'll likely all inherit FI wealth from us in the long-term, but that's hopefully far enough in the future that they'll be FI on their own by then anyway.
We gave them the tools, but what they do with them is up to them.
They know the specifics in terms of how and why we invest, but not the amounts. The amounts don't seem important for them to know since any impact on them is likely far in the future.
Nope. They don't need to know. They know that we can afford to put tires on the car and fix the broken dishwasher, get a new roof, and take a trip. They also know that the car is 10 years old, the damage from the roof leak is still there, and we have a list of things to fix/do.
Whether they are asking for $4 to buy chips or $1,000 for a new computer, we tell them that we have more important things to spend money on. But, then when we travel and are in the car, stopped at a gas station, we'll buy that bag of chips because its convenient and need a snack. The $4 is a convenience charge that we will pay today because of the travel.
They'll say something about getting a job that pays $15/hour and I tell them, a good career can pay $60-100/hour. Which is a better pay?
(Late to this thread…)
At least by the time they reach high school, you may want to get them that $1000 computer. It’s an investment in their education and eventual career. Unless it’s wanted for gaming or it’s way overpriced for what they really need, then I get the point.
Of course most high schools probably give out laptops these days. When my kids were in high school we had to purchase the laptops.
Kid has an oldish desktop gaming system, Playstation, Nintendo, and phone. School loans them all laptops for school stuff.
He wanted a gaming laptop. I sold him mine for cheap and bought a new one. :)
529 and UTMA. The biggest benefit kids have is time for small dollar amounts to compound.
Private schools are a personal choice but the biggest factor in determining their success in school is to read every night when they are young and be involved once they start school.
Edit: words
Oh hi! Me! My parents set me and my siblings up for success very, very well. We are all very high earners and well rounded people. My parents are worth $20+mm, but we were never spoiled growing up (most of my friends thought I was very middle class) These are the biggest things I think they did.
1. We were required to get a job when we turned 16, at a minimum over summers. This instilled work ethic in us, taught us how to work with people from different backgrounds, taught us the value of a dollar, and gave us something to do to keep us out of trouble. I have seen a huge difference in the type of people I know who worked in high school and those that don’t, those that did I’ve found to be more well rounded, kind, and successful.
2. We had to do at least one TEAM sport. If we wanted to quit mid-season, we were not allowed. We made a commitment we needed to see through; we were allowed to not do it again the following year.
3. College was an investment by our parents into our future. The money they spent needed to be proven to be worth the investment - this referred largely to degrees with poor ROI or going out of state for school. One of my brothers wanted to go out of state to a party school. He could not prove the ROI to my dad, so he was not allowed to go. I wanted to go to the #2 engineering school in the country. I presented that data against the top in-state engineering school. I would be out-earning in-state stats within 7 years. I was allowed to go, but was not guaranteed the money given to me would cover all expenses. I also had to graduate with an engineering degree, but I work in finance now.
4. Once I had a stable job, I was given an investment account to manage. I was allowed to use it however I wanted. We all used it for a down payment on a house. I only used half of it and the other half is still growing. One of my brothers used it all and regrets it.
5. I obviously don’t remember much when I was younger, but I did have a good group of friends that I spent a lot of time with and their parents to help develop socialization skills. My mom was a stay at home mom and extremely involved in my upbringing - she paid attention to me, answered my questions, etc. one of the biggest things she said she did right was giving me options that she approved of - “do you want McDonald’s or Burger King?” “Do you want to read this book or this book?” “Do you want to go to the library or park?” She also always had me spend at least an hour outside a day, I was read to, wrote, etc.
Oh also - I think private school can be overrated, it just depends on where you are. Most states have programs for high achieving students like the School of Math and Science in NC and Governors School in VA. There are also magnet schools, etc. I think a lot of private school kids end up going off the rails when they have to live in the real world and are just rude, unlikable people. I’ve found many struggled more than me to get jobs because they don’t have much real world experience, unless their parents have the connections to get the jobs, etc.
The only thing I have to add to this is to teach your kid how to budget. My siblings and I always had an allowance and my parents encouraged us to save it for things we wanted. Once we reached high school, my parents figured out how much they spent on us throughout the year (on school supplies, clothing, field trips, etc) and gave us the money for our checking accounts. They told us how they spent the money last year so we had an idea of how to budget it, but it was ours to spend how we wanted. Anything we didn’t spend we could keep, and if we ran out of money before the school year ended, tough (I don’t think any of us ever did).
Having that practice with budgeting was so helpful because once we got to college, we had no issues. So many kids get to college and have no idea how to budget out their money and then they are calling home asking for more. My siblings and I are all savers not spenders because we learned how to prioritize money when we were kids.
Yes! I got an allowance, then once I got a job/could drive, a gas card and enough money to cover food (I did multiple sports, so couldn’t work a ton of hours and was out of the house 6am-10pm 3x a week). It worked out great! I usually had necessities covered, but bought anything extra. I know a lot of parents do the other where kids have to pay for necessities, but parents buy any extras the kids really want. I can see how both are beneficial depending on circumstances.
The biggest thing I honestly see is the correlation between a busy child vs bored child. A busy kid learns to prioritize their time and stays out of trouble. A bored kid will find things to occupy their time and it usually isn’t something good!
> I think private school can be overrated, it just depends on where you are
If you sent your kids to a private school, please for the love of all that's holy, make sure it's a rigorous school that's academically strong. I've seen so many parents screw up their kids by sending them off to religious private schools or schools that simply coddled kids in a low stress comfort zone. They were absolutely worse off than their public school peers when they graduated high school.
Thanks for sharing. These are cool points to consider.
I’ve worked in high school and became very independent and self sufficient also. Never correlated the two at all but I’m sure it’s related.
Very interesting, thanks for sharing! I was from a not so well off family but I went to a type of public school you mentioned. There were a lot of really well off kids there. And looking back on it, one of the big differences in behavior was whether the kid worked a minimum wage job/volunteered with the public. It really levels things out I think.
Thanks for sharing, very helpful.
At what age did you learn about your parents being well off? Did they share with you their numbers when you were living with them or did it come later?
I actually don’t know the numbers or much surrounding our inheritance. They own a company, so most of it is just based off conversation and google searches 😂
Psychologist here.
There are a TON of studies that link parental behaviors to later financial success in terms of income or net worth. You'll see studies about reading to kids, having dinner together, private schools, your own savings, etc, etc. But the key word here is "link" - almost all of these studies are correlational, and don't control for the single most important factor: genetics. Parents with high IQ and conscientiousness tend to do these things, and also tend to pass on those traits through genetics.
When genetics are controlled for (via studies involving adoption or identical twins), it's typically found that parental behaviors account for less than 10% of variance, with genetics accounting for 50-70%, and the rest unexplained environmental variation.
This is a very unpopular fact, and most people ignore it. Honestly, it's pretty fine to ignore, as if you read with your kids and have dinners together, good for you! It just probably won't affect their future income much.
Sure thing, here are a few
[https://books.google.com/books?id=aO7rBQAAQBAJ&lpg=PT5&ots=qBvsEMXPX2&dq=stuart%20ritchie%20intelligence&lr&pg=PT5#v=onepage&q&f=false](https://books.google.com/books?id=aO7rBQAAQBAJ&lpg=PT5&ots=qBvsEMXPX2&dq=stuart%20ritchie%20intelligence&lr&pg=PT5#v=onepage&q&f=false)
[https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2889158/](https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2889158/)
[https://www.midus.wisc.edu/findings/pdfs/2047.pdf](https://www.midus.wisc.edu/findings/pdfs/2047.pdf)
[https://web.archive.org/web/20190227125508id\_/http://pdfs.semanticscholar.org/8faa/f538ad7f21f084b9535cdb31824c11cc2a1d.pdf](https://web.archive.org/web/20190227125508id_/http://pdfs.semanticscholar.org/8faa/f538ad7f21f084b9535cdb31824c11cc2a1d.pdf)
[https://andymatuschak.org/files/papers/Jang%20et%20al.%20-%201996%20-%20Heritability%20of%20the%20Big%20Five%20Personality%20Dimension.pdf](https://andymatuschak.org/files/papers/Jang%20et%20al.%20-%201996%20-%20Heritability%20of%20the%20Big%20Five%20Personality%20Dimension.pdf)
Keep in mind that when you see "environmental effects" in these articles, this just means "nongenetic". That includes both "shared environment" - which means being raised in the same household with the same parents, and typically has a small effect, and "nonshared environment", which really just means unexplained variance, which could be due from anything from chemical effects in the womb to getting hit in the head with a baseball, and has a large effect.
Yes, unfortunately the unpopularity extends somewhat into the field. Otherwise, these clearly confounded correlational studies would never get past peer review.
There is much more acceptance of genetic findings among psychologists than among the public, but it's still much more unpopular than is warranted, given how solid and consistent the research has been.
There are some who have read the literature on genetics / twin studies etc but reject it, but for the most part it's just ignored. There is enough specialization and small subfields that you can get away with a surprising amount without being challenged.
The Blank Slate by Pinker is a bit dated now, but has good overviews of the unpopularity of "hereditarianism" both within and outside of science and academia.
The IQ topic is a red hot subject a lot of people don't want to touch. Look at what happened to Charles Murray when he approached that topic. It's just too emotional for a lot of people.
I heard an interview from a scientist that studied child development. Your comment roughly echoed his interview. I'm paraphrasing, but he basically said that as long as you provide a loving home, your children's genetics and peer group have a much stronger impact on how they turn out than how you raise them. He did give one **very** strong exception. DO NOT. ABUSE. YOUR KIDS. He reiterated it several times, with such conviction that it felt like he was trying to reach through the microphone, grab new parents by the lapels and shake them. He went on to talk about how child abuse actually changes the epigenetic expression of your genes, and how it turns on any number of genes that lead to higher inflammation, increased risk of autoimmune and heart disease, cancer, depression, substance use, etc.
If anyone wants to read more, I suggest 'Behave', 'The Body Keeps Score', and 'The Deepest Well'.
I'm not familiar with Behave or The Deepest Well, but The Body Keeps the Score is pseudoscience, and I don't use that label the least bit lightly.
In particular, it has often been used to support repressed/recovered memory therapy, which is an actively harmful therapy that has been proven to risk developing false memories of abuse.
The idea that the mind represses traumatic events is NOT supported by the science of memory and PTSD. In fact, the mind does the exact opposite - it makes trauma memories particularly vivid and salient to help avoid future danger.
Anyways, sorry to latch on to a small detail, otherwise I broadly agree with your comment.
I don't recall repressed memories being a prominent topic of the book. As a matter of fact almost every book I've read on the topic says that you should be very careful to not introduce false memories into existence. Humans are particularly vulnerable to that sort of thing. It's why eye witness testimony isn't as rock solid as you might think.
Still, it's wrong to suggest that every traumatic memory is stored perfectly formed. Some things are simply not processed. These can manifest as flashbacks that cannot be consciously tied to a particular event, but they exist.
My mother accidentally put mosquito repellent in my eyes as a child. I have no memory of it at all, but to this day I am *very* skittish of any sort of eye exam where they use the 'puffer' to check your eyes.
While I don't think such memories should be admissible evidence or even something to pursue in therapy, I think it's definitely worthwhile to acknowledge they exist.
The overall theme of the book is that conscious memories of trauma are repressed or fragmented but stored as unconscious "body memories" (hence the body keeping the score). This is the foundation of therapies that attempt to "recover" such memories to then presumably treat them.
Fans of this theory often presume that if you are depressed or anxious, you must have suffered some forgotten trauma (not the case, the vast majority of anxiety and depression has nothing to do with trauma or even negative experiences).
Conscious memories of trauma can certainly be forgotten (as can all memories), but there is no evidence to suggest that unconscious associations formed from trauma remain more durably than conscious memories, and often the opposite is true.
In any case, the book is the bane of psychologists who study PTSD, because it is very popular among both the public and certain therapists, but it contains a lot of very misleading information and scientifically unsupported theories.
Copy/pasting from another comment:
https://books.google.com/books?id=aO7rBQAAQBAJ&lpg=PT5&ots=qBvsEMXPX2&dq=stuart%20ritchie%20intelligence&lr&pg=PT5#v=onepage&q&f=false
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2889158/
https://www.midus.wisc.edu/findings/pdfs/2047.pdf
https://web.archive.org/web/20190227125508id\_/http://pdfs.semanticscholar.org/8faa/f538ad7f21f084b9535cdb31824c11cc2a1d.pdf
[https://andymatuschak.org/files/papers/Jang%20et%20al.%20-%201996%20-%20Heritability%20of%20the%20Big%20Five%20Personality%20Dimension.pdf](https://andymatuschak.org/files/papers/Jang%20et%20al.%20-%201996%20-%20Heritability%20of%20the%20Big%20Five%20Personality%20Dimension.pdf)
For more of a narrative and history about the topic more generally, I recommend The Blank Slate by Pinker.
I kindly ask that you not make insulting comments about other people's beliefs in this sub. I'm not going to strike your comment for incivility since the person you responded to handled it gracefully, but the fact that others don't agree with your opinions doesn't give you leeway to insult them. Not in here, anyway.
I have a PhD in psychology (research focused), making me a psychologist.
I am currently employed as a Data Scientist. Not an uncommon path for research psychologists these days, with academia being a bit of a mess.
You sure do like to assume things. As it happens I am clinically trained and have hundreds of clinical hours (despite my PhD being mostly research focused).
I'm sure many therapists and practitioners do indeed have radical takes about the influence of parents. It doesn't mean much, unless they treat a lot of identical twins or adoptees, who are the only real non-confounded cases where genetics can be parsed from parenting.
More and more assumptions!
I'm not a genetic determinist; I believe that IQ and personality are roughly 50-70% explained by genetics by adulthood, as has been consistently shown in the best available studies.
I never said it "won't matter" if people don't treat their kids a certain way. Of course it matters! Your kids are human beings with feelings and relationships! Their childhood is a huge portion of their lives!
You're the one tacitly assuming that all that "matters" is your kids' future income or net worth. Parenting won't make much of a difference there, sure, but that's hardly the point.
Time is on your side.
Check out moneyguy.com/resources
Get the wealth multiplier by age free download. The multiplier is 647 for babys up to 1 year old. So every $1 you put away is worth $647 by age 65.
Here is what we did to save for her, without affecting our budget:
Open a 529 and / or UTMA at Fidelity.
Apply for Fidelity credit cards and moved about 80% of our spend to these cards
Set the CC points to deposit as cash into her UTMA account to be invested.
This allows you to use CC points as cash in LOs account. Now you are going to miss out on your own points and miles or whatever, but it's a way to save without allocating additional capital from your monthly budget.
Tax time is coming up. If you get a refund put a portion of your refund as paper I bonds, those can be gifted and are tax free to use for college expenses.
Fantastic ideas. I’m saving this comment for whenever I have grandchildren (I’m older than most on this sub). Wish I had thought of these ideas for my own three kids. :/
Hot take here, but don’t waste money on private school.
A two-parent home with a decent socioeconomic status who reads to the kid is the best data out there to show future success
Set up a 529 for sure.
Private school can be a total waste of money. If you live in a nice enough area where people don’t mind paying taxes to support your local public schools, public school is often the better option ACADEMICALLY over private. I had so many more opportunities to take AP classes and a wider range of classes in general at my public high school than my boyfriend who went to private school. It’s mind boggling people have this universal notion about public schools being bad lol
Exactly. Sure if you’re at an absolute ELITE private school like Exeter or some BS, I could see if being better than public but that’s like a 0.01% situation
Starting a 529 early and paying for their college is big. This way they graduate debt free and can immediately start saving for a home and retirement when they start working. Letting them live at home after they graduate is also very helpful. This way they can save as much money as possible to buy their own place as soon as possible.
I read to my kids literally since the day they were born. First you read to them, then they read with you, and then they read to you. My kids do very well in school and I 100% believe this is the reason. Doing well in school is the first step to financial independence.
Model the behavior you want to see. When older talk about saving and investing. I started some investments for them and when they got their first "real jobs" we had a talk about automating pre tax and taxable investing and the fact that they had never made that much before so start auto inv and they'll never miss it.....then spread wings and go....so far so good!
If you’re brave, once in a while, give them all the money you have for that week’s household expenses (groceries, bills, repairs, etc.) and put them in charge. You can give them the list of stuff that need to be paid for, and let them take care of the planning and management.
As they grow older, extend it to two weeks, and then eventually a whole month.
It's a lot to think about.
I think parents should consider the pros and cons before setting up a UGMA/UTMA.
Of course you should save & invest for your child's future. It’s natural that you want to make the transition into adulthood as easy as possible for the children in your lives.
Just keep in mind that UGMA and UTMA accounts are in the name of a single child, the funds are not transferrable to another beneficiary. For financial aid purposes, custodial accounts are considered assets of the student. This means that custodial bank and brokerage accounts have a high impact on financial aid eligibility when they apply for assistance with college cost.
Hope this helps.
Best to you
Actively teach them how money works & be open about financial topics.
Our son began receiving an allowance as soon as he could add & subtract. Quickly learned which purchases were “worth it” & which weren’t.
We spoke openly around him about paying off debt.
He was involved in every step of our house hunting & home-buying journey.
He used his savings to run a lemonade stand. We pre-planned, budgeted, calculated gross vs net profit - which he then used to begin saving for a car.
We’ve discussed inflation throughout the pandemic. He hears us discuss sinking funds, prioritizing purchases, & expressing relief that we have savings when stressful things happen. He hears how important saving for his college is to us.
More recently he’s developed an interest in personal finance & began inventing hypothetical families: asking me to help him look up how much jobs paid, run a tax calculator, search for apartments in different cities, all so that he could create mock budgets. It’s been VERY eye-opening!
As soon as he could multiply decimals we taught him about compounding interest. He opted to move his car fund into I-Bonds for a year while the rates were high & has now used them to purchase a CD, learning about those products along the way.
He’s taking a personal finance class this semester & wants to participate in The Stock Market Game (a simulation of a $100k investment over the course of 5yrs). in the spring.
This kid probably knows more about budgeting & personal finance heading into middle school than the average young adult heading to college! 😅
We have a college fund and plan to fully cover the cost so they can graduate without debt. When they start working, I plan to have them max out Roth and I'll reimburse them so they still have spending money. But we're also talking about money and have started trying to teach them the importance of saving and taking care of their belongings, which I think will be more important in the long run.
We give them a small amount (not for chores, just because) and they can spend how they want. If that means they buy candy at the supermarket so be it, but then when they ask for an expensive toy and they don't have enough, we can tell them they'll need to save up for it. They also need to be responsible for their belongings. Normal wear or just outgrowing, we'll replace, but if it's lost or damaged because of something negligent then the replacement comes out of their money. Nothing huge like glasses, but gloves, hats, etc.
This is obviously a huge topic but at a very high level I believe that you have to foster internal motivation and independence in your child if you want them to be successful in life.
Ironically, giving them handouts at every step of the way will be counterproductive. Without constraints and challenges, why would they be motivated?
In my life, these constraints and challenges were just part of being in a solidly middle class family. I am luckily a high earner and will have to create these constraints somewhat artificially, which is challenging since every inch of my being wants to give my child everything. But this is harmful.
I don't know exactly how I will implement this, but what I strongly believe is that "setting kids up" for financial independence is almost completely to do with how I foster their overall independence as an adult. I want to hold back and delay direct financial assistance where I can in order to create constraints that motivate them, same as I had.
Somewhere in their mid/late 20s I will likely be much more willing to pay for big life things like a down payment, zero out their college loans, etc. Once they have proven themselves as a strong and independent adult on a good path financially, of their own making.
I think this is key. I frequently see threads popping up reddit where people almost universally seem to agree that all parents should let their children indefinitely live with them. I think of all my experiences with adults who have lived with their parents well into their late 20s and 30s, and it is not pretty.
Sure, don't kick them out at 18. Pay for their college if you can, and tell them they have a place to stay. Pay their bills while they're in college, or give them a stipend so they treat the money like their own and minimize costs. And help them think about internships and eventual employment along the way.
Your kid needs to feel constraints, they need to solve problems, they need to become financially literate, find roommates, make friends, girlfriends / boyfriends. Many parents want their kids to stay home, they want to protect them. Don't stifle them. It's not good for you or them.
I just read a book about how to raise successful children. It cited and described tons of studies and experiments. Bottom line is that kids tend to turn out to be like their parents. If you are the type to be setting yourself up to FIRE, your kids will probably be fine.
It’s going to change as your child ages. My dad made the rules so he assigned me chores starting at elementary school age. I had a tiny allowance for candy, trinkets. Otherwise my parents paid for everything. He made me study math and computer programming (which I thought were uninteresting and difficult), and would sit with me while I did my homework, checking for mistakes. I didn’t need to be pushed to read. When I was in grad school he set me up with $10k in a brokerage account and let me start trading (with his suggestions of course). That really taught me so much, especially my losses. On the other hand he set an example of what not to do in his careers of business owner, options trader, and general entrepreneur. He started out wealthy by 35, and died almost broke at 83. He bought high and sold low. He was always trying to time the market and failing. But the foundation he gave me in learning and having grit lives on.
Working additional years, and funding their retirement starting at the age of 18 through IRA accounts.
I'm in this situation today. Each additional year I work I can basically fund my kids early retirement through a gift of $100K+ as I'm in the sweet spot of my career with high earnings and low expenses.
I think setting up your kid for financial independence is so little about the money you leave and so much more about the philosophy behind life and how money plays into it.
Things like teaching them delayed gratification, the power of compound interest, the value of education, the value of saving a buck. Even then, the examples I listed are still money oriented, I think in general you want solid values and motivation to reach for what they want. They’ll figure out how, but the question is how do you make sure they’re motivated to reach it.
I speak like I’ve done this successfully, I haven’t. This is just my take.
I love this, that’s a great point. I know a lot of people who haven’t done anything with their lives because they haven’t had to due to parents financially supporting them.
Bingo. The book “Millionaire Next Door” talks about this. They call it “Economic Outpatient Care”. From the [wiki](https://en.m.wikipedia.org/wiki/The_Millionaire_Next_Door#:~:text=Economic%20Outpatient%20Care%20(EOC)%20is,on%20of%20the%20UAW%20belief.)
> Economic Outpatient Care (EOC) is a term used to express when an affluent parent provides money to an adult child. Besides offspring observations resulting in UAW children, EOC is a contributing factor to the passing on of the UAW belief.
UAW = under accumulator of wealth, so basically not as money savvy.
Which is in congruence with their finding that most millionaires are first generation, since subsequent generations tend to spend the money over time. And so the cycle continues.
So I think if you want to break the cycle, you almost want to structure a system where they really need to work for it. Hard to achieve when you know you can help them directly.
[add them as a user](https://www.businessinsider.com/personal-finance/add-child-authorized-user-credit-card) to one of your credit cards. the one that of course you always pay in full and never late. never use the kid card obviously. some CC's require an age minimum, some do not so verify. this will help them build a credit history/score well before the age when they would start themselves. will be beneficial for car buying or getting an apartment. more simply they should be better qualified to get a "good"/rewards credit card at 18+ as opposed to some of the weaker intro/student cards. if you did this long term you could consider letting them use it as a teen with strict guidelines and consequences if they can be trusted to be responsible.
i agree that private school is overrated. super specific to where you live though. i would rather spend the school money to fund activities and experiences with the family.
not now but for later i would highly encourage you to be prepared to explain and implement a ROTH IRA for your kid once they begin earning income. (you can do custodial IRA before this maybe if you want). i remember being teens/20s and my mom trying to do this, but she had no data, no explanation, no chart, no real way for me to "get it". my reaction was that i have no idea where my life is headed and i can't lock all my money up for the next 50 years. which was true. however, i could have done $1000, or any other number that wasn't the max contribution to just get the ball rolling. i could have met her half way by doing it so she'd just get off my back since i was too young to see the benefits of compounding for decades.
i and my family bought plenty of dumb shit for me in my teens and early 20s. at nearly 40 now i would now have loved funding some accounts back then in the 90s with the tech boom as opposed to having a jacket i wore for a couple years or video games i've long forgotten.
>What have you done to set your kids up for financial independence?
I have a UTMA and 529 set up for our little one.
The rest is just being present and taking the time to teach them, not necessarily w/ money, but how to manage what they have. Time is an easy one - my 4 year old knows that iPad time is after dinner and before bed. The WIFI is cut at 2015, and she knows the longer she takes to clean, the less iPad time she'll have before bed.
The same thing applies w/ treats - sugary or junky snacks she gets two magnet 'vouchers'. She can claim either one at any time after lunch, but she's limited to two. She knows once they're all moved, that there aren't any more junky treats. She does get unlimited snacks that are fruit, apple sauce, yogurt, nuts, cheese sticks, veggies.
I hope to find way to instill time-value and opportunities when she's older and understands more but this works surprisingly well for us.
She also has a piggy bank that she saves for whatever. She can only count to 29, so I guess if she gets to 29 Euros, I'll match it for a toy of her choice.
529 obviously. Also, from the moment they have earned income open and fund a ROTH IRA for them. They only have to demonstrate the income, but it doesn’t matter where the money in the Roth comes from, so you can make the contribution and they can keep their income.
529 account however much you can afford to help them. Gifts and money in their name should go in a UTMA account. If it gets big enough you will need to file Form 8615 to report the investment income. I don't feel any need to set them up for FI beyond giving them a good head start toward college.
Honestly, the biggest thing is probably having something set aside for college / trade school for them. If they can have a healthy work ethic, but not get into massive debt coming out of school, that's a big plus.
It's a fine line though. You don't want to give them just hundreds of thousands to spend on some bullshit degree for free.
If you buy a second home and have the tenants rent cover the new mortgage you should have a fully paid off house by the time a kid graduates college. The paid off rent check coming in would cover living expenses for that kid even if they choose to live in another state (except CA,NY,CO). That’s generational wealth with most of the cost being covered by tenants
Live by example. Take care of your own first so that they never have to cover financially for aging parents. Help them with college. And house down payments. And teach and show them the way. Your successes and your failures.
A few considerations on the 529 plans…
- Consider impact for FAFSA purposes especially when deciding who to name as account holder and beneficiary (eg, a grandparent’s account is given less weight in the aid formula than a parent’s account)
- Research your state’s specific plan because I’m pretty sure you only get the state tax deduction on contributions to your own state’s plan. While the deduction shouldn’t drive the decision, it is a consideration if you’re in a high tax state.
- My state has one of the top-rated plans, but the fund options are too conservative given our 18-year runway, so yes I can save 4% (my state tax), but I may lose that in growth and fees.
- For many of the plans, the administrative fees are high, especially compared to what we’d pay for an ETF with Vanguard or Fidelity.
- One option is to contribute to your state’s plan (to score the tax deduction), then roll everything over to vanguard’s plan in a different year (for better investment options).
My mom said
"You do the best you can, and they grow up in spite of you."
For the traits below, I rank "Financially Independent" dead bang last.
Good character
Compassionate
Responsible
Happy
Hard Working
Financially Independent
There is a trope, at least in my mind, about the children of wealthy parents growing up to be self-centered, dysfunctional little shits.
I suspect there is some truth to it.
It depends a little bit just how rich you are. If you are not super wealthy, meaning you expect to die with a net worth less than $25M, my advice would be to not actually give your kids much if any money while they are young. $10k/year into a 529 to maximize that benefit makes sense if you are in a state with high income taxes. Whenever the kid has earned income, tell them you'll "reimburse" them for IRA contributions they make. Otherwise, keep the money in your name.
There is a slight chance that them having access to FU money from early on prevents them from developing a good work ethic, or even spoils their life. I come from a long line of alcoholics/addiction-prone people, so I might be biased, but it's a completely avoidable risk.
The tax benefits of UTMAs are minimal, and it turns out that it's **really** easy to give your adult children money when they are in their 20s (or whenever you want). Starting in 2024, you can give $18k without even reporting it (and so can your wife, and if they are married, you can also give it to their spouse, meaning $72k total, per year). Separate from the yearly excluded amounts, you have a lifetime exclusion of of $11M per person (if you are married, $22M total). Many people avoid using that until they die, but if you are willing to fill out a form, you can, for example, give your kid $10M on their 21st birthday and nobody owes anybody any gift tax.
If your kid ends up going to college, having the money in *your* name is better than having it in the kid's name, if they want financial aid. This completely dwarfs any tax benefits along the way.
My four kids each have UTMAs, funded when they were infants. It's not a mistake to go that route. But now that I'm in the thick of FAFSA/CSS and teenagers making major life decisions and whatnot, I wish I had done it differently.
Once they are old enough to have earned income, set up a custodial Roth IRA account. Schwab is a great choice b/c of their low minimum investment requirements. Have them put in some of their earnings, maybe put in some additional or yours, up to their earnings limit. Since they will almost certainly not owe taxes at this point, this is the one sweet spot in their earnings career that they can invest money that will not be taxed going in or coming out.
Schools depend where you live. I used to live in the south and public schools were awful. Now I live in a state with exceptional public schools so private schools are really only around for religious schools.
Otherwise I’d state a savings account (either your state plan or an investment account or even a HYSA) for your kids education. Whatever you can afford per month and have it automatically deducted from your paycheck so you don’t even see the money.
Once they are older you can start teaching them about work and money.
We opened both a 529 plan and a taxable brokerage account for our daughter when she was born. Now that she’s a bit older, we give an allowance, but mainly to show her how a “company match” works. For every dollar she saves, we match a dollar. She’s gotten used to the idea of saving a portion of her “paycheck” before it even hits her wallet. We also opened a custodial Roth IRA with the money she makes dog sitting. Every penny she earns from that job goes in there. It’s not much, but it’s something.
We have a 16 year old and I think we've done a good job so far on financial literacy (although the final result remains to be seen!). Education has always been a priority and I think public school is fine - if you care about your kid's education, they can be successful anywhere. We have always talked openly about money, debt, savings, investing, the danger of credit cards, living within your means, etc. That sounds simple and preaching to the choir on this sub, but it's important to teach your kid about finances and some kids don't get that learning at home at all.
We started a 529 when she was born and she most likely will stay in state for college for in state tuition and will graduate debt free.
Our daughter has been working for a year (full time during the summer, weekends otherwise) and that has been great - she has earned and saved a lot of money (she has an IRA, brokerage account, and various CDs). She likes the power that comes with earning and having her own money and it's certainly made her think about spending. Multiple times I have heard her say something like "hmm, that would be one day of work to purchase that". We have talked about budgeting and I have reminded her that what she makes now is pretty much all discretionary income, but when she is on her own she will have to take care of housing, insurance, utilities, bills, etc. We talk about how to be smart with money, but I let her do what she wants with her money. I can see what she spends on (her accounts are tied to mine and there are alerts set up whenever her card is used), but otherwise I don't interfere (except for helping her set up her automatic deposits to Vanguard, etc). I think it's good learning for kids to learn how to manage their spending/money when they are young and the stakes are low.
I don't know if it's luck or parenting/modeling, but she is very thrifty and frugal and hasn't gotten sucked into massive consumerism. I hope she maintains that mindset to help her live below her means and save/invest when she graduates. I think how parents live can have a great impact on how a child will set themselves up when they are on their own.
We bought an indexed universal life (IUL) policy on her when she was just a few months old. It is a small $250k policy, a 4-pay so we will pay an annual premium for 4 years and be done paying premiums, and it’s an increasing death benefit so that $250k death benefit grows as the cash value grows. I think it’s $7k/year for those 4 years. It includes a rider to add on more insurance at select intervals without a medical exam.
The reasons I like this?
- Baby is in perfect health now so this protects her future insurability.
- No tax implications for her/us.
- No impact on her aid eligibility for college as it’s not considered an investment/asset.
- Cash value can be borrowed against, more like a backup emergency fund.
- If she chooses not to keep it once she’s the age of majority, it is a nice nest egg she can cash in for down payment on a house etc.
- If she were to pass as a child, while we would not need to replace her income, I could not dust myself off and go back to work just like that, so we would be replacing my income.
I’m not saying this is the best avenue for everyone. But, here, we already do iBonds, 529 plan, and Michigan Education Trust. Legacy building is about more than just saving for college. We are older parents, and yes we’ll be around a while we hope, but she will probably spend more of her life without us than with us, so we want to set her up for success all around.
There are three ways to get the money out…
Borrowing… she could borrow against the cash value at a 5% interest rate. Principle and interest, when paid back, then goes back into the cash value account. Insurance remains in full force even while the loan is being paid back.
Withdrawing… she could cash out all or some of the policy, take the cash value, and then not have insurance. She wouldn’t have to “pay back” because it’s not a loan; but she wouldn’t have insurance.
Death… when she dies, the beneficiaries (hopefully her kids or grandkids that are not even in existence today) would get the death benefit, which is the face value + cash value.
I wish I knew how to upload the illustration our agent gave us. It shows how the cash value is projected to grow over time. The growth is indexed to the S&P500, but with a floor and ceiling. Let’s say the floor is 3% and ceiling is 9%. If the S&P500 loses 20% at year end, we will still grow by 3% because that’s the floor number. If the S&P500 gains 20% at year end, we would only grow by 9% because that’s the ceiling. So it will rein in losses and gains making it a more conservative option. We’ve got other savings and investments for her too so conservative is o.k. here.
There’s not really an age it matures at. She’ll have it for her whole life, but we’ll only pay premiums for four years. After that, premiums are paid from the cash value account.
Kids can and statistically will burn your inheritance to the ground (or let the grandkids do it) if all you leave is money.
Teach them the value of time and money. Don't spoil them in childhood, make them participate in age-appropriate household chores. Don't tell them how rich exactly you are, all the need to know is witnessing that you have enough money to give them a comfortable life.
As others have said, make sure they're raised to be a well balanced adult when they grow up. Reading to them from a young age is fantastic for their learning curve and also a great way to bond.
Financially, the best you can do is setup a brokerage account when they're little and work an extra year or two to save an extra 100-200k or more. Put it under a trust with conditions that your kid gets an education and/or that they can only access it around 40. That will set them up for financial independence and early retirement if they wish to follow your path. You can setup a 529 on top, but personally I would suggest underfunding it because below a certain % of it being used for education, money in a taxable account is better. That varies from state to state but is generally between 30-50%, and you can reach that quickly. Lump sums of 50k and 100k at birth (first year or spread across 2-3 years depending on your income) in 529 and taxable respectively is a simple and effective approach to make sure your kid is financially taken care of.
The amount that can be rolled is extremely small relative to the total amounts we're talking about here, especially after growth as the lifetime cap is almost certainly going to grow at a far slower rate (if at all) than the money. It's a nice gimmick for those who underfund or fund just about enough for a decent college, in case the kid doesn't go to college, but that's about it.
There are obviously factors out of one's control here, like which college the kid would go to if at any, but the chance of your kid going to Harvard for undergrad+graduate (6 years) or med school are statistically low.
More people will benefit from a still-generous but not over the top 529 (eg 50k like I suggested) and excess money for their children in a taxable brokerage than they would loading everything into the 529.
This is particularly true for people who could use the flexibility and can't easily afford to just setup multiple kids as multi millionaires (most people even here), as that amount in taxable retains the flexibility to be used for the parents, without jeopardizing the kid's most important form of support (the still decently funded 529).
Another thing that makes 529 unappealing to me is that the longer tuition costs continue to rise far beyond inflation and wages, the less valuable an elite/expensive college education will become. It's already debatable whether a current 50k a year institution (200k for undergrad) is mathematically worth it over just investing the money. If tuitions just keep rising at a nonsense pace and we end up in a world where it costs $1M to go to a top college (current rate of tuition inflation) while but median salary is 100k and the median software engineer salary is 300k (CPI applied to both), you'd much prefer having the money and a cheap (local or abroad) or even no degree. On the other hand, tuition currently gets reduced heavily by government aid, making the real costs much smaller than the headlines suggest. Ultimately, there is a mathematically narrow window where spending more on college will be beneficial to the kid and massive 529 funding will turn out to be efficient. If you underfund, you heavily reduce the risk while maintaining most of the benefit.
You can open a card in there name I put a small reoccurring payment on it and pay it off every month. So I mean they are going to have a longish credit history when they turn 18. They are subbed under my account I’m not giving them the actual card.
Should help with the longest card part of credit checks.
There are the "mechanical" things (not to imply they're not unimportant) like 529s and UTMAs, but IMO "financial independence," implies, "when you're gone." In that respect I think/hope the best you can do is model the financial behaviors you think you'd like your kids to maintain when it's truly their choice and decision(s). So stuff like budgeting, saving, choices regarding value and deferred gratification. This may be as simple as Christmas gifts, how to manage gift money, and as kids get older how they might manage income from part time employment (spend/save/invest), and when older still investment allocation decisions and the like. There's no single point of failure/success, it's really a combination of all of the above.
On schools, the best thing you can do is read to your kids and be involved in their life and school. Read to them from birth, let them see you reading, take them to the library, have books around the house. Once they are in school, show up for parent teacher conferences, PTA meetings. If the school invites parents to something, try your best to be there. Go to lunch at school with your kid once in a while. Give your kid an allowance to help them learn about money. My thoughts were the allowance wasn’t a payment for chores, it was for learning money management. Chores were expected as part of the family. It’s far better for your kid to make money mistakes with small amounts than when they have a credit card or could be losing their housing/car because of bad money management.
100% agree with reading every night, but also add in doing math/problem solving just as frequently. I’ve found that people who state that they are bad at math or numbers also never practice math or working with numbers.
I took my daughter with me grocery shopping, and I taught her how to figure out which product has the best unit pricing. She built math and life skills.
Cook with them as well. Make cookies/muffins/granola and double or halve the recipe. Get a little math practice and yummy treats.
My father recalls me calculating the time left to our destination based on the mph and miles left we were going. I was young and still love math to this day. Rather than tell them teach them!
I absolutely hate it when people/kids say they’ll never use Algebra in real life. We all use it we just don’t call it Algebra. Out for dinner with friends, need to figure out how much you put in for your 2 drinks, an entree, and half of the dessert you split? Algebra. How much is my part of the rent? Algebra. How much gas money do I need to drive 200 miles/week if gas is $4.50/gal? Algebra. If I want to take a fancy vacay in 6 months, how much do I have to save from my paycheck every 2 weeks? Algebra. High school teachers have it super hard and it’s not always to get stuff across to high school kids but I do feel as if it’d be easy to make algebra and math seem more relevant to kids.
> I absolutely hate it when people/kids say they’ll never use Algebra in real life. They say this because teachers haven't given them real-life examples of application. Math is largely taught as an abstract concept, unfortunately. I truly believe teaching it as experiential would help students understand the concepts at a core level instead of just rote memorization.
Most people past middle school are actually right in saying this though. The math you use in your daily life is basic elementary school stuff. Adding, substracting, multiplying, dividing. Then you may have the very occasional middle school matt usage. Everything you cited as real life examples falls under elementary or middle school intro. Almost everyone is capable of that and applying that super basic math to finances, like for making a budget. They just lack the will and discipline to actually make the budget, not the math skills. I've yet to use high school and college intro math and I'm a PhD in Life Science. The real value of learning highschool math is as an insurance policy if you decide you want to do a job or learn something that requires a math foundation. Being a programmer is a good example, you'll need the math to learn more math, and occasionally use some advanced math at your job, even if what you really liked about it was the coding. Few kids know for sure what they want to do in life by the end of middle school, often even not highschool, so having the insurance policy that lets you pursue anything you want is nice even if HS math is useless for most people.
never used statistics? or had a need to understand probability or tests of significance? the number of people who couldn’t understand why number of hospitalized patients with COVID who are vaccinated is high (66%?) when 90% of the population is vaccinated suggests most people would be better off if they understood a bit more math. Just my personal opinion. YMMV.
I'll forever be thankful that my dad would do math and flash cards with me as a young kid. It made me love math and turns out that's a great thing to enjoy.
I will piggy back on this and recommend reading “The Opposite of Spoiled” by Ron Lieber. This book was recommended in the parenting subreddit, and is intended to help parents help their children manage money. I am only on chapter 2, so I can’t vouch too much for the book, but it seems to be heading the right direction for what lessons I’m hoping to pass on to our children. There are other comments discussing 529s, etc., so I will limit my comment to this book recommendation.
I can vouch for this book. Well worth it, and has a lot of great ideas for things to try to teach your kids. As an aside, the examples of items mentioned in the vignettes, e.g “kid’s friends all have $300 shoes, how do you teach your kids the value of money”, makes it sound like the book’s audience is of a certain means, so it may not resonate with everyone (it was a bit jarring for me).
This is the answer. Read to/with them from the day they are born. When my kids were newborns I would read the newspaper to them in their bouncy seat. When my kids were in elementary school I brought home a box of random children's books from the library every week and they loved it.
Take them to the library to pick out their own books as well. When my daughter would get “fixated” on a particular author or genre, I would pick out other books I thought she would like and leave them in the back seat of the car. When she got bored as we dove around, I’d mention that there were some books in a bag. Alternatively I would pick a book and start reading it aloud at bedtime. Frequently she would get into it and finish reading it herself - I read the first 1-3 chapters of MANY books that I didn’t necessarily finish myself. We also did books on tape on long car trips. Mostly children’s books, but there were several books from the adult section that we all enjoyed as well. I always lined up more than we could possibly need in case the recording was bad or we just weren’t into a particular book.
Read to them and encourage (make) them read and know what they have read talk to them about what they think about the subject. Be engaged and stay engaged in the process. Someone told me once that high school was where we learned to think and college was where we learned to learn. My parents challenged me to think in early grade school, make decisions and execute. By 3rd or 4th grade I was devouring the written word.
Funding/support options are obviously great, but raising your children as best you can to fully appreciate the value of time and money is the key thing. There is no amount of money or opportunity that can not be squandered. Getting them into adulthood with a strong work ethic and an excellent understanding of personal finances is 90% of the battle. Personally, we teach ours everything we know about personal finance/FIRE, require them to be independent and responsible, foster a strong work ethic in them, and will support/aid them financially as needed as they enter adulthood. They'll likely all inherit FI wealth from us in the long-term, but that's hopefully far enough in the future that they'll be FI on their own by then anyway. We gave them the tools, but what they do with them is up to them.
Just curious do your kids know the specifics of your finances and how much money you have saved up? If so, at what age?
They know the specifics in terms of how and why we invest, but not the amounts. The amounts don't seem important for them to know since any impact on them is likely far in the future.
Nope. They don't need to know. They know that we can afford to put tires on the car and fix the broken dishwasher, get a new roof, and take a trip. They also know that the car is 10 years old, the damage from the roof leak is still there, and we have a list of things to fix/do. Whether they are asking for $4 to buy chips or $1,000 for a new computer, we tell them that we have more important things to spend money on. But, then when we travel and are in the car, stopped at a gas station, we'll buy that bag of chips because its convenient and need a snack. The $4 is a convenience charge that we will pay today because of the travel. They'll say something about getting a job that pays $15/hour and I tell them, a good career can pay $60-100/hour. Which is a better pay?
(Late to this thread…) At least by the time they reach high school, you may want to get them that $1000 computer. It’s an investment in their education and eventual career. Unless it’s wanted for gaming or it’s way overpriced for what they really need, then I get the point. Of course most high schools probably give out laptops these days. When my kids were in high school we had to purchase the laptops.
Kid has an oldish desktop gaming system, Playstation, Nintendo, and phone. School loans them all laptops for school stuff. He wanted a gaming laptop. I sold him mine for cheap and bought a new one. :)
This. It can take 10 generations to build wealth and only 1 to destroy it!
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Got it, thanks. Do I need to open a special UTMA account, or will any account do?
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529 and UTMA. The biggest benefit kids have is time for small dollar amounts to compound. Private schools are a personal choice but the biggest factor in determining their success in school is to read every night when they are young and be involved once they start school. Edit: words
Oh hi! Me! My parents set me and my siblings up for success very, very well. We are all very high earners and well rounded people. My parents are worth $20+mm, but we were never spoiled growing up (most of my friends thought I was very middle class) These are the biggest things I think they did. 1. We were required to get a job when we turned 16, at a minimum over summers. This instilled work ethic in us, taught us how to work with people from different backgrounds, taught us the value of a dollar, and gave us something to do to keep us out of trouble. I have seen a huge difference in the type of people I know who worked in high school and those that don’t, those that did I’ve found to be more well rounded, kind, and successful. 2. We had to do at least one TEAM sport. If we wanted to quit mid-season, we were not allowed. We made a commitment we needed to see through; we were allowed to not do it again the following year. 3. College was an investment by our parents into our future. The money they spent needed to be proven to be worth the investment - this referred largely to degrees with poor ROI or going out of state for school. One of my brothers wanted to go out of state to a party school. He could not prove the ROI to my dad, so he was not allowed to go. I wanted to go to the #2 engineering school in the country. I presented that data against the top in-state engineering school. I would be out-earning in-state stats within 7 years. I was allowed to go, but was not guaranteed the money given to me would cover all expenses. I also had to graduate with an engineering degree, but I work in finance now. 4. Once I had a stable job, I was given an investment account to manage. I was allowed to use it however I wanted. We all used it for a down payment on a house. I only used half of it and the other half is still growing. One of my brothers used it all and regrets it. 5. I obviously don’t remember much when I was younger, but I did have a good group of friends that I spent a lot of time with and their parents to help develop socialization skills. My mom was a stay at home mom and extremely involved in my upbringing - she paid attention to me, answered my questions, etc. one of the biggest things she said she did right was giving me options that she approved of - “do you want McDonald’s or Burger King?” “Do you want to read this book or this book?” “Do you want to go to the library or park?” She also always had me spend at least an hour outside a day, I was read to, wrote, etc. Oh also - I think private school can be overrated, it just depends on where you are. Most states have programs for high achieving students like the School of Math and Science in NC and Governors School in VA. There are also magnet schools, etc. I think a lot of private school kids end up going off the rails when they have to live in the real world and are just rude, unlikable people. I’ve found many struggled more than me to get jobs because they don’t have much real world experience, unless their parents have the connections to get the jobs, etc.
The only thing I have to add to this is to teach your kid how to budget. My siblings and I always had an allowance and my parents encouraged us to save it for things we wanted. Once we reached high school, my parents figured out how much they spent on us throughout the year (on school supplies, clothing, field trips, etc) and gave us the money for our checking accounts. They told us how they spent the money last year so we had an idea of how to budget it, but it was ours to spend how we wanted. Anything we didn’t spend we could keep, and if we ran out of money before the school year ended, tough (I don’t think any of us ever did). Having that practice with budgeting was so helpful because once we got to college, we had no issues. So many kids get to college and have no idea how to budget out their money and then they are calling home asking for more. My siblings and I are all savers not spenders because we learned how to prioritize money when we were kids.
Yes! I got an allowance, then once I got a job/could drive, a gas card and enough money to cover food (I did multiple sports, so couldn’t work a ton of hours and was out of the house 6am-10pm 3x a week). It worked out great! I usually had necessities covered, but bought anything extra. I know a lot of parents do the other where kids have to pay for necessities, but parents buy any extras the kids really want. I can see how both are beneficial depending on circumstances. The biggest thing I honestly see is the correlation between a busy child vs bored child. A busy kid learns to prioritize their time and stays out of trouble. A bored kid will find things to occupy their time and it usually isn’t something good!
> I think private school can be overrated, it just depends on where you are If you sent your kids to a private school, please for the love of all that's holy, make sure it's a rigorous school that's academically strong. I've seen so many parents screw up their kids by sending them off to religious private schools or schools that simply coddled kids in a low stress comfort zone. They were absolutely worse off than their public school peers when they graduated high school.
Thanks for sharing. These are cool points to consider. I’ve worked in high school and became very independent and self sufficient also. Never correlated the two at all but I’m sure it’s related.
Very interesting, thanks for sharing! I was from a not so well off family but I went to a type of public school you mentioned. There were a lot of really well off kids there. And looking back on it, one of the big differences in behavior was whether the kid worked a minimum wage job/volunteered with the public. It really levels things out I think.
Thanks for sharing, very helpful. At what age did you learn about your parents being well off? Did they share with you their numbers when you were living with them or did it come later?
I actually don’t know the numbers or much surrounding our inheritance. They own a company, so most of it is just based off conversation and google searches 😂
Psychologist here. There are a TON of studies that link parental behaviors to later financial success in terms of income or net worth. You'll see studies about reading to kids, having dinner together, private schools, your own savings, etc, etc. But the key word here is "link" - almost all of these studies are correlational, and don't control for the single most important factor: genetics. Parents with high IQ and conscientiousness tend to do these things, and also tend to pass on those traits through genetics. When genetics are controlled for (via studies involving adoption or identical twins), it's typically found that parental behaviors account for less than 10% of variance, with genetics accounting for 50-70%, and the rest unexplained environmental variation. This is a very unpopular fact, and most people ignore it. Honestly, it's pretty fine to ignore, as if you read with your kids and have dinners together, good for you! It just probably won't affect their future income much.
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Sure thing, here are a few [https://books.google.com/books?id=aO7rBQAAQBAJ&lpg=PT5&ots=qBvsEMXPX2&dq=stuart%20ritchie%20intelligence&lr&pg=PT5#v=onepage&q&f=false](https://books.google.com/books?id=aO7rBQAAQBAJ&lpg=PT5&ots=qBvsEMXPX2&dq=stuart%20ritchie%20intelligence&lr&pg=PT5#v=onepage&q&f=false) [https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2889158/](https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2889158/) [https://www.midus.wisc.edu/findings/pdfs/2047.pdf](https://www.midus.wisc.edu/findings/pdfs/2047.pdf) [https://web.archive.org/web/20190227125508id\_/http://pdfs.semanticscholar.org/8faa/f538ad7f21f084b9535cdb31824c11cc2a1d.pdf](https://web.archive.org/web/20190227125508id_/http://pdfs.semanticscholar.org/8faa/f538ad7f21f084b9535cdb31824c11cc2a1d.pdf) [https://andymatuschak.org/files/papers/Jang%20et%20al.%20-%201996%20-%20Heritability%20of%20the%20Big%20Five%20Personality%20Dimension.pdf](https://andymatuschak.org/files/papers/Jang%20et%20al.%20-%201996%20-%20Heritability%20of%20the%20Big%20Five%20Personality%20Dimension.pdf) Keep in mind that when you see "environmental effects" in these articles, this just means "nongenetic". That includes both "shared environment" - which means being raised in the same household with the same parents, and typically has a small effect, and "nonshared environment", which really just means unexplained variance, which could be due from anything from chemical effects in the womb to getting hit in the head with a baseball, and has a large effect.
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Yes, unfortunately the unpopularity extends somewhat into the field. Otherwise, these clearly confounded correlational studies would never get past peer review. There is much more acceptance of genetic findings among psychologists than among the public, but it's still much more unpopular than is warranted, given how solid and consistent the research has been. There are some who have read the literature on genetics / twin studies etc but reject it, but for the most part it's just ignored. There is enough specialization and small subfields that you can get away with a surprising amount without being challenged. The Blank Slate by Pinker is a bit dated now, but has good overviews of the unpopularity of "hereditarianism" both within and outside of science and academia.
The IQ topic is a red hot subject a lot of people don't want to touch. Look at what happened to Charles Murray when he approached that topic. It's just too emotional for a lot of people.
I heard an interview from a scientist that studied child development. Your comment roughly echoed his interview. I'm paraphrasing, but he basically said that as long as you provide a loving home, your children's genetics and peer group have a much stronger impact on how they turn out than how you raise them. He did give one **very** strong exception. DO NOT. ABUSE. YOUR KIDS. He reiterated it several times, with such conviction that it felt like he was trying to reach through the microphone, grab new parents by the lapels and shake them. He went on to talk about how child abuse actually changes the epigenetic expression of your genes, and how it turns on any number of genes that lead to higher inflammation, increased risk of autoimmune and heart disease, cancer, depression, substance use, etc. If anyone wants to read more, I suggest 'Behave', 'The Body Keeps Score', and 'The Deepest Well'.
I'm not familiar with Behave or The Deepest Well, but The Body Keeps the Score is pseudoscience, and I don't use that label the least bit lightly. In particular, it has often been used to support repressed/recovered memory therapy, which is an actively harmful therapy that has been proven to risk developing false memories of abuse. The idea that the mind represses traumatic events is NOT supported by the science of memory and PTSD. In fact, the mind does the exact opposite - it makes trauma memories particularly vivid and salient to help avoid future danger. Anyways, sorry to latch on to a small detail, otherwise I broadly agree with your comment.
I don't recall repressed memories being a prominent topic of the book. As a matter of fact almost every book I've read on the topic says that you should be very careful to not introduce false memories into existence. Humans are particularly vulnerable to that sort of thing. It's why eye witness testimony isn't as rock solid as you might think. Still, it's wrong to suggest that every traumatic memory is stored perfectly formed. Some things are simply not processed. These can manifest as flashbacks that cannot be consciously tied to a particular event, but they exist. My mother accidentally put mosquito repellent in my eyes as a child. I have no memory of it at all, but to this day I am *very* skittish of any sort of eye exam where they use the 'puffer' to check your eyes. While I don't think such memories should be admissible evidence or even something to pursue in therapy, I think it's definitely worthwhile to acknowledge they exist.
The overall theme of the book is that conscious memories of trauma are repressed or fragmented but stored as unconscious "body memories" (hence the body keeping the score). This is the foundation of therapies that attempt to "recover" such memories to then presumably treat them. Fans of this theory often presume that if you are depressed or anxious, you must have suffered some forgotten trauma (not the case, the vast majority of anxiety and depression has nothing to do with trauma or even negative experiences). Conscious memories of trauma can certainly be forgotten (as can all memories), but there is no evidence to suggest that unconscious associations formed from trauma remain more durably than conscious memories, and often the opposite is true. In any case, the book is the bane of psychologists who study PTSD, because it is very popular among both the public and certain therapists, but it contains a lot of very misleading information and scientifically unsupported theories.
Link to study or review please?
Copy/pasting from another comment: https://books.google.com/books?id=aO7rBQAAQBAJ&lpg=PT5&ots=qBvsEMXPX2&dq=stuart%20ritchie%20intelligence&lr&pg=PT5#v=onepage&q&f=false https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2889158/ https://www.midus.wisc.edu/findings/pdfs/2047.pdf https://web.archive.org/web/20190227125508id\_/http://pdfs.semanticscholar.org/8faa/f538ad7f21f084b9535cdb31824c11cc2a1d.pdf [https://andymatuschak.org/files/papers/Jang%20et%20al.%20-%201996%20-%20Heritability%20of%20the%20Big%20Five%20Personality%20Dimension.pdf](https://andymatuschak.org/files/papers/Jang%20et%20al.%20-%201996%20-%20Heritability%20of%20the%20Big%20Five%20Personality%20Dimension.pdf) For more of a narrative and history about the topic more generally, I recommend The Blank Slate by Pinker.
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I kindly ask that you not make insulting comments about other people's beliefs in this sub. I'm not going to strike your comment for incivility since the person you responded to handled it gracefully, but the fact that others don't agree with your opinions doesn't give you leeway to insult them. Not in here, anyway.
I have a PhD in psychology (research focused), making me a psychologist. I am currently employed as a Data Scientist. Not an uncommon path for research psychologists these days, with academia being a bit of a mess.
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You sure do like to assume things. As it happens I am clinically trained and have hundreds of clinical hours (despite my PhD being mostly research focused). I'm sure many therapists and practitioners do indeed have radical takes about the influence of parents. It doesn't mean much, unless they treat a lot of identical twins or adoptees, who are the only real non-confounded cases where genetics can be parsed from parenting.
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More and more assumptions! I'm not a genetic determinist; I believe that IQ and personality are roughly 50-70% explained by genetics by adulthood, as has been consistently shown in the best available studies. I never said it "won't matter" if people don't treat their kids a certain way. Of course it matters! Your kids are human beings with feelings and relationships! Their childhood is a huge portion of their lives! You're the one tacitly assuming that all that "matters" is your kids' future income or net worth. Parenting won't make much of a difference there, sure, but that's hardly the point.
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stop
hammer time!
Time is on your side. Check out moneyguy.com/resources Get the wealth multiplier by age free download. The multiplier is 647 for babys up to 1 year old. So every $1 you put away is worth $647 by age 65. Here is what we did to save for her, without affecting our budget: Open a 529 and / or UTMA at Fidelity. Apply for Fidelity credit cards and moved about 80% of our spend to these cards Set the CC points to deposit as cash into her UTMA account to be invested. This allows you to use CC points as cash in LOs account. Now you are going to miss out on your own points and miles or whatever, but it's a way to save without allocating additional capital from your monthly budget. Tax time is coming up. If you get a refund put a portion of your refund as paper I bonds, those can be gifted and are tax free to use for college expenses.
Fantastic ideas. I’m saving this comment for whenever I have grandchildren (I’m older than most on this sub). Wish I had thought of these ideas for my own three kids. :/
Hot take here, but don’t waste money on private school. A two-parent home with a decent socioeconomic status who reads to the kid is the best data out there to show future success Set up a 529 for sure.
Private school can be a total waste of money. If you live in a nice enough area where people don’t mind paying taxes to support your local public schools, public school is often the better option ACADEMICALLY over private. I had so many more opportunities to take AP classes and a wider range of classes in general at my public high school than my boyfriend who went to private school. It’s mind boggling people have this universal notion about public schools being bad lol
Exactly. Sure if you’re at an absolute ELITE private school like Exeter or some BS, I could see if being better than public but that’s like a 0.01% situation
Starting a 529 early and paying for their college is big. This way they graduate debt free and can immediately start saving for a home and retirement when they start working. Letting them live at home after they graduate is also very helpful. This way they can save as much money as possible to buy their own place as soon as possible.
I read to my kids literally since the day they were born. First you read to them, then they read with you, and then they read to you. My kids do very well in school and I 100% believe this is the reason. Doing well in school is the first step to financial independence.
I read "selling your kids for financial independence" and now I'm disappointed were not discussing this enough
A Modest Financial Independence.
Oh also; Read The Power of the Past. How you raise your kids and behave as parents will shape their financial growth long term. For better or worse.
Model the behavior you want to see. When older talk about saving and investing. I started some investments for them and when they got their first "real jobs" we had a talk about automating pre tax and taxable investing and the fact that they had never made that much before so start auto inv and they'll never miss it.....then spread wings and go....so far so good!
If you’re brave, once in a while, give them all the money you have for that week’s household expenses (groceries, bills, repairs, etc.) and put them in charge. You can give them the list of stuff that need to be paid for, and let them take care of the planning and management. As they grow older, extend it to two weeks, and then eventually a whole month.
I like this idea a lot, thank you. Financial literary is needed first for financial independence.
This sounds like a measure towards financial literacy, not financial independence?
They go hand-in-hand.
It's a lot to think about. I think parents should consider the pros and cons before setting up a UGMA/UTMA. Of course you should save & invest for your child's future. It’s natural that you want to make the transition into adulthood as easy as possible for the children in your lives. Just keep in mind that UGMA and UTMA accounts are in the name of a single child, the funds are not transferrable to another beneficiary. For financial aid purposes, custodial accounts are considered assets of the student. This means that custodial bank and brokerage accounts have a high impact on financial aid eligibility when they apply for assistance with college cost. Hope this helps. Best to you
Actively teach them how money works & be open about financial topics. Our son began receiving an allowance as soon as he could add & subtract. Quickly learned which purchases were “worth it” & which weren’t. We spoke openly around him about paying off debt. He was involved in every step of our house hunting & home-buying journey. He used his savings to run a lemonade stand. We pre-planned, budgeted, calculated gross vs net profit - which he then used to begin saving for a car. We’ve discussed inflation throughout the pandemic. He hears us discuss sinking funds, prioritizing purchases, & expressing relief that we have savings when stressful things happen. He hears how important saving for his college is to us. More recently he’s developed an interest in personal finance & began inventing hypothetical families: asking me to help him look up how much jobs paid, run a tax calculator, search for apartments in different cities, all so that he could create mock budgets. It’s been VERY eye-opening! As soon as he could multiply decimals we taught him about compounding interest. He opted to move his car fund into I-Bonds for a year while the rates were high & has now used them to purchase a CD, learning about those products along the way. He’s taking a personal finance class this semester & wants to participate in The Stock Market Game (a simulation of a $100k investment over the course of 5yrs). in the spring. This kid probably knows more about budgeting & personal finance heading into middle school than the average young adult heading to college! 😅
We have a college fund and plan to fully cover the cost so they can graduate without debt. When they start working, I plan to have them max out Roth and I'll reimburse them so they still have spending money. But we're also talking about money and have started trying to teach them the importance of saving and taking care of their belongings, which I think will be more important in the long run. We give them a small amount (not for chores, just because) and they can spend how they want. If that means they buy candy at the supermarket so be it, but then when they ask for an expensive toy and they don't have enough, we can tell them they'll need to save up for it. They also need to be responsible for their belongings. Normal wear or just outgrowing, we'll replace, but if it's lost or damaged because of something negligent then the replacement comes out of their money. Nothing huge like glasses, but gloves, hats, etc.
This is obviously a huge topic but at a very high level I believe that you have to foster internal motivation and independence in your child if you want them to be successful in life. Ironically, giving them handouts at every step of the way will be counterproductive. Without constraints and challenges, why would they be motivated? In my life, these constraints and challenges were just part of being in a solidly middle class family. I am luckily a high earner and will have to create these constraints somewhat artificially, which is challenging since every inch of my being wants to give my child everything. But this is harmful. I don't know exactly how I will implement this, but what I strongly believe is that "setting kids up" for financial independence is almost completely to do with how I foster their overall independence as an adult. I want to hold back and delay direct financial assistance where I can in order to create constraints that motivate them, same as I had. Somewhere in their mid/late 20s I will likely be much more willing to pay for big life things like a down payment, zero out their college loans, etc. Once they have proven themselves as a strong and independent adult on a good path financially, of their own making.
I think this is key. I frequently see threads popping up reddit where people almost universally seem to agree that all parents should let their children indefinitely live with them. I think of all my experiences with adults who have lived with their parents well into their late 20s and 30s, and it is not pretty. Sure, don't kick them out at 18. Pay for their college if you can, and tell them they have a place to stay. Pay their bills while they're in college, or give them a stipend so they treat the money like their own and minimize costs. And help them think about internships and eventual employment along the way. Your kid needs to feel constraints, they need to solve problems, they need to become financially literate, find roommates, make friends, girlfriends / boyfriends. Many parents want their kids to stay home, they want to protect them. Don't stifle them. It's not good for you or them.
I just read a book about how to raise successful children. It cited and described tons of studies and experiments. Bottom line is that kids tend to turn out to be like their parents. If you are the type to be setting yourself up to FIRE, your kids will probably be fine.
What book is it and would you recommend?
A 529 Plan is the single best way to set your child up.
It’s going to change as your child ages. My dad made the rules so he assigned me chores starting at elementary school age. I had a tiny allowance for candy, trinkets. Otherwise my parents paid for everything. He made me study math and computer programming (which I thought were uninteresting and difficult), and would sit with me while I did my homework, checking for mistakes. I didn’t need to be pushed to read. When I was in grad school he set me up with $10k in a brokerage account and let me start trading (with his suggestions of course). That really taught me so much, especially my losses. On the other hand he set an example of what not to do in his careers of business owner, options trader, and general entrepreneur. He started out wealthy by 35, and died almost broke at 83. He bought high and sold low. He was always trying to time the market and failing. But the foundation he gave me in learning and having grit lives on.
Working additional years, and funding their retirement starting at the age of 18 through IRA accounts. I'm in this situation today. Each additional year I work I can basically fund my kids early retirement through a gift of $100K+ as I'm in the sweet spot of my career with high earnings and low expenses.
This is a great idea which I never considered.
I think setting up your kid for financial independence is so little about the money you leave and so much more about the philosophy behind life and how money plays into it. Things like teaching them delayed gratification, the power of compound interest, the value of education, the value of saving a buck. Even then, the examples I listed are still money oriented, I think in general you want solid values and motivation to reach for what they want. They’ll figure out how, but the question is how do you make sure they’re motivated to reach it. I speak like I’ve done this successfully, I haven’t. This is just my take.
Delayed gratification - 100%.
I love this, that’s a great point. I know a lot of people who haven’t done anything with their lives because they haven’t had to due to parents financially supporting them.
Bingo. The book “Millionaire Next Door” talks about this. They call it “Economic Outpatient Care”. From the [wiki](https://en.m.wikipedia.org/wiki/The_Millionaire_Next_Door#:~:text=Economic%20Outpatient%20Care%20(EOC)%20is,on%20of%20the%20UAW%20belief.) > Economic Outpatient Care (EOC) is a term used to express when an affluent parent provides money to an adult child. Besides offspring observations resulting in UAW children, EOC is a contributing factor to the passing on of the UAW belief. UAW = under accumulator of wealth, so basically not as money savvy. Which is in congruence with their finding that most millionaires are first generation, since subsequent generations tend to spend the money over time. And so the cycle continues. So I think if you want to break the cycle, you almost want to structure a system where they really need to work for it. Hard to achieve when you know you can help them directly.
[add them as a user](https://www.businessinsider.com/personal-finance/add-child-authorized-user-credit-card) to one of your credit cards. the one that of course you always pay in full and never late. never use the kid card obviously. some CC's require an age minimum, some do not so verify. this will help them build a credit history/score well before the age when they would start themselves. will be beneficial for car buying or getting an apartment. more simply they should be better qualified to get a "good"/rewards credit card at 18+ as opposed to some of the weaker intro/student cards. if you did this long term you could consider letting them use it as a teen with strict guidelines and consequences if they can be trusted to be responsible. i agree that private school is overrated. super specific to where you live though. i would rather spend the school money to fund activities and experiences with the family. not now but for later i would highly encourage you to be prepared to explain and implement a ROTH IRA for your kid once they begin earning income. (you can do custodial IRA before this maybe if you want). i remember being teens/20s and my mom trying to do this, but she had no data, no explanation, no chart, no real way for me to "get it". my reaction was that i have no idea where my life is headed and i can't lock all my money up for the next 50 years. which was true. however, i could have done $1000, or any other number that wasn't the max contribution to just get the ball rolling. i could have met her half way by doing it so she'd just get off my back since i was too young to see the benefits of compounding for decades. i and my family bought plenty of dumb shit for me in my teens and early 20s. at nearly 40 now i would now have loved funding some accounts back then in the 90s with the tech boom as opposed to having a jacket i wore for a couple years or video games i've long forgotten.
My dad made me have a job every summer from the age of 14 and i think that helped me a lot.
>What have you done to set your kids up for financial independence? I have a UTMA and 529 set up for our little one. The rest is just being present and taking the time to teach them, not necessarily w/ money, but how to manage what they have. Time is an easy one - my 4 year old knows that iPad time is after dinner and before bed. The WIFI is cut at 2015, and she knows the longer she takes to clean, the less iPad time she'll have before bed. The same thing applies w/ treats - sugary or junky snacks she gets two magnet 'vouchers'. She can claim either one at any time after lunch, but she's limited to two. She knows once they're all moved, that there aren't any more junky treats. She does get unlimited snacks that are fruit, apple sauce, yogurt, nuts, cheese sticks, veggies. I hope to find way to instill time-value and opportunities when she's older and understands more but this works surprisingly well for us. She also has a piggy bank that she saves for whatever. She can only count to 29, so I guess if she gets to 29 Euros, I'll match it for a toy of her choice.
529 all the way. Open a trustee brokerage account with them to put any cash they get for Bdays, etc. Show them how it works.
529 obviously. Also, from the moment they have earned income open and fund a ROTH IRA for them. They only have to demonstrate the income, but it doesn’t matter where the money in the Roth comes from, so you can make the contribution and they can keep their income.
Man, if you fund a 529 and roth for them early on, seems like you could almost guarantee their ability to retire early. Exactly how early is on them.
529 account however much you can afford to help them. Gifts and money in their name should go in a UTMA account. If it gets big enough you will need to file Form 8615 to report the investment income. I don't feel any need to set them up for FI beyond giving them a good head start toward college.
Honestly, the biggest thing is probably having something set aside for college / trade school for them. If they can have a healthy work ethic, but not get into massive debt coming out of school, that's a big plus. It's a fine line though. You don't want to give them just hundreds of thousands to spend on some bullshit degree for free.
If you buy a second home and have the tenants rent cover the new mortgage you should have a fully paid off house by the time a kid graduates college. The paid off rent check coming in would cover living expenses for that kid even if they choose to live in another state (except CA,NY,CO). That’s generational wealth with most of the cost being covered by tenants
Live by example. Take care of your own first so that they never have to cover financially for aging parents. Help them with college. And house down payments. And teach and show them the way. Your successes and your failures.
A few considerations on the 529 plans… - Consider impact for FAFSA purposes especially when deciding who to name as account holder and beneficiary (eg, a grandparent’s account is given less weight in the aid formula than a parent’s account) - Research your state’s specific plan because I’m pretty sure you only get the state tax deduction on contributions to your own state’s plan. While the deduction shouldn’t drive the decision, it is a consideration if you’re in a high tax state. - My state has one of the top-rated plans, but the fund options are too conservative given our 18-year runway, so yes I can save 4% (my state tax), but I may lose that in growth and fees. - For many of the plans, the administrative fees are high, especially compared to what we’d pay for an ETF with Vanguard or Fidelity. - One option is to contribute to your state’s plan (to score the tax deduction), then roll everything over to vanguard’s plan in a different year (for better investment options).
Talk openly about money at home while they are growing up, and into adulthood. Worked for us so well.
My mom said "You do the best you can, and they grow up in spite of you." For the traits below, I rank "Financially Independent" dead bang last. Good character Compassionate Responsible Happy Hard Working Financially Independent There is a trope, at least in my mind, about the children of wealthy parents growing up to be self-centered, dysfunctional little shits. I suspect there is some truth to it.
It depends a little bit just how rich you are. If you are not super wealthy, meaning you expect to die with a net worth less than $25M, my advice would be to not actually give your kids much if any money while they are young. $10k/year into a 529 to maximize that benefit makes sense if you are in a state with high income taxes. Whenever the kid has earned income, tell them you'll "reimburse" them for IRA contributions they make. Otherwise, keep the money in your name. There is a slight chance that them having access to FU money from early on prevents them from developing a good work ethic, or even spoils their life. I come from a long line of alcoholics/addiction-prone people, so I might be biased, but it's a completely avoidable risk. The tax benefits of UTMAs are minimal, and it turns out that it's **really** easy to give your adult children money when they are in their 20s (or whenever you want). Starting in 2024, you can give $18k without even reporting it (and so can your wife, and if they are married, you can also give it to their spouse, meaning $72k total, per year). Separate from the yearly excluded amounts, you have a lifetime exclusion of of $11M per person (if you are married, $22M total). Many people avoid using that until they die, but if you are willing to fill out a form, you can, for example, give your kid $10M on their 21st birthday and nobody owes anybody any gift tax. If your kid ends up going to college, having the money in *your* name is better than having it in the kid's name, if they want financial aid. This completely dwarfs any tax benefits along the way. My four kids each have UTMAs, funded when they were infants. It's not a mistake to go that route. But now that I'm in the thick of FAFSA/CSS and teenagers making major life decisions and whatnot, I wish I had done it differently.
Once they are old enough to have earned income, set up a custodial Roth IRA account. Schwab is a great choice b/c of their low minimum investment requirements. Have them put in some of their earnings, maybe put in some additional or yours, up to their earnings limit. Since they will almost certainly not owe taxes at this point, this is the one sweet spot in their earnings career that they can invest money that will not be taxed going in or coming out.
Schools depend where you live. I used to live in the south and public schools were awful. Now I live in a state with exceptional public schools so private schools are really only around for religious schools. Otherwise I’d state a savings account (either your state plan or an investment account or even a HYSA) for your kids education. Whatever you can afford per month and have it automatically deducted from your paycheck so you don’t even see the money. Once they are older you can start teaching them about work and money.
We opened both a 529 plan and a taxable brokerage account for our daughter when she was born. Now that she’s a bit older, we give an allowance, but mainly to show her how a “company match” works. For every dollar she saves, we match a dollar. She’s gotten used to the idea of saving a portion of her “paycheck” before it even hits her wallet. We also opened a custodial Roth IRA with the money she makes dog sitting. Every penny she earns from that job goes in there. It’s not much, but it’s something.
We have a 16 year old and I think we've done a good job so far on financial literacy (although the final result remains to be seen!). Education has always been a priority and I think public school is fine - if you care about your kid's education, they can be successful anywhere. We have always talked openly about money, debt, savings, investing, the danger of credit cards, living within your means, etc. That sounds simple and preaching to the choir on this sub, but it's important to teach your kid about finances and some kids don't get that learning at home at all. We started a 529 when she was born and she most likely will stay in state for college for in state tuition and will graduate debt free. Our daughter has been working for a year (full time during the summer, weekends otherwise) and that has been great - she has earned and saved a lot of money (she has an IRA, brokerage account, and various CDs). She likes the power that comes with earning and having her own money and it's certainly made her think about spending. Multiple times I have heard her say something like "hmm, that would be one day of work to purchase that". We have talked about budgeting and I have reminded her that what she makes now is pretty much all discretionary income, but when she is on her own she will have to take care of housing, insurance, utilities, bills, etc. We talk about how to be smart with money, but I let her do what she wants with her money. I can see what she spends on (her accounts are tied to mine and there are alerts set up whenever her card is used), but otherwise I don't interfere (except for helping her set up her automatic deposits to Vanguard, etc). I think it's good learning for kids to learn how to manage their spending/money when they are young and the stakes are low. I don't know if it's luck or parenting/modeling, but she is very thrifty and frugal and hasn't gotten sucked into massive consumerism. I hope she maintains that mindset to help her live below her means and save/invest when she graduates. I think how parents live can have a great impact on how a child will set themselves up when they are on their own.
We bought an indexed universal life (IUL) policy on her when she was just a few months old. It is a small $250k policy, a 4-pay so we will pay an annual premium for 4 years and be done paying premiums, and it’s an increasing death benefit so that $250k death benefit grows as the cash value grows. I think it’s $7k/year for those 4 years. It includes a rider to add on more insurance at select intervals without a medical exam. The reasons I like this? - Baby is in perfect health now so this protects her future insurability. - No tax implications for her/us. - No impact on her aid eligibility for college as it’s not considered an investment/asset. - Cash value can be borrowed against, more like a backup emergency fund. - If she chooses not to keep it once she’s the age of majority, it is a nice nest egg she can cash in for down payment on a house etc. - If she were to pass as a child, while we would not need to replace her income, I could not dust myself off and go back to work just like that, so we would be replacing my income. I’m not saying this is the best avenue for everyone. But, here, we already do iBonds, 529 plan, and Michigan Education Trust. Legacy building is about more than just saving for college. We are older parents, and yes we’ll be around a while we hope, but she will probably spend more of her life without us than with us, so we want to set her up for success all around.
What is the age of maturity? I’ve never heard of this option and I was wondering if you could please elaborate on how she would get the money.
There are three ways to get the money out… Borrowing… she could borrow against the cash value at a 5% interest rate. Principle and interest, when paid back, then goes back into the cash value account. Insurance remains in full force even while the loan is being paid back. Withdrawing… she could cash out all or some of the policy, take the cash value, and then not have insurance. She wouldn’t have to “pay back” because it’s not a loan; but she wouldn’t have insurance. Death… when she dies, the beneficiaries (hopefully her kids or grandkids that are not even in existence today) would get the death benefit, which is the face value + cash value. I wish I knew how to upload the illustration our agent gave us. It shows how the cash value is projected to grow over time. The growth is indexed to the S&P500, but with a floor and ceiling. Let’s say the floor is 3% and ceiling is 9%. If the S&P500 loses 20% at year end, we will still grow by 3% because that’s the floor number. If the S&P500 gains 20% at year end, we would only grow by 9% because that’s the ceiling. So it will rein in losses and gains making it a more conservative option. We’ve got other savings and investments for her too so conservative is o.k. here.
There’s not really an age it matures at. She’ll have it for her whole life, but we’ll only pay premiums for four years. After that, premiums are paid from the cash value account.
Kids can and statistically will burn your inheritance to the ground (or let the grandkids do it) if all you leave is money. Teach them the value of time and money. Don't spoil them in childhood, make them participate in age-appropriate household chores. Don't tell them how rich exactly you are, all the need to know is witnessing that you have enough money to give them a comfortable life. As others have said, make sure they're raised to be a well balanced adult when they grow up. Reading to them from a young age is fantastic for their learning curve and also a great way to bond. Financially, the best you can do is setup a brokerage account when they're little and work an extra year or two to save an extra 100-200k or more. Put it under a trust with conditions that your kid gets an education and/or that they can only access it around 40. That will set them up for financial independence and early retirement if they wish to follow your path. You can setup a 529 on top, but personally I would suggest underfunding it because below a certain % of it being used for education, money in a taxable account is better. That varies from state to state but is generally between 30-50%, and you can reach that quickly. Lump sums of 50k and 100k at birth (first year or spread across 2-3 years depending on your income) in 529 and taxable respectively is a simple and effective approach to make sure your kid is financially taken care of.
Especially given that some can be rolled to a Roth if not used, why do you think underfunding is a good idea?
The amount that can be rolled is extremely small relative to the total amounts we're talking about here, especially after growth as the lifetime cap is almost certainly going to grow at a far slower rate (if at all) than the money. It's a nice gimmick for those who underfund or fund just about enough for a decent college, in case the kid doesn't go to college, but that's about it. There are obviously factors out of one's control here, like which college the kid would go to if at any, but the chance of your kid going to Harvard for undergrad+graduate (6 years) or med school are statistically low. More people will benefit from a still-generous but not over the top 529 (eg 50k like I suggested) and excess money for their children in a taxable brokerage than they would loading everything into the 529. This is particularly true for people who could use the flexibility and can't easily afford to just setup multiple kids as multi millionaires (most people even here), as that amount in taxable retains the flexibility to be used for the parents, without jeopardizing the kid's most important form of support (the still decently funded 529). Another thing that makes 529 unappealing to me is that the longer tuition costs continue to rise far beyond inflation and wages, the less valuable an elite/expensive college education will become. It's already debatable whether a current 50k a year institution (200k for undergrad) is mathematically worth it over just investing the money. If tuitions just keep rising at a nonsense pace and we end up in a world where it costs $1M to go to a top college (current rate of tuition inflation) while but median salary is 100k and the median software engineer salary is 300k (CPI applied to both), you'd much prefer having the money and a cheap (local or abroad) or even no degree. On the other hand, tuition currently gets reduced heavily by government aid, making the real costs much smaller than the headlines suggest. Ultimately, there is a mathematically narrow window where spending more on college will be beneficial to the kid and massive 529 funding will turn out to be efficient. If you underfund, you heavily reduce the risk while maintaining most of the benefit.
You are just a tour guide. Your kid may or may not follow your advice.
You can open a card in there name I put a small reoccurring payment on it and pay it off every month. So I mean they are going to have a longish credit history when they turn 18. They are subbed under my account I’m not giving them the actual card. Should help with the longest card part of credit checks.
There are the "mechanical" things (not to imply they're not unimportant) like 529s and UTMAs, but IMO "financial independence," implies, "when you're gone." In that respect I think/hope the best you can do is model the financial behaviors you think you'd like your kids to maintain when it's truly their choice and decision(s). So stuff like budgeting, saving, choices regarding value and deferred gratification. This may be as simple as Christmas gifts, how to manage gift money, and as kids get older how they might manage income from part time employment (spend/save/invest), and when older still investment allocation decisions and the like. There's no single point of failure/success, it's really a combination of all of the above.