Your teens summer earnings can’t buy love, but they can buy a bit of retirement security. In my last column, I extolled the virtues of opening—and perhaps even contributing to—a Roth IRA for a working teenager. Your child needs to earn money if he or you are going to contribute to an IRA on his behalf. The how To Make Money As A Teenager for making the contribution is April 15, 2015. But you can start sooner, even if your teen hasn’t yet earned the money on which you will be basing the IRA contribution.
If the kid doesn’t earn enough to justify your contributions, you can withdraw the excess with relatively little in the way of paperwork or penalties. Roth IRA on her behalf, using her Social Security number. Not every brokerage or mutual fund company that will open a Roth IRA for an adult will do so for a minor, but many of the larger ones will, including Vanguard, Schwab, and TD Ameritrade. Once she ages out, the account will then need to be re-registered in her name. To encourage your teen to participate, you might offer to match every dollar he puts in. How an adult should invest an IRA depends upon the person’s goals and risk tolerance—the same is true for a teen. You can help set those parameters by pointing out to your child that, since he’s unlikely to retire until his 60s this is likely to be a decades-long investment, and enduring short-term downturns is the price for enjoying higher potential long-term gains. Ask your child: Which would you rather? No doubt, your kid will choose the bigger number.
But you also want this to be a lesson in the risks involved in investing. Some teenagers will be perfectly fine accepting the risk. You also might explain that there are options that will not decline in value at all—such as CDs and money market accounts. But should he choose those safer options, he’ll be trading off high reward for that benefit of low risk. So his money will actually be worth less by the time he’s ready to retire. Some risk, therefore, will likely be necessary in order to grow his money in a meaningful way. Assuming he can tolerate some fluctuation, a stock-based mutual fund is probably the most appropriate and profitable strategy—especially since a fund can theoretically offer him a ownership in hundreds of different securities even though he may only be investing a few thousand dollars.
These offerings are geared toward a specific year in the future—for instance, one near the time at which your child might retire. Target date funds are usually a portfolio comprised of several different funds. The portfolio allocation starts out fairly aggressive, with a majority of the money invested in stock-based funds, and much smaller portion in bond funds or money market accounts. As time goes by—and your child’s prospective retirement draws nearer—the allocation of the overall fund gradually becomes more conservative. The value of the account can still rise and fall in the years nearing retirement, but with likely less volatility than what could be experienced in the early years.
Of course, if you choose a brokerage account for your child’s Roth IRA, you have the option of purchasing shares in a company that might be of particular interest to your kid. He’s also the author of Make Your Kid a Millionaire. Money may receive compensation for some links to products and services on this website. Offers may be subject to change without notice. Quotes delayed at least 15 minutes. Market data provided by Interactive Data. ETF and Mutual Fund data provided by Morningstar, Inc. P Index data is the property of Chicago Mercantile Exchange Inc. Powered and implemented by Interactive Data Managed Solutions.
Enter to Win Cash for Christmas! Okay, so that’s not really a shock to any parent. From the day you brought your kids home, they wanted to be the center of your universe—partly because they depended on you and partly because they wanted their needs met as quickly as possible. Even if patience is a virtue, it’s still a challenge to make it a part of our normal lives—and the lives of our kids.
How To Make Money As A Teenager Expert Advice
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But one great way to nurture patience is by saving money, which is where you can connect with your kids in a meaningful way. So, challenging them to save up for those things actually teaches them some incredible life lessons, like goal-setting, delayed gratification, sacrifice, self-discipline and, yes, patience. With that in mind, here are five things your teen may be thinking about—and could be saving for—right now. Emergencies Teen emergencies probably look different than adult emergencies. They may be dealing with a phone that fell in the toilet rather than a major medical event.