Mary and her husband set out to build a stock portfolio worth $25,000 as a college graduation present for each of their children. That’s a lofty goal. How did they do it? In her entry to the GRS video contest, Mary explained:
Here’s how Mary describes her method in a post at her site, Frugal to Rich:
When our children were born and people wanted to get a gift for the baby, we asked family and friends to give us the gift of money that we would invest for them. We felt this was a much wiser choice than some new toy that would soon be worn out or in which they would lose interest.
We set up a very low cost stock index mutual fund (such as VFINX), along with a general stock mutual fund for each child and started investing.
When the children were old enough to start working, we wanted to really encourage their frugal living and investing, so we made them an offer they could not refuse: For every dollar they contributed to their savings, we would match it — so they would double the amount of money they had to invest!
When Mary’s kids graduated from college (debt-free!), she and her husband transferred portfolio ownership.
I think this is a fantastic idea. It’s a great way to teach children about frugality, investing, priorities, and more. Do you know anyone who’s done this with their children? What other effective ways have you seen to teach kids about saving and investing?
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My parents did this for all three kids, with the intent that the money would be for a down payment, to start a business or if we wanted to attend an extremely expensive private school. Seeing the power of compounding, how a little from each paycheck can add up to a serious sum of money after 20 years, and how investment returns change over long periods of time, has been one of the most important lessons of my life thus far. For those that were asking about gift taxes, I’m guessing that the parents did something similar to a uniform gift trust to a minor account structure (I was the account holder with my parents as the trustees until they signed over the accounts to my control, which means the annual contribution over the years was always under the gift tax limit). My brothers received their money later than I did — I think they were in their late 20s, and I was 19 when my account was signed over, and once signed over, the money was ours to spend frivolously or to continue to invest. My account remains largely intact today (I’m 30), although in my late 20s I withdrew some of the money. I also have a nice house that I was able to put 20% down on. My husband and I budget based on our salaries, I consider this to be my “Oh crap” account — only to be seriously tapped in the event of major life problems, such as a serious medical condition. A little bit of financial security in the past decade has been wonderful. Most importantly, even at our lowest levels of income and unemployment, my husband and I have made saving and investing for retirement (out of our salary) a priority. I’ve seen first hand what a difference time can make.
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There are a variety of ways to help your children understand and value the meaning of a dollar. i like the idea of matching (similar to a 401K) the money they save and really help setup the proper mind set it takes to get and stay ahead in their financial planning.
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As far as gift taxes are concerned, an individual can give a gift and a couple can give a separate gift. Therefore, mom gives $13k, dad gives $13k, and mom and dad together give yet another $13k. And, that is per recipient per tax year.
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No problem Skeptical Housewife. I was just stressing that even though you didn’t want to go through an investment adviser that you could (and in my opinion should) speak with someone in your area on a fee-only basis.
Anyhow, Meghan (27) I was not advising her to open up an American discount brokerage account at all. (I actually wasn’t advising anything other than it’s probably a good idea to speak with someone in your area). I was just saying that she could open a discount brokerage account (anywhere – didn’t say in America).
The TD Ameritrade talk was just explaining what I did, that I’m happy and noted that TD Ameritrade a process for nonresidents and a ton of great educational resources. Great to hear about the internet banking in Canada though
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@SAFTM: Yes, actually I also meant to say, to you, that I think I will take that advice about a fee-only financial advisor, at least to get an idea of what I should be doing. I remember that I tried to do that before and it didn’t pan out, but I can’t remember why. Do you think just Googling it would work? I’m not sure how to find one. I now have a financial planner that I don’t think is going to disappear into the night with my investments (unlike this guy, who I did think might do just that: http://theskepticalhousewife.blogspot.com/2010/07/well-well-well.html), but neither do I think they’re doing me any favours. It’s not fee-only.
Now I’m gonna get back to my igloo and figure this out!
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No problem. If I were in your shoes I would look here first (http://www.fpsc.ca/directory-cfp-professionals-good-standing).
I did not explore the website in a bunch of detail, but know a bit about the CFP certification and it requires a bit of work (and a test) including an ethics component. You could also call FPSC directly and talk with them about your needs. There is also some great information on their “Financial Planning” page. I would then call a few CFPs in my area and let them know you are looking to start investing and ask whether they are fee only. Set up interviews with more than one planner and pick who you’re most comfortable with.
The financial planning page also has some good guides to help. Good luck. And great blog. I was clicking around a bit. I’ll keep checking it out.
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In reference to asking for cash from relatives for your child’s celebrations, each family is different and asking for cash works in some families and not in others. It’s not wrong, just different.
You can start a savings account, mutual fund, 529 plan, pre-paid college tuition plan, etc; whatever you want. Then simply let all members of the family know the account exists and they can contribute if they want, or they can buy presents if they want, or do both!
IMHO asking for cash is guache, but allowing others to make a choice as they see fit…that’s much better.
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In regards to asking for cash from relatives for your child’s celebrations, each family is different and what is acceptable in one family might not be acceptable in another family. It’s not wrong, just different.
You can set up a savings account, mutual fund, stock portfolio, 529 plan, pre-paid tuition plan, etc. and simply let the family members know the account exists. They can choose to contribute to the account, or buy presents, OR do both!
IMHO asking for money is gauche, however allowing your family to make a choice whether or not to contribute is a great idea.
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I agree with Tyler. I don’t get the point of this. For one thing, as a kid, the “good” presents were toys, and the “boring” presents were clothes. I can only imagine how disappointed I’d have been if there’d been an even worse category of gifts – paper. And on top of that, some of you commenters wouldn’t even have let me spend it! You’d have had me squirrel it away for some far-off future that is incomprehensible to an 8-year old! “Now Kevin, don’t forget to call your uncle Bill and thank him for the Kodak stock!”
Sure, toys are fleeting and many kids have too much stuff. But my childhood is filled with memories of joyous birthdays and Christmases when I pulled back the colourful wrapping paper to reveal Megatron, or a G.I. Joe boat, or Lego, or an Atari 2600 (Best. Christmas. Ever.). Why would you take that away from a child?
And then there’s the OTHER end of things, which has also been touched on by others. By handing your new grad such a huge chunk of cash, you’re depriving them of the experience of making it on their own. You’re denying them the opportunity to develop their own coping and survival skills by just GIVING them a down payment on their first car. Why? What’s the point? To make them love you more? Why not teach them the lessons, then see if they can fly on their own instead of handing them the first 5 years of adult life on a silver platter?
I guess if you’ve got more money than you know what to do with, then there are worse things you could waste it on than buying pot for your 20-something kid. But there are certainly BETTER things you could do with the money, too. I also think the author is grossly oversimplifying things, by assuming that everything will be hunky-dory as time goes on. Marriages break up – who gets little Johnnie’s “jackpot” money? What if Dad takes a mistress and absconds with the money? What if Mom loses both parents to cancer within the same year, and spirals into depression, blowing the cash on booze and a gambling addiction? What if little Johnny turns out to be an insolent little snot? What if he skips college and joins a band, and wants his money for tattoos and drugs? Does he still get the money? If not, what do you do with it? Keep it for yourself? How will that make all those aunts and uncles feel?
What if Johnny’s little sister, Jill, is given/earns less money while she’s growing up, and her jackpot fund is smaller? What if she actually saved MORE, but the stocks she bought with her money didn’t do as well as Johnny’s – do you top her up to keep it fair? What if she wants to bet it all on Enron? Do you stop her?
Lots of really good questions being completely ignored here.
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As a 25 year old,I just recently cashed in my bonds, some from when I was just born. I had gained about $600 in interest with a total of just over a $1,000 and was told I was going to have to pay tax on the income at the end of the year by the bank. You know what I spent it all on? paying off my husband medical bills, and if we didn’t have that it would have been bringing our credit card debt down to zero which will happen in the next 2 months by the way – can’t wait. Then we’ll attack our student loan debt. Learning lessons is great and all, I have a kid myself I want to teach responsibility to, but life’s tough enough on it’s own. It would have been amazing to not have student loan debt or even just half of what I have now, I’d be living in my own house instead of an apartment for the past 3 years. If you have the means to save and invest for you kids as well as give them toy’s and vacations here and there go for it.
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It amazes me as a 30-something now and a 20-something in college how few people have even basic knowledge of finance and savings.
I could see however, someone in a situation of not having money wanting to do anything possible to get out of the situation while people who are comfortable just stay complacent.
The best way to learn about these things is from your parents and through actually saving like the plan above. Good work Mary!
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