Teaching Teens to Save: Roth IRAs!

When I was a teen, I wish someone would have told me to invest the money I made (a whopping $2.10 per hour) from working at a movie theater in high school.  Instead, my big earnings paid for bagels, coffee, and gas for my car (gas cost another whopping $0.35 per gallon).  Even though it didn’t seem like I made enough money to invest, I wish I had.  Let’s look at the same situation today.

For teens who are working or plan to get a summer job, they can take their earnings and put it in a Roth IRA.  Let’s say that a 14-year old earns $2,000 by the end of the summer and they put it into a Roth IRA.  In 50 years (assuming they don’t touch it), their $2,000 can grow to about $65,000!  Not bad for a summer job, AND all of that money is tax-free. 

Teens can invest up to $5,500 per year in a Roth IRA.  Considering shrinking pensions and retirement programs, teens and young adults can set up their own retirement program while they’re still living at home.  Most teens who live at home really don’t NEED the money they earn. Besides, they’ll probably just spend it on frivolous things anyway. 

Rather than talking to your kids about this, take them to your bank, broker or credit union and let the experts show them how to open an account and explain the benefits.  This may be one of the most important financial tips you give your kids.