As I read Make Your Kid A Millionaire this week, I found myself stunned at the huge amounts of money that the book assumes that you will give to your child. I can swallow a 529, but a Roth IRA for your child? Buying a home for them?
These concepts seemed like utter fairy tales to me. When I was eighteen, I was basically pointed out the door at home. My parents never paid for a dime of college outside of buying some used textbooks and calling them birthday or Christmas presents, and they’re certainly not providing a Roth IRA in my name or paying a house down payment.
Are such investments for children realistic for most people? Perhaps I have a skewed perspective, but it seems to me that investing thousands upon thousands of dollars a year for a child to spend in his or her twenties when they’re barely out of diapers seems like overkill. Shouldn’t that money be better invested in ensuring that they have every educational tool possible available to them? Isn’t the role of a parent to equip the mind of a child, not to equip their pocketbook?
Is it even good for a child to have that much money handed to them? If my parents had handed me a mutual fund with $100,000 in it on my twenty first birthday, I would have blown it quite quickly on stupid things. Why? I had very little idea of what the value of a dollar was, and I was far from alone when compared to other people my age.
There’s something to be said for learning some lessons about money, and your college and post-college years are the training ground upon which you can show whether you get that money is a tool or whether you still believe that money is happiness. Having a lot of money or a big asset given to you at that age is bound to skew some perspectives.
The real key to the matter is education. As I discussed earlier, educating your child on money issues is perhaps the most valuable gift you can give to them. My feeling is that instead of giving them a big lump sum when they’re twenty, instead you should eke the money out to them over time and teach them how to manage it. They might spend it on stupid things or they might invest it in a poor fashion, but if you provide a safety net of food and shelter and advice when they’re learning for themselves, you can train them how to walk the tightrope when you’re no longer there to support them.
I’m going to keep up my son’s 529, but in terms of investing for his future, I’m going to teach him how to do it when he gets older instead of investing for him and handing him the proceeds.