This week, Money360 is conducting a detailed review of Kevin McKinley’s . This title focuses on the role parents play in building a net worth for their child, both financially and psychologically. Does this book provide some interesting insights, or is it merely a repeat of the power of compound interest? This week, we aim to find out.
As your child becomes an adult and leaves the nest, you might be in a financial position to continue to help them with the major obstacles in their life. Most of the remainder of the book deals with these positions and what you can do to help out.
The first suggestion is to get your child a Roth IRA as soon as they start earning income, and it also is one of the best suggestions in the entire book. For most children, when they get a teenage job, the last thing they think about is retirement. I know I didn’t think about it when I was fifteen years old and working as a farmhand; I was busy spending my income on music and girls. What can you do as a parent to help? The best thing to do is offer to match what they save themselves (in a savings account) with an equal amount in a Roth IRA. You can pitch it to them as literally doubling their money. Obviously, no teenager will be willing to sock away all their money, but you can convince them to sock away enough so that their Roth IRA begins to build a balance in their mid teen years.
When I read this, I used myself as an example. Through my high school and college years (ages 15 to 23), I earned about $100 a week, on average. I could have easily put away $20 of it into savings. On my 23rd birthday, if it earned an average of 10% a year, I would have had $12,772.33 in my Roth IRA. Let’s say I never put another dollar into it for the rest of my life. At age 60, I would have had $434,309.70 in my Roth IRA. That number alone might just startle you into considering such a deal with your child.
After college (which the book recommends you help pay for with a 529), you might want to help your child out with a home purchase. The book offers several suggestions on this topic, from offering advice to making a payment for them (a single extra payment at the start of a mortgage can knock years off of the end of it) to paying part or all of the down payment. This felt like the strongest part of the book, as it combined advice for discussing these financial assistances along with the mechanics for actually doing it.
The book also offers advice on what to do with your money when passing it on to descendents, including the interesting topic of passing money straight to grandchildren. This is especially important if your estate is large enough to be concerned with an estate tax, as most people wish for their family to reap at least some of the rewards of their hard work throughout their life.
Tomorrow, I’ll offer up a buy or don’t buy recommendation on this title.
Make Your Kid A Millionaire is the fourth of fifty-two books in Money360’s series 52 Personal Finance Books in 52 Weeks.