With a little advice and help from parents, teens can build million-dollar IRAs, especially if they start saving early. Arming teens with knowledge and tools, along with the benefits of compound interest, is critical in helping them achieve a successful retirement future.
If you have a teenager, you already know managing money probably isn’t at the top of his or her priority list. They have lots of wants, money is an abstract concept (doesn’t it come from the ATM?), and the future seems far away. The truth is, we, as parents and grandparents, need to teach children about money and start them on the path to saving for the future. Don’t let them get caught up in the retirement crisis many Americans are facing now. So, while you’re hopefully focusing on building your own million-dollar IRA, share your knowledge with your child. Show them how teens can build million dollar IRAs. If we can instill a few smart financial habits in our children today, we might possibly save them from financial worries in the future.
Teens Can Build Million-Dollar IRAs if They Start Saving Early
Children and young adults with earned income can open retirement plans.
Did you know that no matter how young your child is, if he or she has legitimate earned income they can contribute to a traditional or Roth IRA? It’s true—if your 3-year old has a modeling contract or your teen works at the grocery store a few hours a week, they are eligible to open one of these accounts and start saving today. While this may seem a little soon to think about retirement, beginning to save early in life can help your children achieve a million-dollar IRA.
Why is saving for retirement at an early age important?
Consider this: Compound interest is a teen’s (and a adult’s) best friend. This type of interest is earned on your principal balance, and accrues on the interest your account earns in previous timeframes since the account was established. The interest your account accrued last month becomes part of the savings balance, and you earn interest on that, too! Month after month and year after year. So, as you can see, the sooner your child begins saving, the better. Dave Ramsey explains compound interest best in this article, which is written in a way that teens can easily understand.
All generations are struggling. In this article, Bankrate explains the struggle Millennials have, which are also problems other generations face. We know it may seem like a daunting challenge to teach your teenager about the importance of working, saving, and investing. Here are a few practical suggestions for parents:
- Offer real-life examples.
- When those little emergencies pop up in your life (a car repair, broken appliance, hospital bill) allow your teen to see how this affects the family budget and how it’s important to be prepared. Explain: This is why we can’t get everything we want; we must be prepared for unplanned expenses.
- Encourage them to save their money.
- Whether it’s for a short-term need like a new video game or a long-term need like college, have the conversation over and over about the value of saving. Eventually, (hopefully) it will sink in. Retirement calculators are powerful tools that can show teens and young adults how much they need to save to reach their goals.
- Help them invest.
- Give them the knowledge to invest for the future. Regardless of the savings vehicle you choose to use to get your teen started, you are giving a lasting gift.
Can teens use self-directed retirement plans?
Yes, they can! And using alternative assets has the potential to help teens build million-dollar IRAs. Opening an account with Advanta IRA is easy and our team members help you every step of the way. Again, as long as a person has earned income, there are retirement plans available for saving. Self-directed IRAs are no different than any other IRA, except that the account owner gets to choose his or her own investments. Rather than have someone else invest your money in traditional stocks, bonds, and mutual funds, with a self-directed plan, you choose your investments based on what you know at a pace that falls within your comfort zone.
Access to alternative assets is the biggest draw to these plans. These assets include real estate, crowdfunding, social media startups and apps, restaurants, skateboard companies, clothing, and so much more. The potential these plans have for helping you and your young adult build real wealth is facilitated by your knowledge and expertise. However, you can also use financial advisors to help you choose assets you are unfamiliar with—and still have the advantage of choosing from a much larger pool of investing opportunities than traditional assets offer.
There’s no better time than today. Start your child on the path to saving and future financial success. Contact Advanta IRA to discover how self-directed investing can help you and your young adult retire on your own terms.
