One of the best ways to teach younger generations about retirement savings is to help them realize the power of investing. You can do this by helping them fund Traditional or Roth IRA accounts. Anyone who has W-2 job income, even from summer or part-time jobs, can contribute to an IRA, even if they are minors. The IRS sets contribution limits and periodically adjusts these amounts for inflation. Once a younger generation family member gets a “real job,” you might be able to afford to help him or her contribute to a retirement savings plan at work. Not only is this a good investment for the youngster but it may also be a good investment for you, insofar as the sooner you can teach younger generations about financial responsibility and the impact of consistent periodic investing, the better chance of your not having to help them out as much later in life.
Nevertheless, despite your good efforts, you may need to provide financial help to a young adult in need. Whether you are already helping or may want to in the future, keep these two caveats in mind. First, can you easily afford the outlay? I have received several disturbing emails from parents who themselves are living on the edge financially, but still feel compelled to help out their kids. While this may be a natural inclination, you don’t want to impair you own financial future. As callous as it may sound, you may simply have to say that you can’t afford to help. Second, if you are providing financial assistance, don’t let temporary aid turn into an annuity for the family member. You must draw the line somewhere or otherwise you will end up enabling the child who may come to view the periodic assistance as an entitlement. If that’s what you want to do and can afford to send money indefinitely, so be it, but still be wary of how this might adversely affect your child’s or other relative’s initiative and self-esteem.
Smart Money Tips
- Save for a house or save for retirement? People who are saving for a home often must decide whether to cut back on IRA and other retirement plan contributions in order to boost the amount of money that will be needed for the down payment. Temporarily suspending retirement plan contributions to build up your housing fund should not be taken lightly, but buying a home is still such a smart financial move for most that it may be justified. Before dropping your contributions entirely, keep in mind that it’s possible to tap into almost all types of retirement savings plans to help finance a home purchase, including:
- Traditional IRAs
- Roth IRAs
- Workplace retirement plans, including 401(k), 403(b), tax-sheltered annuity (TSA), and federal thrift savings (TSP) plans.
Depending upon the plan, money can either be withdrawn (taxes will probably need to be paid) or borrowed for the purpose of buying a first home.
- Put time on your side when investing. Investing for long periods means you have a long time to ride out the downs in the stock market while still being able to participate in the ups. Past studies have shown that most investors sell after the market has declined and buy after it has risen. In other words, their timing is terrible. So long as you don’t need the money for at least several years, however, you’re better off sticking with your investment plan.
Food for Thought
The art of living lies less in eliminating our troubles than in growing with them.
–Bernard Baruch
Money Can Be Funny
Pond’s Law of “How Did My Child Turn out Like That?”
If you have two or more children, no matter how diligent you are in teaching them about financial responsibility, one will end up with appalling financial habits.
Word of the Week
galimatias (gali-MA-teeuhs) – Confusing and meaningless language; nonsense.
Origin: Appeared in the 17th century from French galimatia and may possibly be related to gallimaufry, a dish made from the odds and ends of left-over food.
Citizens heard a lot of galimatias during last week’s Congressional hearings.