Investing for Your Child

I recently stumbled across an article in CNBC talking about a ROTH IRA for your child. This does have to be earned income, and it seems that informal income including babysitting and lawn mowing can be used. The limit of $5000 a year applies as it does for everyone, but given their young age, it might be worth doing.

There are several types of accounts that I believe are useful to consider. IRAs require earned income, and there are tax considerations for Social Security and the like there. In the case of younger kids, their money may mostly be coming from chores and birthday money. Naturally, savings accounts, educational IRA, and traditional investment accounts can be used.

I Bonds for Now

In the case of my son, the money he has been gifted or earned thus far is put in series I bonds in his name. I opened an account for him at birth, and have put his money there. Considering we are only talking about a few hundred dollars at this point I have not considered other options until this article.

Educational IRA not Included

My wife and I are funding and educational IRA for him, and hope to get it to about $200,000 when he gets to college age. So, that account is not part of this discussion. We could add his money to that, but considering the tax break for us, there is a good reason for us to fund it well. Besides, we can, and so we will.

Grandpa’s Story

I would like to add a bit of a side story here. My grandfather was wounded severely in WW2, getting a neck wound in Northern France. He never had to work again, but he did. He raised a family, and even saved some of his war money for his grandchildren. We all got some of grandpa’s war money for college tuition. While it was not a huge sum, it was a big sacrifice on the part of my grandparents. This is part of the reason we are funding my son’s education heavily. That is money we would otherwise save for our own retirement, but its a worthy sacrifice, and a tradition I wish to continue.

What Should I do?

So that aside, the question is what to do with my son’s money. I am considering a few options. He is too young now for a IRA, but I hope to keep it in mind when he does start to work. That leaves me with either savings accounts and investment accounts.

12, but I do not think it makes much sense until he has enough money. I was thinking about this option when he has more than $1000.

As of now, the money is just in I bonds. They are inflation adjusted and fairly good value for that purpose. My wife and I also use them for a good portion of our emergency funds. After he gets enough money from me in the form for chores and gifts, then we can consider a full account.

Maybe it is a mistake not to put the money in a real investment account now. Maybe I am being lazy not to set it up for him.

Getting him to Save More

One thing I will do is to replicate my father’s approach to saving with me. I will try to get him, as he gets older and understands money, to save half of what he earns. Dad always suggested I save half and spend half of all found money. While I have not always followed that advice, I often have. I am always happier when I do. This year’s bonus from my job went 100% into investments.


  1. Riffing on your last note about teaching your children to save, that is often a question I have when I think about passing along the saving habit. I’ve heard from my old boss that they make an offer to their kids to double any money they receive from birthdays and holidays if they fork it over and get it back when they go to college.

    Two of his kids usually take them up on the offer unless there is something immediate they want to buy. The third never takes the offer and always chooses to spend the money as soon as he receives it. It’s a spin on the classic marshmallow test, though over a longer time period. I think we’ll make a similar arrangement with our kids but I’m open to any other tricks.


    1. My sister and I are opposites in many ways. She was the beautiful high school girl, I was her nerdy brother. I was a accomplished distance runner at the JV level until injury ended my career. I did have that going for me.

      Anyway, our birthdays are near each other on the calendar. One year we both wanted stereos. My father offered us a match to whatever cash we could earn or save from gifts. She said no, and I said yes. I got the better stereo.

      I like that idea, though. As it stands, at his birth, I put a few grand in I Bonds in his name. Since then, I have purchased more with his gift money from friends and family. I think I will match it as well. Thats a great idea.


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