There is a very simple sure-fire way to turn every single teenager into a millionaire and I’m going to share it with you.
It’s simple … the Roth IRA.
Roth Ira image from Napkin Finance
What is a Roth IRA? It’s an investment vehicle for retirement that is tax-free! It’s the only tax investment where you put in AFTER TAX money and it will grow tax-free.
Why is this such a big deal? It’s because your teenager has a lot of time before retirement and can use the time value of money to make herself or himself a millionaire by simply investing summer job earnings into a Roth IRA now and let it grow until retirement.
What is a Roth IRA image from Money Magazine
My 16-year-old son got his first summer job this past summer. He worked as a camp counselor at his YMCA day camp. He earned $2200 after taxes working most of the summer making about $10 per hour.
I asked him this question:
How much would you have if you invested your $2000 into a Roth IRA this year as a 16-year-old and it doubled every seven years (which, incidentally, is what we got on your 529B College Fund investments) and you didn’t take the money out until you turned 70?
He used a calculator … and the answer is $400,000.
image from Making of a Millionaire
If you simply invested $2000 of your summer earnings for two more summers, you would be a millionaire at age 70.
Perhaps your child wants to spend part of the summer earnings and that’s ok. The key is that the income has to be taxed (i.e. reported to the I.R.S. not cash under the table). Up to $6000 per year can be invested in the Roth IRA (as of this year).
After my son made his calculation, I asked him what he wanted to do with his summer earnings. He said … invest it in a Roth IRA. Good answer!
If you are able to as parents, you could offer to double part or all of the money invested in the Roth IRA as an incentive for saving for retirement. This way, your child can spend part of the money on themselves while still maximizing the amount that they can save in the Roth IRA. It’s a gift that will keep on giving!
My son, a future millionaire. He invested his first summer earnings in a Roth IRA.
Where can you set up a Roth IRA? I recommend Charles Schwab but also check with your bank, brokerage company, federally insured credit union, and/or savings and loan association.
How about you? Do you invest in a Roth IRA for yourself? It’s not too late to set one up this year and you can fund it through April 15th of next year; you don’t have to put the money in this year.
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p.s. Related posts:
Personal Finance: Summer Learning Fun for Kids
Who Owns the Money? Economics for 4th Graders
Teaching Kids About Stocks and Investing
Top 10: Ways to Teach Kids about Money
Personal Finance For Kids with Save/Spend/Donate
8 Tips for Teaching Your Kids Financial Responsibility
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Food for the Future: Sustainable Farms Around the World
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- Starred review from School Library Journal
- Chicago Library’s Best of the Best
- Imagination Soup’s 35 Best Nonfiction Books of 2023 for Kids
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