The family match and other tricks

Heard this morning on KQED, Here and Now: Jill Schlesinger talking about how to guide your teenagers re: summer earnings, savings, and spending.

IF your children were lucky enough to land one of those increasingly rare summer jobs, what is the best thing for them to do with their earnings? You might be inclined to mandate that they save it all, but that’s not really going to teach them much more than resentment.

Embedding “short, medium, long” thinking into your your teens’ financial wellness philosophies is a better approach. Setting goals together — deciding how much to spend now, how much to put aside for a near-term purchase (new phone, college fund), and how much to put aside for the long term or for the longest term (Roth IRA) — respects autonomy and helps your children learn how to provide for their future selves.

One brilliant thought from Jill: Set up a family match for the longest term savings. It could be something as frugal as matching every dollar your teens saves in a custodial IRA with twenty-five cents from you. You could even consider a double match — parents put in twenty-five cents for every dollar and grandparents put in a second twenty-five cents for every dollar.

Those of us who work with employee benefits are always trying to make the point that deferring less than the amount needed to receive the full employer 401(k) match is nothing less than leaving free money on the table. You can teach that at home before your kids enter the full time workforce by demonstrating it with summer earnings savings.

N.B. If you go the custodial Roth IRA route, remember that the combination of teen paycheck savings and your family match cannot exceed the amount of income teens actually earn.

While Jill suggests the family match idea in the context of encouraging Roth IRAs, I think it could be useful for all kinds of savings. Here, again, you are building skills.

It’s not a long jump from family match to choosing to round up debit and/or credit card purchases and directing the extra nickels and dimes to savings. Many banks, credit unions, and fin tech apps ( Acorns, Qapital) offer the roundup option. Whether you are a teenager or an adult, rounding up your purchases to the nearest dollar and automatically saving the round up amount is a painless way to increase savings or build rainy day and emergency funds.

Last thought: Before you and your teens dismiss the idea of opening a custodial Roth IRA with a portion of their summer earnings (and the family match), remember: Not only does the money saved today appreciate over decades and result in tax free withdrawals at 59 and a half, but…contributions can be withdrawn at any time, tax AND penalty free.

Caveat: I am not recommending early Roth withdrawals, but knowing the option is there could be a selling point for someone who imagines 59 and a half is an eternity away!