Raising An Investor

Raising children entails a lot of trial and error, and hoping that you aren’t screwing things up too much along the way. As our kids have gotten older we are moving into new subject areas, one of which is money. We want to expose our kids to good money habits while also giving them agency and discretion. Investing has been an area that has been going well so far so I wanted to share our experience with others in the same boat.

We set up an investment account at Betterment for each of the kids when they were born and have put in $25 a month since then. Now that the kids are old enough to be involved there is an account history and returns that we can go over together and learn together about expenses, how returns from appreciation and dividends work, and that there is risk involved in investing. Although we primarily use Vanguard for our own investments I like the aesthetics and diversification into multiple index funds / ETFs that Betterment makes more automatic – it seems to connect with the kids better and is more straightforward for them to understand.

Here’s the actual performance of one child portfolio over the past few years. The right graph includes a comparison to the S&P 500. Betterment currently charges a .25% management fee on top of the fees for the funds invested in.

[Note: We have chosen to hold the investment accounts for each of our children in our name so that we have control of the funds until we decide to give over full control. We’ve done this for reasons related to age and maturity, impact on college scholarships, and other considerations.]

Now when the kids receive some money for a birthday or we cash in the coins in their artisanal hand-crafted wooden banks we let them decide what to do with it – spend it, give it away, put in the bank, or invest in their Betterment account. It’s been fun and over the past year they’ve mostly chosen to invest their money, roughly 80% of their “earnings” going into their respective Betterment accounts. We sit with them at the computer but let them use the mouse, type in the contribution and notes, etc.

Here’s the current default allocation within Betterment for one of our child accounts, at a 95% stocks / 5% bonds allocation.

We’ll see how it goes in the future when there are more dollars at stake and more competing options vying for their attention and funds. From the early returns it’s been a simple and effective way to introduce investing for our family.

You can check out Betterment at: https://www.betterment.com/

Calculating compound growth rates like a boss (baby)

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John P Anderson

I'm a Kansas native living in San Diego. I enjoy learning about environmental issues and connecting with good people that want to make the world a better place. Cheers!