Convince Your Teen to Start Saving Now for Retirement

As a parent, you've probably thought about your own retirement. But have you considered your teen's future financial security? It might seem too early to think about retirement, but there's no better time than now for your teen to start saving.

Do not be afraid to discuss money in front of your kids—it's a valuable learning opportunity. Start by talking about household income, bills, and how much of your paycheck goes toward taxes, retirement savings, and an emergency fund. You can also discuss vacation costs and how you save for them.

Why Starting Early is So Important

Even though other financial goals—like student loans—might feel more pressing, setting aside even a small amount for retirement now can make a big difference.

One of the biggest reasons to start saving for retirement early is the power of compound interest. Simply put, compound interest allows money to grow faster over time because you earn interest on both the original amount and previous interest earned. Even small contributions can add up significantly when started early—giving your teen's money more time to grow!

Here's an example that shows why starting early matters:

• If your teen saves just $100 every year starting at age 14, they could have about $23,000 by age 65 (assuming a 5% annual return).
• However, if they wait until age 35 to start saving that same amount annually, they'd only have about $7,000 by age 65!

Your money works by earning interest on both the original amount and any previously earned interest. Over time, this compounding effect accelerates growth.

Another way to boost compound interest is by reinvesting dividends. Instead of cashing out dividend checks, it's smarter to reinvest them. This means your child's share of profits gets put right back to work, further accelerating wealth growth.

Practical Strategies for Teen Savings

One of the most common ways for teens to start saving is through a summer job. Early investing can turn modest summer earnings into a substantial nest egg, thanks to compound growth. Let's look at how this applies to summer jobs:

• If your teen saves $1,500 each summer from ages 15-19 (just five years): Total invested: $7,500.
• By age 66: $190,893 That's more than 25 times their investment!
• If they save $750 each summer: Total invested: $3,750.
• By age 66: $95,446 Even then, it's still over 25 times the original investment.

These examples show that even small savings during summer jobs can turn into significant amounts by retirement age. But summer work isn't the only way. Here are some other practical strategies to get your teen saving:

• Open a savings account: It is a great idea for a child to have their own savings account. While younger kids might use a piggy bank, teens are ready for the real deal. Make sure you have access to monitor the account. When they get their first job, they can set up direct deposit into a checking account.
• Get a debit card: When your teen opens a checking account, it is the perfect time to get them a debit card. They can practice making purchases and seeing how it affects their balance. Encourage them to use Digital Banking to track their spending.
• Open a Roth IRA: This account is ideal for teens with earned income. Contributions grow tax-free, giving them a head start on retirement savings.
• Encourage Part-Time Work: If your teen has a job, suggest they set aside a portion of their earnings for retirement. Remember, even small amounts add up over time!
• Use Technology: Several apps make saving and investing fun for teens. For example, Qapital lets teens set savings goals and create personalized saving rules. Another app, Acorns, rounds up purchases to the nearest dollar and automatically invests the difference.

Overcoming Teen Resistance

Retirement might seem like a distant concept to your teen, and they might push back against the idea of saving for it. Here are some common objections and how you can address them:

• "Retirement is too far away" Explain the concept of compound interest and how starting early gives them a significant advantage.
• "I don't have enough money" Emphasize that even small amounts can grow significantly over time. Make it personal: Discuss their future goals, like buying a house or traveling the world. Explain how saving now can help turn these dreams into reality.
• "I want to enjoy my money now" Explain that it's OK to enjoy some money now, but encourage a balance between saving and spending. Ask them about their bigger dreams or goals—like buying their first car, taking a graduation trip with friends, or saving for college. Explain that setting aside even small amounts regularly builds a powerful habit for the future. When they connect savings to personal goals, they'll see how a little patience now can lead to bigger rewards later.

Parental Guidance

Your role as a parent is to lead by example. Encourage savings even if it's a small portion of their earnings. Share your own savings journey and strategies. Share your own financial decisions and retirement planning. Consider matching their contributions as an incentive. This not only boosts their savings but also demonstrates your commitment to their financial future.

The Bottom Line

Early savings offer more than just financial security. They also help your teen:

• Build financial independence
• Learn valuable money management skills
• Position themselves to take calculated risks in their career and life, knowing they have a financial cushion

Remember, the goal isn't to stress your kids about retirement or burden them with adult worries. Instead, you're empowering them with knowledge and habits that will serve them well throughout their lives. By encouraging retirement savings now, you're giving them a head start on a secure financial future.

So, start the conversation today. Your future retiree will thank you later when they see their savings grow.