Wednesday, December 26, 2012

Post Christmas Savings

Well, you did it.  You made it through the Christmas season in one piece, and hopefully it was a fun, family filled occasion.  You can now relax, and enjoy all the fun memories replaying in your head.  Hopefully your kids (if you have them) also had a good Christmas, and that they are now enjoying their many presents.  If your kids are anything like I was as a kid, then they might have gotten some cash from a relative as a Christmas gift.  Instead of just letting them spend all of their money, why not try to teach them a little something about investing and save for something even better.

As a child, I was a big saver.  I would almost exclusively ask for cash for any holiday or birthday, and I would but anywhere from 80-90% of it away in a savings account. Back in those days, savings accounts earned anywhere from 4-6% interest so it wasn't too bad of an investment.  Now, imagine doing this from the age of about 6 until the age of 17.  Over those 11 years, I accumulated enough cash to purchase a car!  Not to shabby if you ask me.

Personal savings rates are tough thing to instill in a child, especially if the parents have a hard time doing it themselves.  According to the St. Louis Federal Reserve, the current personal savings rate is at 3.6% of disposable income in the month of November.  That's including any sort of retirement plan such as a 401k or pension.  This is pretty awful if you ask me.  Saving at 3.6% will make you work for the rest of your life, and you won't have much to live off of when you eventually retire.  At minimum, a person should be saving at least 10% of their disposable income in order to build some sort of safety net for the future.

Personal savings accounts are no longer the way to go for kids if you want to teach them anything these days.  With interest rates around 0.25%, they'll be losing money due to inflation if left in the bank.  Instead, use your brokerage account (hopefully you have one set up through your bank), and put your child's money in some stocks or mutual funds.  Every few months or so, give them a little review of what their money has been doing and what your strategy for investing entails.  Often times, parents will buy stock in a company like Disney since their kids already take an active interest in it.  It actually makes the whole investing process more fun.  A world of lessons for a child awaits if a parent is willing to take this route.

In the end, do your kids a favor and convince them to invest their money.  They and you may learn a thing or two along the way.

Wonderful Moment of the Day: Still eating many Christmas cookies from family and friends.

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