[Editor's Note: This is a “Kid's Korner” post from our only paid columnist here at WCI, Whitney. She did one each quarter this year; you can see them here, here, and here. But given how much nagging this one took, it may be the last one for a while, unless you guys take up nagging duties for me. This post is the long-awaited one about child investing accounts.]
I have quite a few accounts for a few different reasons. My parents believe strongly in education and want me to have a good education, but they also want to teach me how to manage money effectively. My parents also hope I can avoid getting into as much debt as many young people these days.
My Four Investing Accounts:
1. Credit Union Savings Account For Spending
The purpose of my savings account is for spending money. The money in this account is money I’ve made babysitting and gift money that I’ve received for birthdays, allowances, Christmas, etc. I currently have four or five hundred dollars in this account. I’ve used money in there to buy myself a new phone and few other things. Now, how much would I like to have in that account? I mean a million dollars would be great but it isn’t very realistic. I think in the next few years I’d like to have a least a thousand especially once I get a regular job when I am a little older. This account really isn’t about the amount of interest I get back because it only pays 0.1% percent in interest. My dad says I could swap it for a high-yield online savings account and get $4 a year, but it's kind of hard to get excited about that.
2. UTMA aka My Twenties Fund
UTMA stands for Uniform Transfers to Minors Act. This account is what my dad calls my Twenties Fund. My parents ‘philosophy is that it's better to give me money in my twenties when I actually need it instead of when they die and I don’t need it as much. So they started this account for me back in 2008. All of the money in this fund is contributed by my parents. I currently have $13,412.56 in this account. How much do I want to have in here? I don’t really know but things I’m going to need money for in my twenties include a mission, a house down payment, a car, a wedding, backpacking Europe etc. So it would be really nice to have quite a bit in there. It is invested in the Vanguard Total Stock Market Index Fund and the Vanguard Total International index fund. Since it was opened in 2008, when I was four, its returns have been 11% per year. Only around $6,000 was ever put in there and look how much it’s grown!
3. 529 College Fund
The purpose of a 529 is purely to save for education. Most of the money in this account was contributed by my parents, but some of it is from me. In fact, my dad will give me a match on my contributions. So if I put in $50 he’ll put in double that so another $100. Right now I have almost $47,000 in that account. My school counselor asked me about college savings in my recent college preparation meeting and was super impressed not only with the amount in the account, but that I had an account and actually knew about how much was in it!
The college I'm thinking of going to right now charges $5,460 a year in tuition. So if I were going to college now I would have enough to get a bachelor’s degree without taking out a loan, even without a scholarship. However, there are many scholarships I plan to apply for including the Utah Regent’s Scholarship. I would also like to attend medical school which could cost $50,000 a year in tuition alone, so hopefully, I can save more and not use all of this in college. It is invested in:
- Vanguard Total International Stock Market Index Fund (50%)
- Vanguard Small Cap Value Index Fund (25%)
- DFA Small Cap Value Fund (25%)
This is a very aggressive way to invest. We invest this way because #1, I don’t pay much attention to the markets so it doesn't bother me when it goes down in value and it doesn't bother my dad because he feels like it isn't really his money. And # 2, if this doesn’t work out I have three other “pillars” to fall back on in case the market crashes right when I start college. I have two funds invested in small value stocks because the Utah 529 plan only lets you put a maximum of 25% of the portfolio into each of its riskiest funds, so I have to use both of them to get 50% of my money into small value stocks.
This account was started back in 2010, but my college account actually was started in 2007 when I was three. It was originally in a Coverdell Educational Savings Account when my dad was in the military. Then it was rolled over to the Utah 529 when we moved to Utah. The overall return for the last decade has been 8.3% per year.
The Four Pillars of Paying for College
I mentioned the “pillars” of paying for college earlier. There are four pillars to paying for college. The first one is choosing a college you can afford. If you choose a really expensive college, that’s great but you might be in debt for years to come. The second one is your contributions- scholarships, savings, part-time work during school, and full-time work during the summers. The third pillar is your parents' college savings. The last pillar is your parent’s cash flow. This is the money they make while you're in college that they give to you.
4. Roth IRA Retirement Account
The Roth IRA is my retirement account. This is important because you can only put money in it that you actually earn working. My parents can't put money in there for me. This money is from babysitting and getting paid for modeling and writing for this website. Sometimes my dad gives me the same amount of money that I made so I don't feel bad when I put all of the money I earned into the Roth IRA. He calls this the “daddy-match.” He says it is great when he can pay me to do something because then he doesn't have to pay payroll or income taxes on it (because it's a business expense), I don't have to pay payroll taxes on it (because I'm a minor and the only owners of the business are my parents), and I don't have to pay income taxes on it (because I don't make enough money to owe tax.) If I put it in the Roth IRA, it never gets taxed at all.
I currently have almost $7,500 in this account, which is the total of everything I've earned in my life plus the earnings. I would definitely like a lot more but I have some time until I’ll need it. It is invested in the Vanguard 2060 Target Retirement Fund, a fund of funds. The four accounts that make up this fund are:
- Vanguard Total Stock Market Index Fund (54.50%)
- Vanguard Total International Stock Index Fund (35.50%)
- Vanguard Total Bond Market ll Index Fund (7%)
- Vanguard Total International Bond Index Fund (3%)
I started contributing to this account in 2015 when I started working, and so far my returns have been 18.1% per year, which is a whole lot better than my savings account.
I am very grateful to have the opportunity to invest in these accounts. Most kids don’t have this money or support from their parents and I understand what a great opportunity this is to learn about money and stay out of debt. This is important because people who know how to manage money can use their money to help others by creating jobs, donating to charities, or otherwise paying it forward to help someone in need. I hope some of this information was helpful or at least interesting.
Questions? Comments? I’ll answer them below. Merry Christmas!