I’m excited to be participating in today’s Roth IRA movement. There’s more information about this movement towards the bottom of this article.
I wish someone told me about Roth IRAs when I got my first real job. I was a teenager, working in a local Radio Shack store, even though I didn’t even know what a soldering gun was. So many years later, it’s hard to know what would have gone through my mind if someone were to start talking to me about investing part of the money I was earning. I had a bank account, but I’m sure most of the money I earned from working was spent on entertainment with friends. I wasn’t thinking about the future, and I’m not convinced that someone pointing me to an article about a Roth IRA would have changed my approach.
But it might have.
It would have been impossible for me, anyway, unless I had been visited by a time-traveler or I had received a book from the future.
Roth IRAs weren’t invented until years later, while I was in college. (This detail isn’t that germane to the point, as traditional IRAs were available and would have in most respects been appropriate for saving for the future.) Anything other than stock trading was missing from my understanding of investing. Considering Roth IRAs existed by the time I graduated college, why didn’t I know about Roth IRAs when I started my first job after that point? Well, they still weren’t widespread by then, and I was earning too little money to even conceive of dedicating some of it to my future.
I would have been wrong, of course, but I only know that now with hindsight. The problem with trying to educate young people about investing for the future is that it’s easy for them to be stuck in the mindset that other pressing needs deserve attention above investing for the future. Until someone’s mind is open to the possibility of financial security in the future with today’s sacrifice, any information about investing for the future, with Roth IRAs or not, just won’t have a strong effect.
Today, though, there are ways to make this transition easier. The benefits of investing for the future no matter how little an amount have been discussed on Consumerism Commentary ad nauseum, but they bear repeating. I’m not really discussing retirement as a goal. Most discussion about investing for the future revolves around retirement, but it’s unclear that the traditional concept of retirement will be relevant thirty, forty, or fifty years from now.
- Investing in a Roth IRA with your first job creates a new habit that lasts your entire life.
- The Roth IRA, with its ease of access, is a perfect gateway to investing for the future.
- When you intentionally invest in a Roth IRA with every paycheck, you can easily see the effect your choices have on your wealth.
- When you create an automated transfer plan from your checking account to your Roth IRA, you take some of the stress out of investing.
Good investing habits start with the Roth IRA because it’s so easy. There’s no concern about tax-related issues, because you invest with “after-tax” money. Minimum balances at brokerages are typically low for Roth IRAs because these companies know that these types of accounts are best used by people new to investing. The one step, opening a Roth IRA, opens a world of financial possibilities, and it’s possible to open an account with as little as $100 per month.
It’s easy to blame ignorance when we see young people in their first jobs, earning money but not saving for the future. Here are some typical anti-youth misunderstandings:
- “If only they had a financial education and understood that the earlier they invest in the stock market, the wealthier they’d be four or five decades in the future, they’d want to invest immediately.”
- “Today’s kids are focused only on the ‘now’ and don’t think about their future needs.”
- “The public educational system is to blame for the lack of solid financial knowledge among today’s youth.”
- “Why can’t parents take some responsibility for instilling good financial habits in their children?”
- “Get off my lawn!”
There is some relevance to at least four of these misunderstandings, but what makes them misunderstandings is that the point is really about cognitive development. By the time most teenagers have their first jobs at fifteen, sixteen, or seventeen years old, their brains are not yet equipped to consider the concepts of investing for the future. Of course, different individuals experience different rates of cognitive development, but attempting to feed someone knowledge before his or her brain is ready to grasp some of the higher concepts necessary for full understanding is a waste of time.
You can hope that some of the ideas stick with a child long enough for the connections to be made later in develop. That’s why some parents teach and model good financial habits with their children starting in kindergarten or earlier, but when it comes to the practical side of investing, adolescents in their first jobs are often not mentally prepared. As teenagers seeing for the first time how they have control over their lives outside of their parents’ house, there’s a tendency to want to make decisions independently, and without the influence of an adult preaching about prudent financial habits.
In their minds, adolescents may have already weighed the benefits of keeping more of their income for use today against the benefits of saving for the future and decided, independently, that their immediate needs are more pressing. They may believe they’ve already made the right decision.
I don’t know if I can propose a solution. Investing in a Roth IRA is a critical step towards financial freedom because of its ease, accessibility, and habit-making features, but if a young individual doesn’t apply this approach during the critical time when he or she first begins earning income, the barrier grows with time and it can be more difficult to start later on. The numbers have always been obvious; a five- or ten-year head start in investing in the stock market almost always pays significant dividends when it comes time to draw upon that nest egg, but these words are meaningless to young people who have other concerns.
Taking a slice of the paychecks from the first job can be done with little encroachment on expenses; directing 5 percent of each paycheck to a Roth IRA would hardly hurt at all. With a minimum investment of $100 each month, any working kid could find a way to make it happen, if not immediately, then after saving up for a few months and starting with a lump-sum rather than a periodic investment.
It’s not going to happen on its own, though, and it’s still unlikely to happen even after reading an article extolling the virtues of investing and saving for the future. It’s going to happen when the synapses in the brain fire in such a way that saving for the future makes sense and when sacrifice, no matter how small, is an acceptable option. In some ways, the latest guidelines that encourage automatic enrollment in 401(k) plans see this problem and have arrived at a solution: you’re busy thinking about other things, so we’ll get you started automatically. There’s always the argument that this policy benefits the financial industry more than the investors, but it does benefit the investors.
How do you propose encouraging young individuals in their first jobs to begin saving for the future with a Roth IRA?
Thanks to Jeff Rose, a Certified Financial Planner, who initiated today’s Roth IRA movement, involving more than 130 partners, all of whom are taking time today to discuss Roth IRAs on their websites, newsletters, or other publications.
Photo: stevendepolo
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I never learned to cook anything as a kid. My kitchen wizardry stopped at being able to “cook” a perfect slice of toast and heat an egg in hot oil. Sometimes I would experiment, but I’ll skip the tales of my candy-bar sandwich and curry hot chocolate. When I moved out of my parents’ home at the age of seventeen, I sucked at cooking.
Next up for me was my other favorite food, bread. I had a drunken conversation with a Mexican lady who convinced me tortillas were just flour and water cooked in a flat pan. I had flour and water at home so a day or so later I mashed them together into a dough, rolled them into tortilla-shaped discs using a Snapple bottle, and fried them in a hot pan. Like my very first tomato experiment, it worked again — not perfect, but within reach of being able to be called bread!
I hope I have you convinced to give it a try and I hope you have overcome any apprehension. You may not even enjoy cooking at first, but you’ll enjoy the challenge. Here are some tips to help you get started. Please come back to let us know how it went.
Twix is the only candy with the cookie crunch — at least it was when George Costanza said it. Twix was first produced in the United Kingdom in 1967 but didn’t find its way to the United States until 1979. The Twix bar was known internationally as “Raider” until 1991 when the brand was changed worldwide.
Liability coverage pays other people when you are at fault — the cause of an accident. Liability coverage is usually mandatory. If you do not have liability coverage and you cause an accident (and the other individual involved does not have uninsured motorist coverage) you would be responsible for paying their medical bills and car repair bills out of your own pocket. You could be sued if you don’t have insurance, or enough insurance, to cover the expenses paid by the victim resulting from your accident.
Collision coverage pays you or pays directly to a repair shop for damage to your car regardless of which driver is at fault. A deductible must be met first. Currently, my deductible is $500. This is low considering a portion of my
Comprehensive coverage pays you or pays directly to a repair shop for any damage to your car that occurs at any time other than a collision. If your car is stolen, comprehensive coverage would pay you. We experienced a violent storm the past few days, and trees everywhere were uprooted. I didn’t personally notice any cars damaged by falling trees, only fences, buildings, utility poles, and roads. However, it’s likely quite a few people in the area experienced damage to their card. Comprehensive car insurance coverage would help them.
Uninsured motorists coverage pays you if damage to your car cannot be reimbursed by the driver at fault because they fail to have adequate insurance. Although liability insurance is required for all legal drivers, not all drivers are operating a vehicle legally. There is some, but not complete, overlap with collision coverage. Uninsured motorists coverage might pay your collision deductible. Uninsured motorists coverage will also pay for bodily injury costs not reimbursed by the other driver’s insurance.
Personal injury protection (PIP) pays you or a service provider for your medical, hospital, and funeral expenses. They may also pay for other family/household members and pedestrians involved in an accident. It’s a good idea to compare the personal injury protection benefits with those offered by your health insurance. If some of the benefits are duplicated, you may be able to justify lower PIP coverage.
Gap insurance usually is not associated directly with the other aspects of car insurance. It provides one specific benefit. For a driver whose vehicle is leased or finances, 





Best of Consumerism Commentary, February 2010
by FlexoDon’t forget! Consumerism Commentary is in the running to win a few Plutus Awards. The Plutus Awards are designed to celebrate the best personal finance resources such as books, savings accounts, and blogs. Vote here now before the deadline on March 16. The finalists were selected from among those that received the highest number of ... Continue reading this article…