As parents we owe it to our children to teach them as much as we can about the world into which we have brought them. We try to teach them right from wrong and good from bad and how to make their own decisions. One area that we often neglect, which is arguable one of the most important when it comes to your child's success in life, is investing. Sure, we may encourage them to save their money that they earn from summer or after school jobs, but we could certainly do more.
Time is an investor's best friend. Children have more of it than we do so why not teach them to take advantage of it and to start investing early? A great way to make their money work for them is to invest it into a Roth IRA. Roth IRAs require that tax be paid up front, but a child is obviously not going to be in a high tax bracket and have the perfect situation to take advantage of the benefits of Roths.
The money they invest when they are 15 or 16 will continue compounding over the years. When they finally reach retirement age many years down the road, the earnings and capital will all be there waiting for them, tax free. A couple of thousand dollars invested at 16 gaining an average of 12% per year if invested in the stock market, can turn into a pretty good pile at age 62. Though it might be painful for them to part with that $ 2000, it's our job to explain to them why it is important to do so and about the entire concept of delayed gratification and compound interest.
Think back over the years at how you spent your money when you were a teenager and imagine what that money could be doing for you if it were sitting in a nice secure Roth IRA. Do you kids a favor and don't let them make your financial mistakes.