Regardless of winning the lottery the more interesting questions is:

How many 20 somethings will take advantage of their 40-50 year time horizon to become "well-to-do"?

Damn few. After all, how many of US did?

I hope to instill the necessary perspective into my seven year old daughter. Don't know if I will succeed, but I do have a plan to make a serious try at it. It starts with her working for my company as soon as she returns from her two years abroad with her grandmother and aunt. Basically everything she makes will go into a Roth investment account (while making sure that she sees enough of what she earns to grasp the immediate rewards of working and also of giving). The plan is to have her in a solid emotional, educational, and financial shape by the time she is 18 to 21 to take over her investments with a very high chance of succeeding in the long term.

At the risk of getting political (and hence I will try to just leave it at this), perhaps the biggest hurdles we will face is the ever-increasing degree to which people are punished for being responsible. She will be ineligible for most financial aid -- even so-called "merit" scholarships -- because she won't have a "need". She will have to make the decision to be responsible and pay for her education through a combination of savings and working while in school as opposed to taking out huge student loans knowing that she can repay them at a rate that doesn't even cover the interest charges and then force others to pay them back after ten or fifteen years when they are "forgiven". She'll have to watch others that took out loans that they shouldn't have been able to qualify for to buy houses that they couldn't afford get special government rescues while she is stuck with the realities of seeing property that she saved and paid cash for drop in value during some future recession. But, hopefully, we can instill in her the right attitude regarding all of these things and more ("right" as defined by me and my wife, not what is increasingly deemed correct by society).

 

"seven-year old daughter"?? She must be a prodigy if you're putting her to work at the age of 9. Did you perhaps mean 17?

A Roth account is a fine thing, but I think she needs a taxable account as well to cover emergencies and and other short term needs. It avoids the trap of people being willing to pay penalties and interest for invading their retirement accounts.

By the time I got financial religion I was 45 and it was almost too late.

Good fortune to all your dear families.

 

"seven-year old daughter"?? She must be a prodigy if you're putting her to work at the age of 9. Did you perhaps mean 17?

A Roth account is a fine thing, but I think she needs a taxable account as well to cover emergencies and and other short term needs. It avoids the trap of people being willing to pay penalties and interest for invading their retirement accounts.

By the time I got financial religion I was 45 and it was almost too late.

Good fortune to all your dear families.

Nope. Age 9. The original plan was for her to start working at age 7, but it's hard to do when she's in Taiwan.

At first she will be doing janitorial and other stuff like that and we'll teach her how to do other things more directly related to the business as she grows and can handle them. I remember when I was 12 my dad and I going down each Saturday to where he worked and doing all the janitorial stuff there. It was a great learning experience. I wish my dad had started using my earnings to fund a savings/investment account back then. Who knows where it might have led? I would like to have her doing the bulk of the bookkeeping and billing for the business by the time she is 14 or so.

If the money goes into a Roth account, then after a pretty short time (two years?) she can withdraw the principle without taxes or penalties since the taxes were already paid on it up front. That's one avenue that we are looking at using for her to save for school or even a first home. But she will have a tiered plan that includes a checking/savings account for immediate expenses, savings for things she wants/needs in the near- to mid-term (toys at first, then clothes pretty soon, then holiday gift giving, then a car a bit later), an emergency fund (that we hope to use to instill in her the difference between emergencies and wants), and investments for longer term goals.

At first her mom and I will dictate how her funds get allocated, but always with explanations, repeated as often as necessary, of why we are having her do what she is doing. From the start she will get some money to use as she sees fit (though not for anything we deeply object to -- we are still her parents) and she needs to learn that if you spend all your money on candy that you can't ride as many rides at the carnival. As she grows we will give her more freedom to make decisions and we plan to use matching incentives to guide her toward making good choices. For instance, we will tell her that we will match whatever she sets aside for a car (in some fashion and up to some limit) and we will make those matching deposits immediately as she makes hers. But we will also make it clear to her that we will not buy her a car or help her out with a car purchase beyond that -- she can choose not to save any money for a car, but then she can live with not having a car as a result. My current thinking is that the matching incentives will start out pretty extreme (to make up for the fact that she doesn't have a good sense for the value of money and, even more so, a sense for the value of saving for a future that, in her mind, is an infinite amount of time away even if it is actually only a few months) and then taper down as she gets older. She will be aware of that so that she will hopefully be motivated to really put money away to claim the higher matches when she is young and then, hopefully, that will simply instill in her the habit of saving as being just part of what she does.

 

Or, one day she will sing

 

No wonder >1/3 of lottery winners declare bankruptcy within 5 years of winning. Way to keep the economy rolling - Spend, baby, spend!

Really?

The info was from a paper written by an old friend for his MBA class on business ethics. Since he wrote it for an Ethics class, I assumed he did real work and found good references. Then again, it was for an MBA - he may have already been on the dark side at that time.

 

Then again, it was for an MBA - he may have already been on the dark side at that time.

Ouch!