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How A Dollar Saved by Your Child Can Become Two Dollars Earned

Company 401(k) and similar retirement plans are great models for family savings plans, too.

You have undoubtedly heard of match.com and its ability to connect people. In this month’s article, I want to discuss a different “matching” connection and teachable moment for you and your children or grandchildren.

Most working Americans have seen or participated in retirement plans at a company that matched up to a certain level of a participant’s contributions. Many programs will match dollar for dollar on the first 3 percent you contribute -- and then 50 cents on the next 2 percent you contribute. Your contribution of 5 percent in your retirement account, plus the employer’s contribution of 4 percent, results in 9 percent of your income being saved.

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The importance of this match is that it encourages a behavior -- saving -- and it rewards this action for the employee. The government encourages this type of matching program by making them "safe harbor" for the employer (less expensive to administer). The government knows they need individuals to save for their retirement, and this is a way to support the behavior.

Parents, or even grandparents, would be wise to consider this type of matching program for their children as they try to encourage the behavior of saving for longer-term goals such as education, a first home, a vehicle, and retirement. Many of these may be things that you would fund a substantial portion of anyway, or would put money toward helping them down the road.

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As a firm, we manage 40 retirement plans with thousands of participants. Each participant looks at their retirement account as something "they" have done for their future.

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Would it not be a great outcome if we could instill a similar sense of confidence in our children? As they save for their future, they defer immediate gratification and learn the importance of saving toward longer-term goals?

We have matched our oldest son on "earned income." His income sources have come primarily from babysitting and working at a golf course for the past three years. We have "matched," dollar for dollar, any money that he has saved for college or for his investment account. One thing we found very interesting was the fact that he always wanted to work as many hours as he could get, even if it was in a minimum wage job, because it was no longer a minimum wage job for him -- an $8.25-an-hour job was now worth $16.50 an hour, because of our dollar-for-dollar match.

This is a wonderful way for a young adult to build their self-esteem and motivation toward investing and saving for longer-term goals. This also serves to help them understand the value of taking advantage of any matching program that a future employer may present. My wife and I planned on helping our son with college anyway. This approach has helped in guiding his contributions to a long-term goal, i.e. education, along with providing a systematic way for us to make our contributions. Both parties win and are happy with the outcome.

James D. Maher is CEO and Founder of Archford Capital Strategies, an independent wealth management firm with over $525M of Advisory Assets Under Management, located in the St. Louis metropolitan area. The proud father of four boys, he is committed to guiding them in building a solid financial foundation to serve them for the rest of their lives.

About the Author

James D. Maher CEPA®, CRPC®, CRPS®, AIF®, C(k)P®

Chief Executive Officer, Founder, Archford Capital Strategies

Jim is CEO and Founder of Archford Capital Strategies, an independent wealth management firm located in the St. Louis metropolitan area. As a nationally recognized authority in estate planning, business transition, and philanthropy for closely held businesses, he is a sought after trainer and presenter. Jim holds a BS and JD from the University of Missouri-Columbia, and is a member of the Missouri Bar, the Exit Planning Institute, The National Center for Employee Ownership, and the St. Louis Estate Planning Council.
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