How to incentivize your kid to start investing for retirement

Once you’ve decided that opening a Roth individual retirement account for your child is a great idea, now comes the hard part: convincing the child to save for a far-off retirement instead of spending that hard-earned money. 

I have some ideas for making the case to your child. 

While you’re doing so, it’s also important to consider what counts as “earned income” for a child’s Roth IRA.

• Initiate a “parental match” program in which you chip in some additional money, say another $5 for every $10 of earnings they put into the Roth IRA. Offer tangible rewards for every savings goal they meet; charts and apps can help them keep track. Set up a “savings challenge” in which everyone tries to save a specific amount each month; the one who saves the most or meets their goal gets a reward.

• Encourage them to round up all purchases to the nearest dollar and save the difference. For example, if something costs $4.50, they save the remaining 50 cents. Offer to pay your child interest on the money they save. You could set a small percentage, like 5%, to be added to their savings monthly or quarterly. This teaches them about earning money on savings through compound interest.

• Motivate your child to take on extra chores or small jobs like babysitting, helping out in the neighborhood, or tutoring. Then, encourage them to save a portion of their earnings by offering a bonus if they save a certain percentage. If they start a small business, such as selling crafts on Facebook Marketplace or Etsy, suggest they save a portion of their profits and offer to match those savings.

• Celebrate major savings milestones, such as saving the first $100, with a small reward, whether it’s a favorite treat, a day out or a new book or game. Recognize their savings achievements in front of family or friends to reinforce positive behavior.

Use this opportunity to explain how compound interest works, showing them how even small amounts can grow over time. If your child wants to spend money on a particular item, require them to save an equal amount before you allow them to make the purchase. 

For example, if they want to buy a $30 toy, they must first save $60, half for savings and half for the toy. This strategy encourages them to think about balancing saving with spending. Instead of monetary rewards, offer privileges for saving —such as extra screen time, a later bedtime, or a special outing. 

This can make the idea of saving more appealing, especially for younger children. Offer more independence, such as managing a small part of the household budget, as a reward for consistent saving.

Teach financial literacy and lead by example. Let your kids help choose their Roth IRA investments. Seeing how their money can grow through smart investing can be a powerful incentive. Create a family investment club where everyone picks stocks or other investments. Offer a small prize to the person whose investment performs best over a set period. 

Regularly discuss your own savings goals and achievements with your child. When they see you prioritizing savings, they’re more likely to do the same. 

Work together on a family savings goal, such as a vacation, and let them see how their contributions help reach the goal faster. 

Incentivizing your child to save is about making saving rewarding and fun. These strategies can help your child develop strong financial habits that will benefit them throughout their life.