How to Track Your Teen's Family 401(k)

The “Family 401(k)” is my all-time favorite family finance hack for parents seeking to help teens grow their wealth and investing IQ over decades. I’ve written and talked about the technique many times since 2011, and I’ve put it into practice with all 5 of my kids.

The Family 401(k) is a homespun version of the workplace 401(k) program commonly offered to employees. With a workplace 401(k), an employer kicks in extra money to help the employee build wealth in a tax-advantaged company sponsored retirement account. With a Family 401(k), parents kick in extra money to help their child grow wealth in a tax-advantaged individual retirement account known as a Roth IRA.

For the uninitiated, the quick recipe for the Family 401(k) is:

6 Reasons To Review 529 Statements With Your Teen

How much does your teen know about the 529 account you opened for college savings?

Nothing?

That’s the norm. Pretty dry stuff for a teenager.

Here’s a radical suggestion.

👉 Review your 529 statements with your teen.

And do it every quarter.

Yes, your initial sessions will be greeted with eyeball rolls, yawns, or worse. But keep up the good fight.

Through your consistent and repetitive efforts, your teen will gradually learn the following:

How To Decipher Purchase Locations In The Digital Era

“This Uber Eats charge must be fraud — we don’t live in SF!”

Have you coached your child on what to expect when it comes to reviewing card transaction descriptions?

If not, they might think a transaction is fraudulent when it isn’t.

A classic point of confusion: as more purchasing moves online or in-app, the city or state mentioned in a transaction description is increasingly unlikely to reflect the physical location where the purchase occurred. Instead, it often maps to the business headquarters of the merchant far away from the point of sale. That’s why, no matter where you use Uber Eats, you’ll see the following in your transaction history:

How to Conduct a Year-End Financial Review With Your Child

Now is the perfect time to sit down with your child and conduct a year-end review of their finances. If delivered diplomatically, a gentle audit will nudge them toward better fiscal habits in the year ahead.

To set the right tone for a candid exchange, I like to break the ice by confessing one or two boneheaded financial mistakes of my own. Like when I wasted a gazillion dollars on an unnecessary storage locker — for 13 years! Hey, we all make financial mistakes, right?

As you browse through your kid’s transactions from the past year together, here are a few things to look for and discuss:

How To Manage A Teen Clothing Budget

Parents often ask me how to teach teens budgeting basics. My favorite approach takes a page from the envelope budgeting system playbook, but with a digital twist.

In the traditional envelope system, each category of spending has its own labeled envelope stuffed with the budgeted allocation of cash for the month. Purchases must be funded with the cash from the appropriate envelope. So, all clothing purchases come out of the envelope labeled “clothing”. Super simple.

For the digital twist, replace cash-stuffed envelopes with automatically loaded FamZoo cards. So, all clothing purchases come out of the card labeled “clothing”. Still super simple. And it works in today’s online world where cash is no longer welcome.

When introducing teens to budgeting, I recommend keeping things narrowly focused. No need to overwhelm. Start by choosing just one envelope outside of everyday spending. Clothing is typically an excellent choice for teens.

Here’s how to get your system up and running: