Yesterday I had a chance to talk to my nieces and nephews who participate in this program and they were working summer jobs and other odd jobs to collect the money to invest so that they can receive their “match”. Remember in this model I put in $500 / year, then if they put in $500, I will match $500 more, to bring it up to $1500. After 10 years or so of this, plus some returns (hopefully), they can accumulate a sizable pool of money to either use for college or to start their lives post college (put money down on a house, or have it as a reserve fund).
Many times discussions about investing minimize the absolutely central fact that savings is about deferring consumption and the importance of thrift. You need to put aside money and question all of your spending, and when something adverse happens (you end up paying for something that breaks, or you end up paying a late fee on an account or interest on an open balance) you need to change the course of your activity so that it doesn’t happen again.
In America we don’t say it enough that it is HARD to accumulate any sort of nest egg or positive net worth. Many people’s paychecks are gone before they even receive them and it is so easy to add on debt for your car, your house, or to buy things on credit at a department store. The tax burden is high, and if you aren’t careful your entire lifetime of work will come and go and you will have precious little to show at the end, when you need to rely at least partially on your own savings to fund your retirement.
Kids going into college now also face an immense burden in the form of college loans, which cannot be discharged by bankruptcy, and can stay with you for decades. I think that as people accumulate debt during college for legitimate purposes (tuition) then they just figure that they are in debt anyways and pile in on the living expenses, vacations, and other minor expenses which pile up over the time that they are in college. Since the number seems large, what is the harm in adding a few more dollars to the pile? In addition, I don’t think that all of them consider ways to reduce this debt by 1) completing school faster 2) taking courses in the summer in local community colleges and living at home 3) doing all they can to minimize living expenses, including no vacations from work, living as cheaply as possible without getting robbed, and avoiding having a car.
In order to make money you need to HAVE money, money that you have saved up after day to day expenses and isn’t already spent by debt and living expenses. You can only HAVE money if you save diligently, question expenses continuously, and minimize debt.
Even once you have money and are investing it, it is far from a “sure thing”. Some of my portfolios (particularly #3) have started up during terrible times in the stock market, and haven’t grown like #1 which came during a still bad but not as difficult period. This is another important lesson to learn; that investing takes patience and guts and doesn’t always turn out like you planned. This is “real money”, not money like you see on TV or in a video game, and it is painful when investments don’t pan out and you lose money, but you also can’t just put it all in a bank account and watch it sit there and essentially earn nothing.
These are real life lessons and if I can do anything to help them along during the course of this trust fund effort then I feel that I am helping, even if just a bit. And through this web site I am trying to help anyone else who would want to do the same thing and directly or indirectly impart these same lessons.