Caitlin's Corner

Bubblegum vs. Piggy Bank

A few months ago, our two kids (5 and 8 years old) squealed with excitement as they stuck two dry-erase chore charts on the fridge. Yes, they were excited about chore charts. But it wasn’t the chores that thrilled them—it was the drawing, the check-marking, the coloring, and the erasing. That’s their motivation for now. Well, that and the allowance.

A couple of years ago, we decided to start giving our kids an allowance. They weren’t doing much to earn it at first, but we felt it was a necessary step in teaching them basic money management. We started with three dollars a week, which they allocated among three envelopes: one for charity, one for spending, and one for saving. Having clear, specific goals helped—whether it was a charity they were excited about or a short-term savings goal like a toy they had their eye on. Watching them spend their money can be tough, but we’d rather they make small mistakes now and gain wisdom before they start earning bigger paychecks later.

Their allowance isn’t directly tied to their chores. We don’t pay them to complete their responsibilities, as chores are an expectation for being part of our household. However, if we have to step in to do their work for them, we adjust their allowance accordingly.

Recently, we decided to increase their weekly allowance so they can earn up to $5 per week if they: 1) notice things around the house that need to be done, 2) take initiative to complete those tasks, and 3) fulfill their regular weekly chores. The baseline remains $3, with the potential for deductions if they fail to meet expectations.

While they are becoming genuinely helpful in sharing the household workload, our main goal with chores is to instill a sense of responsibility and purpose. We want them to understand the effort required to maintain a home and contribute to a family or household.

Similarly, giving them an allowance isn’t about building significant savings—yet. It’s about laying the foundation for money management. When they spend three weeks’ worth of allowance on bubblegum and later can’t afford face painting at the fair, my hope is that these small lessons accumulate. Over time, they may develop better financial habits and curb their need for instant gratification.

I’ve yet to find a practice that helps them hone their mindset for abundance, creativity, giving, and investing- outside of modeling these values as much as we can. More to come on that, though- as I’m constantly thinking about strategies for this!

Ways We're Saving (for our kids)

As much as I’ve tried to get my children excited about investing, it has proven to be a slow process for those young and instant-gratification-minded spenders. But, that hasn’t stopped us from investing on their behalf, for their futures. Here are some investing options for kids, and how we've chosen to (or not to) use each one:

529 Plans

529 accounts are tax-advantaged savings plans designed to fund education, and they offer significant benefits. While my husband and I value education and may open 529s in the future, we chose not to fund them (yet) when planning for our children's financial future. Instead, our primary investment strategy at the time was real estate. As we aggressively built our rental portfolio, we decided to invest our savings into properties rather than a 529, knowing that in 18 years, these assets would likely hold significant equity and generate even more cash flow. Below, I’ll explain how we envision real estate will fund our kids’ futures. We prioritized the flexibility of real estate over what we felt were the more restrictive conditions of a 529.

Now that we live primarily on passive income, reducing our state income tax through 529 contributions isn’t as critical as it would be if we had W2 jobs. Likewise, the tax-free growth of a 529 is less valuable to us given our investment structure. If we didn’t have real estate providing equity and tax advantages, our approach would be very different.

That said, 529s are an excellent option for many families looking to save for college or other educational expenses. We may open one down the road—whether for our kids, grandkids, or even for our own future education.

UTMA & UGMA Accounts

​UTMA & UGMA are custodial brokerage accounts that allow us to invest in stocks and other assets on behalf of our children. These accounts provide full flexibility in how funds are withdrawn and used, which we view as both an advantage and a risk. The downside? When our kids turn 18, they will have complete control, meaning they could technically blow it all on bubblegum instead of using it for college or retirement. If that happens, we’ll know our allowance methodology failed—and you can bet the September 10, 2034 issue of this newsletter will have an allowance update!

We don’t contribute heavily to these accounts for a couple of reasons. First, they impact FAFSA eligibility, as up to 20% of the account's value is considered in financial aid calculations. Second, we prefer to maintain control over how we financially support our children’s futures. By continuing to grow diversified assets, we can allocate resources at our discretion—either during our lifetime or through the structured guidelines of the trust we’ve set up for them. Nonetheless, we like having these accounts because investment income here is taxed as the minor's income, which we expect to be lower than ours for at least another decade, and so that if our children were to receive a money gift from someone other than their parents, that gift has a place to land that is allocated just for them.

Custodial Roth IRAs

Custodial Roth IRAs are an incredible tool for tax-free retirement growth. Here's a good comparison of 529s vs. Custodial Roth IRAs. Just like regular Roth IRAs, contributions can only be made if the beneficiary has earned income. While our young kids aren’t traditionally employed, they contribute to our rental business through cleaning, packing, organizing, and gardening. We keep their earnings "reasonable" for now (less than $600 per year). As they grow, we’re excited for them to take on more complex tasks like bookkeeping, underwriting, and property management.

​Why Roth IRAs? Contributions grow tax-free, and withdrawals in retirement are also tax-free. Even small contributions today will have decades to compound, giving our kids a head start on retirement savings. Plus, these wages qualify as a business expense for us—so it’s a win-win! And if you don't have your own business, your kids can still contribute to a Roth IRA with income earned through babysitting, lawn care, or other side jobs. If your child somehow doesn't share your excitement over a Roth IRA 🤓, consider matching their earnings into their Roth IRA from your own funds. Just be sure to document all earned income properly for IRS compliance.

What I'm Reading

📕 This is a fun game I stumbled upon, which can be played with your kids. I love the idea as a way to encourage spreading the mental load of “noticing”, which is often the biggest consumer of mental energy when it comes to running a household (and one that is overwhelmingly, on average, shouldered by women). We can teach our kids at an early age that this is a household responsibility, not one that has to be owned by a particular individual, and certainly not one that should be gendered.

📘 Wealth disparities start very early in life: Parents pay kids identified as boys ​twice as much allowance​ as they do their kids identified as girls. As investors, many of us are privileged to be able to pass on lessons in financial literacy to our kids. Let's make sure we're normalizing conversations about equal pay!

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