Smart Reasons to Save, Use and Invest Money

Having Stock Dividends Pay Money For Allowance

Once my son and daughter turn 18 (or 21), I will stop paying them allowances.

It’s not that they were bad, or that I will have a sudden change of heart with the matter, it’s just that they’ll be adults then and traditionally that’s when such things stop.  But in ways isn’t this almost like a punishment for becoming an adult?  Perhaps at some subconscious level, it deters kids from wanting to strive out on their own, becoming totally financially independent from their parents?

Money Gift

After talking this over with my son last night, we decided to change the way that he receives his allowance.  While the details are still being ironed out, basically we going to take most of his money from his saving account and invest that amount into one or more dividend paying stocks.  The idea is that I will still pay him an allowance, but the dividend from these stocks and a portion of the money from his allowance will go into buying more stocks (along with Christmas & Birthday money along with any earned money that he might receive).  We are still working out the details, but the idea is that if we do it right, we should be able to accumulate enough stocks that pay a dividend to provide him a passive dividend stream when he turns twenty-one.  Ideally the amount would be at least $21 per week, which would match the current allowance program that I have my kids on.  Of course, I’m hoping for a higher amount to offset taxes, but who knows, only time will tell.

So what are the benefits of such a Dividend Allowance Paying program?

  1. My kids continue to receive an allowance, but instead of me paying for it out of my earned income, they will pay themselves via the passive income received from dividends.  This is one of those “the gift that keeps giving” kind of ideas.
  2. They start to learn about investments and the power of dividends and passive income at an early age.  Hearing about passive income and actually receiving passive income are two different things entirely.  Until you have passive income, it’s just a money myth.
  3. They will be able to gain investment experience, learning that stock prices go up and down with time, and experiencing recessions.
  4. The learn the concept of having your money work for you.  This will help them visualize money as a tool.
  5. I may gain kids that can talk to me about stocks, we will grow closer as we will have more in common.

Of course I can always follow a different path and invest in dividend yielding mutual funds too.  But since I not that crazy about the fund fees, for now I think I’m going to stick to individual dividend stocks in the short-term.

I really like this idea and one that I’m excited about along with my son (my daughter’s to young to get excited about it yet).

Bests,

MR

22 Responses to Having Stock Dividends Pay Money For Allowance

  1. Once again – this sounds like an awesome idea. If I ever have kids, I think I am going to follow suit. This will be a huge benefit for them later in life as the stocks continue to grow.

    • Thanks! I’ve blogged about creating a dividend stream for me to pay dividends to them, but it also makes sense to have a dividends stream that they build up themselves.

      But what’s really great is they get hands on experience with investing :)

  2. No kid allowances for us, just exploitation in exchange for menial household chores. We half-expect the boys to be calling DHS any day now… :-)
    Good that you can fund their allowances through stock instruments. Their learning from this is almost unavoidable.

    • lol, yeah, my kids are spoiled kind of…

      But yes almost equally as important is the experience that they will gain! I hope they kids realize what a great learning opportunities this is some future year…

  3. It is so great that you are exposing your kids to investing so young.

    You won’t have to worry about allowance when they are 18 because you will be paying much more in college tuition!

    Have you thought about varying their education and investing in bonds or other investment vehicles?

    • Oh yes, they grandpa already buys them bonds. I’m explaining those to the kids every other year too. bonds will have a place in their investment education, and other asset classes too.

  4. LOVE THE IDEA! Wish someone set me up that way lol

    I like Hunter’s twist – I think an ETF or Mutual Fund might be a little bit easier to teach a few more lessons and lower volatility

    • Thanks! I actually had an uncle that would by me stocks, but he lived in a distant state, so I did’t get much education about investments.

      I’m hoping I can bridge the two to create a great financially educational experience, and give them a passive income stream to build upon. A rare win-win in my book!

  5. Very interesting idea. I have to say though…still giving allowances until 18 and 21??? That seems really old! I started working at 12 off of the farm, and was working on our farm far before then. Do your children have jobs?

    • My kids don’t have jobs, but they do have some basic chores that they have to maintain (keeping their room clean, and the bed made, etc) without getting money.

      Extra above an beyond chores we pay them to do, if they want some extra money.

  6. I have two UMGA account setup at the broker that I’m currently with. I’ve been investing in them since they were toddlers, so I will use the same account for them now.

    It’s possible to open an e-trade (or practically any brokerage) account as an UGMA or UTMA account in your child’s name. You have complete control over such an account until the child turn 18 or 21 (depending on your state’s rules).

  7. Like the thought of turning it into a learning experience. The earlier people start with stocks the more comfortable it becomes. Plus you might actually learn about a few companies your kids suggest. Great idea.