First, I made a mistake! I now wish I would have put the money I’ve been saving for my kids into a stocks that yield a dividend instead of a UMGA account for them once they turn 21!
Then continue to invest money into a dividend stock ($125 a month) or dividend paying mutual fund, while using the dividend to pay for my kid’s allowances! See the crude table I created below:
| Dividend Pay % | 4.00% | ||||
| Weekly | |||||
| Age |
Contribution | Dividend | Total Savings | Allowance | |
| 1 | 1500 | $30.00 | $1,560.00 | $1.15 | |
| 2 | 1500 | $92.40 | $3,122.40 | $1.20 | |
| 3 | 1500 | $154.90 | $4,747.30 | $2.40 | |
| 4 | 1500 | $219.89 | $6,437.19 | $3.65 | |
| 5 | 1500 | $287.49 | $8,194.68 | $4.95 | |
| 6 | 1500 | $357.79 | $10,022.46 | $6.30 | |
| 7 | 1500 | $430.90 | $11,923.36 | $7.71 | |
| 8 | 1500 | $506.93 | $13,900.30 | $9.17 | |
| 9 | 1500 | $586.01 | $15,956.31 | $10.69 | |
| 10 | 1500 | $668.25 | $18,094.56 | $12.27 |
The advantages of such a system would be as follows:
- It could be used as a stealth emergency fund(s). So if I were to lose my job, we would still be able to eat…
- I would still have control over the money instead of my kids once they become the age 21 (or 18 depending on the state), like they do with their UGMA accounts.
- Someday, when my kids are looking to buy a house, I could give the money to them for help with the down payment.
- Or I could use the money to help pay for college costs.
- I could even be cruel and decided to keep the money for myself. Look out Hawaii, here I come!!!
The points above are excellent reasons why just buying stock with dividend in my own name is better than their names!
After some reasonable success with my Lunch Experiment, I’ve been wanting to create new stock dividend fund anyway!
The key to such a “Kid’s Allowance” stock dividend fund would be to start saving for the fund very early. Perhaps even before the child is born! And of course to continue to keep putting money into the investment each year!
What say you? If you were newly married, would you consider creating such a fund now? Perhaps buying a great monthly dividend stock like Realty One “O”…
-MR
That’s pretty neat.
I have index funds that pay dividends and one single stock that pays preferred dividends that I cannot convince myself to get rid of because it has treated me well. (Well, after it bounced back from bankruptcy, it has treated me well.)
I’ve never really thought to target that money though. The index funds bring in variable amounts of money each quarter depending on how the market has done. I don’t like dripping the single stock because that puts too much money in a single stock. (I was dripping it for a while, but my father had words with me about why that was stupid.)
Anyhow, I LOVE quarterly dividends. I did a BOE (back of the envelope) and if we have a million dollars in dividend earning stocks of various stripes, then DH can completely quit his job without us touching the principal. That is a LONG way from now though. Something to aim for to keep lifestyle inflation down, though!
For us, one or two stocks for the kid’s allowance would work great! I would want the kids to track it and teach them that is where there allowance is coming from.
I’m a bit late in the game to do so now though. I don’t think I could convince them to give up their current allowance and go with a dollar one until I invest enough.
Investing is a strange beast… Buffett didn’t get rich by buying mutual funds. And although I’m no Buffett, I like a little bit of spice in my investing life. Call it my one luxury… 😉
Haha, I use BOE from junk mail for many things too. Like the comic strip that’s this coming Saturday (there is more meat to this next one, I promise!). But mainly I use BOE for post ideas and stock ticker quotes…
I think as long as you save/gain more than you put in… you win (taking into account the continual biting of inflation, which shouldn’t be much of a problem currently)…
Good luck in your goals, if I were you DH, I would appreciated the effort to let me quit my job :)!!!
This sounds pretty interesting. Basically, our dividends are used to buy more dividend-paying investments even if it isn’t touched for a while (boring I know). It’s certainly reasonable to purpose the dividend income though. We don’t have kids yet, and we might not even give an allowance (they’ll be on commission instead) 🙂
I do the same with my main dividend stocks, I’m going to blog about my technique someday, but I bet it’s somewhat similar to your technique.
The Lunch experiment (using dividend stocks to buy my lunch) was free. This dividend fund will cost me a little though, but I think the benefits of my kids tracking the stock and understand the lesson of passive income is worth way more that the cost of the dividend from the stock (or so I hope 🙂 )
hehe, I like the commission idea too!
All I can say, is that’s so cool. I also use savings bonds for a dual purpose. Emergency fund/college savings plan.
I don’t like the idea of tying up a bunch of money for 1 purpose only. I only have like $1000 in my kid’s 529.
I think it would be a great learning too for kids! The passive income from the stock could be a great introduction to investing.
I think for me it might be a bit too late though. It would require a decently sized outlay of cash into stocks to generate that type of dividend…
Mr. BFS runs our Scottrade account and invests in 10-12 dividend stocks at any one time. OKS has been VERY good to us, lol. Not only has the share price been great but the 5 or 6% dividend is really nice too. 🙂
We’re reinvesting the dividends and will be using everything in our Scottrade account as our bridge fund between early retirment and when we can touch my 401(k) without a penalty.
It’s a great time to be in dividend stocks, that’s for sure!
Congrats on picking up great stock while they are low 🙂
I really, really, really need to get more involved with dividend stocks. (Really)
Our college funds are 529s and a Janus Gift trust (that was before 529s were ‘invented’). I don’t know if I would have done it differently or not if I had to do it over again.
I admire your creativity. That mind is always spinning!
I wrote his more for newer parents, I’m too late.
I have way to much money in their UGMA accounts… And plus once it goes in, by law it’s theirs… I once put money in my Kid’s accounts by accident, and my broker wouldn’t let me take it out unless I gave a reason that would benefited the kids…
I do have a 529s too though… And that will provide most of the funding for their college education (I hope).
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I guess I shall do this. But as of now whatever dividend we get is utilized on urgencies at home. Not yet started reinvesting . We are still in the settling phase in life.