Building Generational Money Habits: What Families Who Start Early Actually Do

70% of families who build wealth lose it by the second generation. Jim Bode and Vincent Savio dig into why, and share what the families who beat that statistic are doing differently.

Jim talks about what he and Crista did for their three kids before they were old enough to understand the stock market, including the simple habit they called "the investment tax." Vincent Savio walks through the Roth IRA strategy one client family used for their working teenagers, and what $200 a month looks like projected over 45 years.

They also answer the three questions they hear most from families: Is a 529 plan the right vehicle? Is it too late to fund a Roth IRA for last year? And what should my child do when they get their first job?

In this episode: → The "investment tax" and why Jim Bode started his kids investing early → Custodial Roth IRAs and why most families don't know about them → What $200/month looks like over 45 years at 8% and 10% → The Rule of 72 and what a 10-15 year head start actually means → 529 plans vs Roth IRAs and why flexibility matters → The April 15 deadline to make a 2025 Roth IRA contribution

Coming up next: The Gap Between Your Tax Return and Your Financial Plan with Ben Beck, CFP® and Garrett Murphy, April 23. Register at beckbode.com.

Read the full blog post: beckbode.com/blog/building-generational-money-habits

About the Podcast
The NoBonds Cast is a conversation-driven podcast exploring financial planning, investing, legacy, and the human side of money. Hosted by managing partners, Ben Beck, CFP®, and Jim Bode, the show is designed to help listeners think more clearly about their financial lives and the decisions that shape them.

Important Disclosure
This podcast is for informational and educational purposes only and should not be considered financial, legal, or tax advice. Views expressed are those of the hosts and guests as of the date of recording and may change. Investing involves risk, including the potential loss of principal. Past performance is not indicative of future results.

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Transcript

SPEAKER_01 0:01

Hi everyone, thanks for joining us here today. I'm Vincent Savio here with managing partner Jim Bodie, and we're excited for you all to join us.

SPEAKER_00 0:12

So I was recently looking at a report that was created by Vanguard that did a study on wealth and wealth transfers. And one of the reports was saying that 70% of people that have wealth to pass on to the next generation, by the time the second generation is done, that wealth is gone. And the question that I have is, well, why? Right? And so when we talk about that, and I'm going to throw this back to you, Vinny, is why do you think that most wealth doesn't make it through two generations?

SPEAKER_01 0:46

I think it's because there's not a lot of communication between generations of how they built their wealth, how to sustain it, who they're working with, and creating a plan of how they're going to make that last for the next 40, 50 years.

SPEAKER_00 1:00

Yeah, and and sometimes we're talking about multiple millions of dollars. We're not talking about, hey, I've just passed on $100,000. And a lot of these cases that Vanguard did in their study, it was they're looking at families that are passing on substantial wealth. And I think you're right. I think a lot of it comes down to education. I think a lot of it comes down to does that second generation number one understand what savings and wealth really is? And are they doing anything about it? And as advisors and as a company, what are we doing about it to make sure that that next generation really understands what the value of this money is and how to make it last even longer than two generations?

SPEAKER_01 1:38

I think that's a fun part of this discussion today, where instead of being parents who are one worrying about what they're gonna leave their kids behind, when do we really start having the conversation of how to help them build their own wealth? And then how do they accept the responsibility of any inheritance in the future?

SPEAKER_00 1:57

So when should we have that conversation with clients, right? If we know that there's an issue, what are we doing to solve for it? And when is that right age that we start talking about saving and investing and planning, not just for our current clients, but specifically for that next generation?

SPEAKER_01 2:14

Yeah, I think there's a lot of questions that are out there, and the truth is it's never too early to start planning. We see a lot of new parents who are having newborns and they want to put their kids in the best case scenario right away. And how do we start saving for college and everything else under the sun to give them the best life possible? But just saving for them isn't really answering the question. It's how we're gonna continue to educate them and raise them through their teenage years through college into their first job so their money habits are strong and they know the discipline of saving early. So it's never too early to start having a conversation with your advisor and starting to earn a plan. But I think today we want to specifically talk about as our kids are starting to get jobs, earning money of their own, what habits, what accounts, what can they be doing? And truly, what is what does that end result look like with compound interest?

SPEAKER_00 3:09

Yeah. Yeah, I think what might be helpful now is um I love telling people about what I'm doing personally, right? As the owner of an investment firm, it's like, well, what are you doing for your kids? And I think what might be great is then take it to what an example of what some of our clients are doing. Sure. So personally, um, I, as it stands right now, I have a 19-year-old, a 16-year-old, and a 12-year-old. And they're all very different and they have different personalities. But the one thing that my wife and I, Krista, did very young is we opened up a small investment account for them. And it wasn't anything other than for them to see how the markets move. They don't necessarily needed to understand what's causing the markets to go up and down, but I wanted them to get the idea of hey, if I open up an app on my phone and I see that I own these three or four companies, I'm gonna start understanding what's happening with money. So at a young age, I want to say probably 10 years ago, Krista and I opened up just regular investment accounts in our name that we gave our kids access to with something like two or three hundred dollars each, just so that they can understand what's happening with their investments. And we slowly started adding to it. When they got money, they started adding to it. We called it the investment tax. So they saved a little bit into their savings account. Mom and dad saved a little bit, so they had a little bit of a vested interest for them to go forward. And I we they have input on the investments that we buy. I show them a list of companies that they can look at, they can pick from, and when it's time to make changes, we help them understand why we're making those changes. So for me, it wasn't necessarily an introduction of financial planning, but it was an introduction of, well, I do need to save, and there's a way that I can invest in something that is going to have a long-term impact as those accounts change. So that's what I did for my three kids. And as they got older, and we'll talk about a little bit further on, um, when they started working, we've made changes to some of those goals. So that's what I'm doing personally for my kids. And Vinny, I know that you've been working with a couple of families and a couple of clients specifically for them. Why don't you share a little bit on what you've done and helped them set up for their their kids? Sure.

SPEAKER_01 5:21

So a great set of clients who have some older kids, one in college, one is graduating high school pretty soon, but both are working. So the question came up: what should they be doing? And this really opened the doors to show them and their kids, because we met with them directly, to take them through their goals, their planning, and then teach them a little bit about the investments without overwhelming them right away. You don't want to turn this off. A lot of times this seems confusing at a high level for a lot of people. So we're trying to make it as easy as fun, but I like to show them the path at the end because sometimes it doesn't seem like a little today is gonna be a lot tomorrow. So you want to show them projections into the future. Right. I love that. So what we decided to do was because both kids are working, we were gonna open up a Roth account, okay, for each one. So for those of you who don't know, the difference between a traditional IRA and a Roth. Traditional will grow tax deferred, but when you start taking the money out, you'll pay taxes at that time. The Roth, however, you pay taxes today and it will grow tax-free. And when you go and take that money out after the ages of 59 and a half or older, all the money is yours. So when you start that much earlier, that the feature of compound rate of return will be that much greater over that length of time. So each of the kids, again, both teenagers but working, started with $500. Okay. Each have made the goal of saving about $200 a month, which is a great savings goal for sure. Over $45 years, if you look at an average rate of return, and I like to look at a couple different numbers here, but over the last 50 years, S P 500 alone has returned greater than about 10 percent. So if we use 10 percent as a baseline, starting at $500 today, 200 on a monthly over 45 years, gets us to about $1.7 million. Go a little bit higher than that, obviously the return's that much greater. If we bring it down to 8%, it's still north of $900,000. And that's before the kids have graduated, got their full-time jobs, started really their prime earning years just on this habit alone, sets them up to be millionaires.

SPEAKER_00 7:29

So what we've done in that example is you're basically saving $2,400 a year, right? Starting with $500 in over 45 years, not thinking about any other money that they're saving just in this Roth IRA. They're gonna have, just for a round number's sake, around a million dollars of tax-free growth and tax-free distributions. Remarkable.

unknown 7:48

Right.

SPEAKER_00 7:48

Really is remarkable. And when when you say the word custodial, can you kind of dive into what that means? Because obviously these are minors that you've opened up these accounts for.

SPEAKER_01 7:58

Sure. So one is over the age of 18, so he opened up his own Roth. Because his sibling is under the age of 18. A parent signs off as the guardian to give permission that money can go in and out of this account. Um, it's just a way to add a layer of supervision onto the account for the child until they become an adult.

SPEAKER_00 8:18

Yeah, and and and it is a Roth IRA, so there are rules around what we can contribute. And for a minor working, um, they can contribute up to $7,500. If they're not making that, in other words, if they only made $5,000, they can save $5,000 into that account. So any earned income that they want. But for the example you gave, they were saving $2,400 a year. And that amount grew to a million dollars. And I think for a kid at the age of 16 or 18 to have that vision of, I'm gonna be a millionaire someday, that's pretty awesome.

SPEAKER_01 8:51

I think it's a huge credit to the parents, right? The I think back when I was a kid and you know, I made a little bit of money, I would go out, spend it with my friends, look at every way that I just, you know, I got a little bit and I just went out and did it. But instead of forming really good habits, um, as these parents are trying to pass on to their kids, because they look at their retirement today and they're, you know, earning good money, they're saving along, and they're eyeing retirement. Instead of the focus on maybe what do I have to leave my kids to make them okay, what habits can we teach them today so they can build their own wealth? Yeah. And so that way you're looking down the line where they're not as scared about dipping in for long term, or maybe there's travel, or maybe there's just ways they want to live their life, and they don't feel the stress or the burden of, well, we're not leaving our kids as much as we thought we were.

SPEAKER_00 9:40

Yeah, and and I also think from a parent standpoint, when I think about my kids knowing that we're setting them up to be successful in the future, um, that's that's what we're trying to do, right? We think about that Vanguard report, and if we can set that next generation up with the proper skills and savings and planning, um, it's gonna make any inheritance that they get or anything that they're doing for themselves be a lot more meaningful to them. So when I think of my kids again and and what we've done is is we've set my oldest son up in particular with a Roth IRA. And for him, he has complete control. He's over 18 years of age. It is a Roth IRA that that he has. And and I think the first year that he opened it, um, I believe he started with roughly $6,000. And and I re I remember looking at his account at the end of the first year, and he was like, Dad, it's up 10%. I made $600 this year. That doesn't feel like that much. And then he made another contribution into his account, and then he had another good year, and all of a sudden that $600 return turned into $1,200 because things are starting to grow and move a lot faster. And in front of his eyes, he saw the power of compounding, he saw the power of savings, and it's changed his view on hey, do I want to go out and hang out with my buddies after one of my classes or on break? To hey, I need to get some more money into this account so I can keep it growing because now my money's working for me, and it's gonna be a lot larger in 10, 15, 20 years. And in his eyes, it's really exciting to see how that makes sense to him. And starting at a young age and creating those habits, there is no doubt in my mind that he's gonna continue saving well, well, well into the future. And there was another report that I recently saw, we recently looked at, that said what the average age that someone actually starts saving. And love for you to talk a little bit about that, Vinny.

SPEAKER_01 11:32

Yeah, so the average age has come out to be anywhere between 27 and 33 years old. And I think that makes a lot of sense because so many of us, when we get our first jobs, we're still not making the money we obviously want to be making, and we are living more paycheck to paycheck, or we're paying off student loans or past debt, and we're really trying to find our bearings, and a lot of times it's not the long-term vision that sets our budget. Instead, we're reacting to the short-term debts that are around us and what we can do, where we can go, how we can have some fun, enjoy ourselves. So we put off that piece of um our plan or process where we should be saving because we don't really know what to do. And there's not a lot of education behind it when you go to a lot of these companies. Yes, they give you the pamphlet, or you can sit down with HR or whoever, and maybe you set something up, or maybe you don't, but they don't really do a good job of educating you of what can be. Or people look at it and say, you know what, I'll start this next year at my next race. Yeah. And so I think what we're finding as we have this discussion, or in your own experiences when we talk to clients, is the fact that how amazing is it that this couple in particular that we're mentioning here gave their kids a 10, 15 year head start.

SPEAKER_00 12:52

And that's what we're trying to create. We're trying to look at that next generation and say, oh man, I wish my parents taught me earlier. I want all of our clients to have that conversation with their with their kids today that we can be included in that just starts creating healthy habits around saving and investing. And we're trying to be as a company really intentional about this.

SPEAKER_01 13:13

Yeah, I think we want to just be open and available to those conversations. Because we're gonna see questions out there, and I know we have questions come in now that are asking, well, from a tax perspective, you know, what is the best situation to put our kids in or put myself in? And the truth is that there's layers here and nuances for every individual situation. So really it's having a discussion with your advisor, laying out what you really want your goals to be, and then looking at the different alternatives at the types of accounts, whether you're getting an estate plan involved in really how you want this money to either be um taken care of, inherited, or built over X amount of time. So I think having that discussion is never, it's never too early. And even if you feel like you're on the back side of it, bring your family in now because you're gonna start to create those better habits for your grandkids if your kids can now start teaching them about the money.

SPEAKER_00 14:07

Yeah, so we've been, we've been on, Vinny and I have been on a campaign with with all of Beck Booty, and we talk a lot about legacy planning and passing money on to that next generation. And and it's becoming a really meaningful part of our practice because for Vinny and I, it's we have kids that are the ages of many of the ones that we're talking to. And we love having those conversations with them to start that educational process. So we're encouraging all of our clients, whether they have kids or grandkids, that they want to start creating healthy habits for, to introduce us to them. And and we have the dialogue with the parents and the grandparents to make it a very comfortable and informed decision. And I again we reflect on my parents in that generation. Money was a secret. Nobody wanted anybody to know how much money they were saving. And I think nowadays we're trying to break that where we don't need to have our clients know exactly how much money or their next generation know exactly how much money they have, but we want them to be part of the process of saving and understanding what's happening with the money. And when they get to a certain age, we do want to talk about it. We do want that next generation to understand what that inheritance is and making it meaningful for them and making that part of our planning conversations. So that continued dialogue is what we're working towards at Backbodie.

SPEAKER_01 15:28

And if you think about it, if you're one of the parents out there that haven't had a conversation with older kids, let's say um they're parents to themselves at this point, looking at maybe it is a little too late or we're uncomfortable them knowing exactly what we have, the truth is you think about how they're gonna feel if they inherit this amount of wealth at some point or this responsibility, and they don't know how to navigate it. So having the conversation with them at any point is only gonna ease that tension or anxiety for them to make good decisions, and maybe you can have some input along the way to guide them to make the decisions that are important to you too, so they're great so they know how to take care of the their kids from your wishes.

SPEAKER_00 16:14

So yeah, going back to that Vanguard report where money doesn't last or 70% of assets don't last past the second generation, and we started back boating now 13 years ago. If I was to fast forward 40 years from now or 30 years from now, and we ran this same study just on our clients, my goal would be to say that 100% of our clients, their wealth passed on past that second generation. And that's really what we're working towards, is to educate absolutely every single one of our clients, as well as their legacy or that next generation on how to invest, how to plan, and a place to begin this process. So that's what we're working towards.

SPEAKER_01 16:53

Absolutely. Absolutely. And there's no there's no minimum on these types of accounts. I think it's just important to start.

SPEAKER_00 16:59

Right. So if if you're one of those clients or or a potential client that might want to get engaged with your your children or your next generation or or figuring out where to start, um, we want to have that conversation. So appreciate everybody joining, talking about building generational, healthy saving habits is what we're doing here. And um appreciate everyone for joining us today. Thanks for joining us, and we look forward to seeing your questions come in.

SPEAKER_01 17:31

And the first one here is is a 529 plan the right vehicle to start saving money at an early age?

SPEAKER_00 17:40

Yeah, that's a great question. And and sometimes what happens is we got to know a little bit more about the client because some of it gets a little bit personalized. But let's talk about the benefit of a 529 and why they were created. Um, the idea was a 529 plan was a place to put money that was specifically to be used for college to pay for college expenses that allowed for tax-free growth and a tax-free distribution, as long as, again, it was used for college purposes. And while on the surface, this seems like, oh, that's great, I'm gonna start plugging as much money into this as possible. The one thing that we want for our clients is as much flexibility as possible, right? So when I think of a 529 plan, um, you're putting rules on your money, which um, as my mom knows, I don't always like rules or want to abide by rules. So, any of our clients, I try to keep as much cash as flexible as possible. And inside of a 529 plan, they also tell you how that money can be invested. So you're limited on your investment options in there, which is more rules that I don't think we should have on our assets or our money that we want to invest. While it's great to think about tax-deferred growth, I start asking clients a lot of questions on well, what if your kid wants a gap year or what if they get a scholarship? I mean, there's a lot of different ways we can pass money on and use it, but there's other ways you can accomplish the same thing with a 529 plan. And and I know when I had kids, use an example of myself again, um, I know that family members wanted to make sure that money was being put away for college. So for the money that family members wanted to contribute, we created a small 529 plan for that purpose. For money that my wife and I wanted to set aside for college, we actually just saved it in a regular taxable savings account that left us the most flexibility. Now, when we go through the planning process for clients, the one thing we always talk about is save for yourself first. We've dealt with a lot of clients that are now in root are in retirement, that are really, really proud that they paid for their child's education, but they're not as financially secure as they could be. Whether they refinanced a home or didn't save enough while their kids were in college, it was not a great long-term decision. And I want to do everything I possibly can for my kids, right? But I don't want that to be at the detriment of my own personal financial future. So I think when it comes down to what's the best savings vehicle for anybody, number one, it's gonna be save for yourself first. Number two, it's how flexible can we make that money so that all of our goals can be accomplished.

SPEAKER_01 20:20

Yeah, I think it's a great point. We can have a whole other discussion about 529 plans as it is. And while they may serve a purpose somewhere in the plan, today's conversation about generational wealth and money habits, too, it's really not gonna be the primary vehicle that we're gonna be recommending. Right.

SPEAKER_02 20:37

Next question.

SPEAKER_00 20:43

So as we sit here on March 25th, the the question is is it too late to open up an IRA or a Roth IRA?

SPEAKER_01 20:51

No, absolutely not. Again, for 2026, there's absolutely no rush or you're not late to the party at all. Um you're actually in a unique scenario today. If your child was or you were working last year and had earned income, you can actually make a contribution for 2025. So if you work during the year, you can make the full contribution of 7,500 for last year, and you can make a full contribution for 2026 as well. So if you're looking at your income for last year or your child's income and they're gonna exceed the 7500 as one lump sum, and you want to add more, you can make one for last year and this year. And we have until April 15th.

SPEAKER_00 21:31

So we're a little over two weeks away. So we have time. Yep. You have time to still make a 2025 contribution. And how long does it take to open up the account and fund it? Uh I mean with the team here, it will take a day or two days. So plenty of time to make those contributions as long as you had earned income into a Roth IRA, if it's appropriate, as well as an IRA.

SPEAKER_01 21:51

Yeah, if you reach out to the service team or you reach out to your advisor, it will happen quick.

SPEAKER_00 22:00

All right, Fanny. So the next question is in, and it's my child just started their first job. What is the best thing for them to do to get started on savings? Sure.

SPEAKER_01 22:11

It's a great one, actually. First thing is we want to have a conversation with them and look at all their opportunities. One, what is their employer offering? Do they have a 401k opportunity? Is there a match? What vehicles with inside the 401k is appropriate for them? What are their investment opportunities inside the 401k? And how can we structure that around a plan for them for the best success for their retirement? And then after that, yes is the answer. There may be an opportunity to open up a Roth account with us or a traditional IRA or another account that is also fulfilling the needs that they want. So it's not a quick yes or no question, but it's worth the conversation, and you should always be reviewing what your investments are like in your 401k and how your savings looks.

SPEAKER_00 22:53

Again, it's it's a personal question on what's the best path forward. Part of the planning process helps decide what's the best savings vehicle for any client and into their future.

SPEAKER_01 23:03

And I like this question a lot because it really does point out maybe in this case, the child hasn't even started the 401k yet. And maybe they're nervous about having that conversation or don't know who to go to. So I think that this is an important one where they can be directed to us, have a really good conversation, and we can take our time in educating them.

SPEAKER_00 23:20

Great. Well, that that wraps it up for the day. I appreciate everybody joining. Um any questions that you have on anything that we've discussed today, or you want to talk about um having a conversation with your next generation or your kids or opening up different accounts, um, we're here to help in any way possible. So thanks everybody, and we'll speak again soon.