Young Person Getting Large Sum Of Money
One of the most difficult things to see is when a fairly young person 18-25 gets a large(or large to them) sum of money. For example a 19 year old kid getting $50,000. Now in the grand scheme of things that really is not that much money, but to a broke college kid that is like hitting the lotto.
What would the average kid do?
1) Buy a new car
2) Buy a nice sound system for the car
3) Buy a bunch of clothes
4) Take friends out to eat or pay for other things.
How would the smart kid handle $50,000?
Assuming the kid has no debt(I would payoff any or all debt first).
I would recommend putting at least $25,000 into a good growth stock or growth and income mutual fund with a long track record. Second I would put another $15,000 into a Roth IRA that was in a good growth mutual fund.
Finally $1,000 would go towards a spending fund, where the kid could buy a few things, with the understanding once it is gone it is gone. If we do not allow any fun money the kid will likely find a way to blow the rest of the money.
The rest of the money would go into a 12 months CD, I know the interest rates are terrible but it would force the kid to have a “cooling off” period where the money would be hard to touch.
Obviously at 19 the kid can do what he or she likes with the money but hopefully they realize what $50,000 could amount to with compound interest and time on their side.
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