Please...Don't Give Your Kids Savings Bonds (Without Considering Opportunity Cost!)

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Welcome to the EnjoyMore30s Family Finance

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podcast. The only podcast dedicated to making life more

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enjoyable for young families by hitting on the financial topics

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that tend to weigh on us, stress us out, and distract our focus

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from simply enjoying life.

Joseph Okaly: 00:00:16

Hello and welcome to the fifth series of the

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EnjoyMore30s Family Finance podcast. This time around, we're

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going to cover what is more important than anything else and

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your entire lives, my entire life, which is our kids. So as

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always, if you like what you're hearing, please make sure to

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subscribe, follow us on Apple podcasts, wherever you listen.

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Clicking that star, leaving a review, it really helps us reach

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the quite literally millions of other young families out there

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just like you.

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Now our other series so far, we've focused on you, your

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parents, and pretty much just other general areas that we

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could help work on to improve your situation. This time

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around, though, it's all about the kids, which is really,

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really cool. Now, I never thought at all that I would love

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being a father as much as I do. Holding a child was utterly

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terrifying before I had children of my own. I remember my oldest

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cousin when she had her first child, it was kind of that first

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child of the next generation in the family. And I was just

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terrified that I would hold her and do something wrong and hurt

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her and pretty much have every other member of my family

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looking at me as I did in disgust. So when you have this

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living thing, though, that is literally part of you. So when

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you have that child and you see them grow, you connect with

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them, you see them learn new things, it's just the most

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wonderfully amazing thing as everybody out there probably

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knows because you have kids already, but I'm still just

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completely amazed that it's possible and that I could love

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them both as much as I do.

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This series is dedicated to your kids. We're going to cover those

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financial items for you to help them of course, but we're also

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going to cover the things for them to help themselves. So I

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want you to first just picture your kids and they're nice and

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tiny now, but picture them all grown up. You see them kind of

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standing in front of you and in your mind now I hope. Now when

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you picture your kids becoming all grown up, I'm guessing you

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picture them with a smile on their face, right? They're

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happy, they're they're stable. They aren't standing in their

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bedroom still at home, right? Not living paycheck to paycheck,

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not having credit card that they can pay, you know, pretty much

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not relying on you anymore to still cover their bills, right?

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You picture them happily standing there on their own two

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feet, completely able to support themselves. So for today, let's

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start at where we should always start at the beginning. And the

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first thing that every child seems to receive, whether it's

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from you as their parents, certainly from grandparents, I

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know my grandparents gave me a million of them and that's

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savings bonds. Those bonds from the government that sound

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really, really great, because you only have to pay $25 for a

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$50 bond that you eventually get all $50 for. I mean, pay half

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get the whole amount. That sounds fantastic, right?

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However, they can all too often actually be a huge wasted

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opportunity for your children. Today, you're going to learn

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exactly what that opportunity is, and how to give your

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children a chance to have significantly more money down

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the road for that same exact $25. Now, opportunity is the key

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word here for all of this and more specifically, opportunity

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cost. Opportunity Cost is what you give up by taking one

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opportunity over another better opportunity. If a farmer decides

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to plant wheat but corn turns out to be a more lucrative crop

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that year than they lost potentially more money that they

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could have made if they planted corn. Did you make money off the

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wheat? Sure. Yes, absolutely you did. But not possibly as much as

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you could have. You left money on the table with your decision.

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So another example would be somebody asked you out to prom

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and then somebody else after that after you already said yes

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says 'Hey, would you go out to prom?' You liked them better but

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you already said yes to the first one. That's the cost say

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yes to that first opportunity. So if you bought a $25 savings

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bond for your kid in May of 2000, so roughly 20 years ago.

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Twenty years later, in May of 2020, it would have been worth

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roughly $53. That's paying you back the $25 plus the interest.

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Now it sounds really really good at first glance, right? I made

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more money than I put in just like when we went through the

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wheat example with the farmer. You did make some money.

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Absolutely. Now let's say instead of that though, you used

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a diversified investment, so a spread out investment, for that

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same exact $25. If you've received an average rate of 7%,

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over that same 20 year period, which in our opinion would be a

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reasonable expectation, if you were spread out correctly

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diversified correctly in that investment, then instead you

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would have received $96. That's 82% more money. So you see, it's

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not about 'did you make money?' You made money in either case,

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it's 'did you make the most out of your money, the most out of

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your opportunity?' One savings bond, not really a big deal,

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right? But let's say you had a few thousands in savings bonds,

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like I did. My grandparents give those gave those things to me

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every single year sometimes multiple times a year. Now

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instead of let's say $25, it's $2,500 of initial money. Now

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instead of $53 versus $96, at the end of the 20 years, it's

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$5,300 versus $9,600. That's a $4,300 difference. So how do you

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do this exactly? We're saying all this money then, which

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includes what you already have, and what you are going to use to

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buy savings bonds in the future should all now go into what I

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noted as a diversified investment, or in other words, a

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spread out investment. The one caveat here is if your children

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or your child is planning on using some of these savings

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bonds in the next year or two. So short term, at this point,

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you kind of already missed the opportunity, it's likely better

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to just leave it as is. Short term money should never be

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invested. Now I've talked about this in the past, the easiest

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way to do this is to ask your advisor, or if you don't have an

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advisor, to use an appropriate allocation fund that matches the

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time horizon of when your child is actually going to use it. So

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any of those major investment firms you see on TV, they pretty

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much all have allocation funds now. So if your child is very

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young, an aggressive allocation fund could likely be

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appropriate. If your child is five years away, let's say from

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using it, maybe a moderate allocation fund might be more

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appropriate. Then all you have to do is just remember to not

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touch it until it's needed. It's being professionally managed

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professionally spread out for you already so when there are

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ups and downs in the market well, which will absolutely

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happen, leave it be and you have a very good chance of having

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much more than you started with, and more especially than if you

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just use the savings bond. So next time grandma Jane gives you

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a savings bond for Sonny say thank you very much and put it

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into a place where it could work for you better.

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So what is the goal of today's episode? The goal of today's

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episode is for you to not want to use savings funds anymore

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when they're not appropriate. The goal is for you to have that

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money to be put into a place that your child will get the

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most benefit from it. So thanks for tuning in today and join us

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for next week's episode called Education Savings, It Is Not All

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529 Plans, where we're going to cover all your options for

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savings for your children and the goals you're trying to

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accomplish.

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Overall, if you are able to implement all this stuff that we

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talked about today, that is fantastic. Less to worry about

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now you can focus more on enjoying life. If you are

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wanting help with these things though or you have some

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questions you need help in clarifying. Of course reach out

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to us never a problem. Check out the Ask Joe section on the

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show's website www.EnjoyMore30s that's EnjoyMore30s.com. Till

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next week thanks for joining me today and I look forward to

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connecting with you again soon.

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The conversations on this show are

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Joe's opinions and provided for general information purposes

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only. They do not constitute accounting, legal, tax or other

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professional advice for your specific situation. You should

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always seek appropriate advice from a financial advisor,

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accountant, lawyer or other professional before acting upon

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any content or information found here first. Joe is affiliated

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with New Horizons Wealth Management LLC, a branch office

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of TFS Securities, Inc., and TFS Advisory Services an SEC

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registered Investment Advisor member FINRA/SIPC.