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My kids are asking about whether to enroll in their employers’ 401(k)s, what should I tell them?

If your adult children are offered 401(k)s from their employers, encourage them to do it! The sooner they start learning to save for retirement, the easier it will be.

Use the Compound Interest Calculator on the SEC’s website,, to run different saving and retirement goal scenarios to illustrate this point. Start with a fixed goal, like $1 million. Then show them how much they’d have to save each month if they start at 22. Next see how much they’d have to save each month if they started at 42.

Generally, 401(k)s include selections of mutual funds. These invest in baskets of stocks, bonds, or a mix of both, and are either actively managed by a professional money manager, or built to replicate the performance of a broad stock market index, like the Standard & Poor’s 500-stock Index. has a lot of information on how to balance a portfolio, and what should be considered.

There are also a few things they should avoid. First, if company stock is offered, be sure it’s balanced against other investments in the portfolio. Even if the stock is going through the roof, placing all your eggs in the company basket could be a recipe for disaster. Second, avoid borrowing from the 401(k) if possible. When money is pulled out of a 401(k) it isn’t there to grow. Repaying the loan can also cut into contributions. And, if your kids lose their jobs, the loans would have to be repaid in full or they could face tax penalties.

For more money activities for your child, visit our Money As You Grow section.