Money Advice for My Son

My 20-something son recently came into an inheritance from a relative. It's not a huge amount -- about $30K or so. Enough to buy a car, not any more than that. But he’s lucky, it's a lot more than most kids start out with.

When he came home for a weekend earlier in July, he seemed a little daunted by the responsibility. "What am I going to do with this money?" he asked me. "I don't want to just squander it."

As his father, I liked his initial reaction, because I know what a lot of young people would do -- squander it by going to buy a Ford Mustang or a Jet ski, or taking a week-long trip to Las Vegas. At first I didn't know how to answer his question. The only lump sum I ever got was from my 401K plan when I left work, and the answer for that was pretty clear: Transfer it directly into my IRA account.

But when you’re in your 20s, should you be worrying about your retirement account? I don’t think so. A 20-something has more important things to consider, such as how he’s going to live his life. So I finally said: What should you do with the money? Invest it in yourself. Here are the ideas I came up with, though if you've got others, I'd love to hear them and maybe pass them along.

Invest in education. You have a college degree, I told him, but these days a college degree by itself is not a ticket to success. For a lot of careers, you need a master’s or more. So, are you interested in going back to school? Either for a master’s degree, or maybe just to enhance your skills?

You’re in the music business. It’s a tough way to make a living. If you want to pursue the business end of things, you might use this windfall to pay tuition for an MBA. Or maybe you have some computer skills you want to learn, and you could take evening classes. Or if you want to pick up the sax again, or improve your guitar technique, take some music lessons. But a word of caution: Don’t go back to school just to go to school. Know what you want to learn, and what you will do with the new knowledge.

Invest in a business. If you don’t want to go back to school, do you have the urge to start your own business? If you do, here’s your start-up money. But I’m not pushing it. I think you either have that inner drive to start your own business, to run your own show, or you don’t. It’s an “all in” proposition. If you don’t have that “fire in the belly” then you should work for someone else and take a paycheck.

Buy a house. If you’re confident in your career track, you could instead use the money as a down payment on a house or condo. I know, I know, no 20-somethings are buying real estate these days. And you’re a little young to take this step anyway. But I bought my first house when I was 29, and it was the best investment I ever made.

         It might actually be a good time to buy, now that prices are down 30 percent from a few years ago, and may even be poised to start rising again. If you’re pretty sure you’re going to stay where you are for the next few years, it might be the smart thing to do. It will put you on track to own something in this world, rather than rent your entire life from someone else.

Just save it. If you don’t have the desire to do any of the above, then don’t do anything. For now. Put the money aside. Deposit it in a low-cost investment account, invest in a mix of cash and mutual funds, and wait until you are ready to make your move.

But I hope you eventually do get the urge to do something. You have a great opportunity here, so don’t be afraid to use it. The worst thing is you’ll lose the money. But is that so bad? You’d just be back where you started. It would be more disappointing to see that money still sitting around 40 years from now when you retire. That would mean you never took a chance.