Should Your Kids Get an IRA to Play With?

What parents need to worry about, then, is the maturity -- or lack thereof -- their kids have when it comes to money. Even with modest assets, kids can have a "trust fund kid" mentality.

"You have to be sure that kids have a little bit of a buy-in," Hobart says. "Otherwise there can be a sense of entitlement or laziness. [Even with just $5,000 a year] they might think they can live off it, and that's just not reality ... the wrong kid getting the wrong amount could hurt them."

"I think the idea is good and given the right guidelines it can be powerful," Hobart says of establishing a retirement account for kids. "I like the concept. I just fear human nature."

Miller says a custodial IRA could help give kids "teachable moments" and "concrete examples of how this could really help them over the long haul."

As they understand the power of saving and interest, there will hopefully be "light bulbs going off" and kids want to participate in these arrangements," he says. Its up to parents to make sure they stay on the right track with the retirement funds they get.

"In most cases, a college-educated person goes through 16 years of education and yet they never have a personal finance class," Miller says. "You finish school at age 21 and now you are taking over this IRA. If you don't know that there could be penalties if you take money out, or how much you should have or be putting away -- if you've never done that math with a parent -- you could just see it as a windfall to take advantage of and all those years of saving and compounding and growing could disappear with a couple of silly purchases."

Also problematic can be how younger generations are reacting to recent financial setbacks and market volatility. Just because parents established an IRA is no guarantee their kids will keep funding it or manage it adequately.

Research released last week by T. Rowe Price (Stock Quote: TROW) shows that "despite compelling evidence that younger investors are well-positioned to benefit from long-term retirement savings," less than half (45%) of those considered Generations Y and X (ages 21-34 and 35-50 by its criteria) plan to contribute to an IRA during the 2011 tax season.