I think it is great. It certainly beats UGMA or 529. But I think you need to wait until they really start to earn their income. 1) It is really the right thing to do rather than lying to IRS 2) IRS could easily audit it if you claim that your two-year-old is making $5K a year.
The order of importance to me is:
1) Teach kids about money
2) Teach kids about saving money (i.e. the value of having money to spend when they want it)
3) Teach kids about how to earn money (I don’t like monthly stipend, I want my kids learn how to earn money by meeting people’s need, rather than becoming an entitlement). So, maybe $1 for taking out trash daily, I haven’t thought through this yet. It will start with earning my money, but eventually earning money outside by looking for “work” opportunity (e.g. I can teach them writing codes and they can do freelancing).
4) Once they start earning money from the outside world, 80% of their money will need to go to Roth. I can cover their little expenses and co-pay for their bigger expenses up to a limit (kind of like insurance company to them, without insurance premium, again details not hashing out yet). Of course, they will have expenses that they don’t want me to know about (not “insurance” claimable) which they can use their 20%.
5) I won’t worry about they being less illegible for government handouts and scholarships. If they learn to how to become financially more independent, with enough assets and income ability. Tax and government handouts are secondary. Get the first order of business right.
