We have recently instituted a new savings program for the kids in an effort to get them more familiar with money and how to earn and save it. For quite a while now, they have been on an allowance program where they earned weekly money for completing chores and activities around the house. They have long had a savings account and both have a balance that’s not too bad for their age.
However, lately, it hasn’t really appeared that they were learning much about finances. Deposits into their savings accounts had diminished, in part because access to a bank is not all that handy where we live. They are also getting older and wanting more things. The first place they go for money for these things is us as parents. They have done an admirable job each year saving money to buy souvenirs on our cruise vacations, but that hasn’t really carried over to things for personal desirement.
As part of the new program, we have gotten them checking accounts. These accounts have debit cards with limited access to cash in case they should lose them. Actually, generally speaking, we will hold the cards and not the kids. Hopefully, this will help them learn about access to your money and how to be responsible about it.
The main thrust of the new program though is on earning money by doing things and then saving for what you want near term as well as long term. We will no longer be buying them the little things on a daily basis. If we are out and they want a soda, they will buy it themselves. They want the latest Itunes download, they pony up the money. Obviously, we will still take care of all the major things like clothes and such. And we are still likely to treat them to things now and then.
As part of this new responsibility for purchases, we will be setting up a better chores/reward program for them. They were not always the best at doing their chores each week and we were not always the best at actually giving them their allowance when they did earn it. Now, when chores are completed, we will actually transfer money from our account into their checking account. This will likely occur on a weekly basis, but may be more often depending on the work. Most chores have specific reward values tied to them. They have the standard set that they have to do and then a list of other things they can do for additional reward. The more they do, the more they can earn.
With an actual transfer into their checking accounts, they can actually see the earnings coming in. We have made tools for analyzing data and seeing historical trends/results available. They have already started planning on how to save money for some stuff they want. Sean already mentioned saving for a car (at least 5 years away) and Savannah wants some for college. Of course, the plan has only been going for a few days, but their enthusiasm is good to see. They were very active this past weekend in trying to earn some money. Certainly that will die down somewhat over time, but still, I think they are learning some essential skills.
Another aspect of the new program will be planning longer term savings. The goal here will be to move money from their checking accounts into their savings accounts. It will be a whole lot harder for them to use the savings accounts for day to day type stuff than the checking accounts. The savings is for long term planning. For every $25 they move from the checking account to the savings account, we will add an additional $10 to their savings accounts. The only stipulation on the match is that the money must remain in the savings account for at least 2 months before they can touch it. If they touch the savings account before two months, they will have to repay the money we matched plus a penalty. There are likely to be some cases where we will waive the withdrawal penalty.
They are incentivized to move money from checking to savings because interest is only earned in the savings account. The match and penalty will certainly make them think twice about spending savings account funds. We will have to watch the match amount, minimum duration and penalty amounts to see how they work and will tweak them as needed.
We think this will be an excellent learning adventure for the kids. Hopefully, it will teach them more about finances and how to earn and save money. There is some trepidation about whether they will concentrate too much on the earning and begin to expect reward for every little thing done, but hopefully we can balance that and set the proper expectations. I will try to report back periodically on how this little program is working.
Sounds like a great idea! I do something very similar in my classroom. The students earn “Lewis Loot” and can spend it in the school store. Every student keeps a checkbook and all entries must be debited and credited. The culminating activity is where the students go on a fieldtrip and actually have to run a whole town for a day.
It is a great learning experience and the kids love it!
Sounds great, but a lot more complicated than we did with you. Any job you earned money for was divided in half. Half went into savings and half you could spend. When the time came for your first car, you had money to purchase it. A great learning tool, too.