How I Got My Kids Excited About Saving and Investing

by Darwin on December 9, 2012

I credit a great deal of my financial and career success in life to the way I was brought up and the lessons I learned early in life.  When I look around at adults my age that make very poor financial decisions and have their finances in tatters, I also see a pattern where their parents aren’t very good role models (i.e. close to retirement and in debt themselves, still leasing over owning, no clue how to manage money or invest, etc.).  This survey showing the horrible understanding of finances most Americans possess says it all.  I don’t know if there’s a quantitative study out there showing how far the apples fall from the tree, but based on my own anecdotal observations, I’d wager that there’s a very high correlation between financial aptitude and success of parents and that of their children later in life.  That being said, I wanted to start instilling the virtues of saving and of course, the #1 success factor in life, in my children while they’re young.  My boys are 8 and 6 so I figure they can start to understand these concepts.  My daughter’s only 3 so she’s not ready yet.  Here’s one of the formal systems I’ve set up with the boys to get them excited to save:

The Bank of Mom and Dad

These days, with interest rates where they are, it’s tough to get excited over earning 5 cents a month in your savings account of a few hundred dollars (however, check out if you are in need of the highest yielding Savings and CD accounts).  At the same time, teaching a kid under ten about the stock market and having them invest in individual stocks is probably other their head (and counterproductive, since even most adults are better off investing in ETFs instead of stocks).  So, what’s a happy medium to get kids excited to save?  A very high yielding bank account of course!

I won’t beguile you with tales of how I found a great bank online that pays a high enough yield to get my kids excited about saving.  So what did I do?  I set up my own bank!  The Bank of Mom and Dad.  Here’s how it works:

  • Kid turns over their own cash to set it up.  They hand over their savings from birthday parties, allowance and holidays to me.
  • They can access this money any time they want.  This is important because it forces them to have the discipline to NOT tap the bank all the time.
  • I pay a very high interest rate.  I offer 5% MONTHLY yields.  I know, this sounds ridiculous at an interest rate of over 60% annually.  This would obviously bankrupt me over several decades.  But for a few years during their formative years, this is an expense I’m willing to bear to teach them the virtues of saving.  Anything less and they may be disinterested.  As you can see below, with my son’s starting $30 this is only costing me under $2 a month.
  • I set up a nice visual statement and chart so they can see their earnings over time.  I had also set up an example to project what will happen over time if they leave their money in the bank (below).  I set a quick basic spreadsheet in google docs so I can access it any time I want, life if we’re out in a store and a kid wants to take money out to buy something.  Boom – I remove it from their bank on the spot.
Since I just rolled this out, they boys are very excited about earning money for simply leaving their money with the Bank of Mom and Dad.  To date, there’s been some money my son’s saving for Disney World in his wallet earning nothing.  Now, he can make an extra buck or two a month leading up to our next trip.
What are Your Thoughts On This Method to Get Kids Excited About Saving?
Do You Have Other Tools and Lessons You Use With Your Kids?

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