Banking for Kids

My daughter is turning 3 in July, and we’ve decided that along with her third birthday will come her first allowance.

We’ve been slowly working up to this point–my friend bought her a magnet chart to graph her “good deeds” and she earns money for helping around the house. So far this has meant pennies and other random change for helping pick up her little brother’s toys, etc. Basically, she earns money for doing “extra” work. She loves it.

This all came about because one night she was taking a bath with her brother and decided to dump his entire bottle of shampoo into the tub to get attention. I told her she’d need to start doing work around the house to make $2.39 to buy him a new bottle of shampoo. If you haven’t seen her in a while, the first thing she’ll ask you is if you have “any princess work” for her to do, and that she needs to earn “$2.” We’ve been collecting the change she’s earned in a jar, and she’ll pay the cashier at the drugstore directly when she’s earned enough to pay for the shampoo. This has proven to be a really good lesson in responsibility for her, and although she’s young, we figured it was a good opportunity to start teaching her about working hard, saving, and using her money to help others in need.

As a result, we’ve decided that her allowance will be $3 per week (one dollar per year of age–it’ll go up each year), and that she’ll need to complete various tasks on her responsbility chart to earn that (i.e., feeding her fish, getting herself dressed in the morning, putting her dirty clothes in the hamper, helping change her sheets, etc.).

Of the $3.00, 20% ($.60 per week or $31.20 per year) will go into a savings account we’ll set up in her name for long term savings (i.e., college, down payment on a house, etc.). I’ll set this up with ING since she’ll earn interest on her savings–and it’s easy to set up an automatic weekly transfer directly from my bank account.

10% ($.30 per week or $15.60 per year) will go toward charitable contributions. Since Amelie is from Ethiopia, we’ve decided her contributions will go towards EOR’s SOS EE Fund, which supports the orphanage where we she lived. I’ll set up an automatic monthly transfer directly from my bank account to EOR’s Toukoul Fund via Network for Good.

50% ($1.50 per week or $78 per year) will go towards short term savings, and will be kept in a piggy bank in her room. This money can be used to purchase larger priced items she may want (i.e., doll house, etc.).

20% ($.60 per week or $31.20 per year) will be used for discretionary spending, and will be kept in her wallet in her purse. This money can be used if she’d like to buy candy, ice cream, etc.

Hopefully this plan will put her on the path to financial responsibility. When I was a kid, my parents gave me a set amount of money to buy school clothes each year (a whopping $100!), and taught me to walk through the entire mall with a notebook and a calculator–I had to write down everything I liked, the store and the price, then review it all over lunch. I wasn’t allowed to buy anything until we walked back through the entire mall a second time. It taught me a great deal about money management, and I’m hoping this plan–which I’ve worked on over the last couple years by reading various financial expert’s plans for raising money smart kids–helps my kids even more. Our country is in a recession, and hopefully our kids can learn from that and do better for themselves–and learn the value of helping the less fortunate at the same time.

What do you do to help your kid’s learn about money?



7 thoughts on “Banking for Kids

  1. I’m not sure even most 12 year olds would understand those percentages. I think you need to talk to experienced parents to help you understand early childhood development. A 3 year old is too young for an allowance, and they’re too young to pay for something they’ve spilled or broken in their home. You’re going to get a great servant in the next few years, but not a young child who understands and enjoys the concept of money management.

    • I disagree that this concept is too far fetched for her to understand–and I definitely disagree that 12 year olds wouldn’t be able to understand this concept. At 12 years old I had a summer job, and had been involved with investing in the stock market through my school’s enrichment program for two years. I think that if a 12 year old doesn’t understand the concept of working to earn things they want, saving and helping others in need, then that’s the parent’s fault for not teaching them. While my 3 year old may not understand the full concept of saving for grand scheme things like retirement or college yet, she does need to start learning at some point. And I doubt she’ll be upset as an adult to learn she has a fund for college and a down payment on a house set up by her parents–and because of her hard work. My daughter also asked if she could do things to earn money to help the kids in Ethiopia after seeing myself and her friend’s moms work hard on various EOR fundraisers to raise money for them–and I was more than happy to help her do so. And in terms of speaking with more experienced parents about teaching money management, I don’t think that’s a bad idea, and I have in fact done this. I have chosen to ask the advice of parents who have themselves been responsible with money, and who have raised children who are also responsible with money.

  2. Little kids (especially two year olds) don’t dump out bottles of shampoo for attention, they do it because they are curious and are exploring their world. What will happen if I do this? Oh! Look at that!

    It’s called mistaken behavior. Have you ever mead a mistake? Did you do it for attention? Really?

    And children your daughter’s age certainly do not understand the concept of money. I’m not saying there shouldn’t be consequences to mistaken behavior but treating her like she’s a renter isn’t going to make her feel part of the family and it’s not going to teach her any lessons of merit.

    I suggest getting the books put out by the Gessel institute “Your Two-Year-Old” “Your Three-Year-Old” by Louise Bates Ames.

    Alfie Kohn’s book “Punished by Rewards” might be another one to look into.

    • My daughter is definitely not treated like a renter–I’m not really sure where you got that idea. All of her needs and many of her desires are completely taken care of by her father and I. Her savings is for extra things she may ask for. Has your child ever asked for something out of the blue? Did you just go ahead and buy it for them? We buy our children gifts for birthdays and holidays that are “wants” for them, and they get necessities as needed (i.e., clothes, etc.). We do not buy our children everything they want, whenever they ask for it. We think it’s important that they learn the value of hard work and saving. Here is a great excerpt from the Children & Money Series produced by University of MN child development researchers about age appropriate ways to teach children about money management. If you check out the section on preschoolers, you’ll see where many of my ideas were pulled.
      Here is another article about allowances for kids and setting up some sort of percentage system like I mentioned in the post.
      And another article and a podcast about how it’s never too young to begin teaching children about money.

  3. I didn’t say “concept,” I said “percentages.”

    Yes, even an 8 year old can understand putting half in savings and being allowed to spend half. But 10% here and 20% there? How long would it take most adults these days to answer what is 20% of $3.00? How in the world is a nearly-3-year-old supposed to comprehend that sort of thing?

    The point of an allowance is to teach a child about money. The point of chores is to teach about pulling your weight in a household and knowing how to take care of things. The point of a wage is to teach the connection between working hard and earning your own money. These are three separate concepts. Conflating them doesn’t teach what you want to teach.

    And as a parent of now much older children, I’m appalled that this whole scenario started as a way to make a nearly-3-year-old financially responsible for a bottle of shampoo. The mind boggles.

    • I guess I wasn’t clear–yes, I totally agree with you that Amelie is too young to grasp these exact percentages. This is why I said we were automatically having them deducted into the ING account (for savings) and the Network for Good account (for charitable donations). I will separate out the remaining amounts into her piggy bank and wallet. We will proceed this way until she is old enough to do the math, then she will take over that part of the lesson. For now, we work on simply counting the number of coins she has her hands on when she wants to buy an ice cream, etc.

      We can agree to disagree on the shampoo thing. The point is, she knew what she was doing (if she were 1, I’d agree she was doing it to see how shampoo dumps), and she did it to get a reaction. Rather than yelling at her, putting her in time out, or simply ignoring the situation and making up an excuse for her actions, I made the decision to use it as an opportunity to teach her about the value of money. About how we all work very hard in this house for the things we have, and that we don’t simply waste things because the mood strikes us. It’s not as if she’s doing hard labor to earn the money back–“Princess work” involves things like coloring pictures for her grandparents.

      In this house, we’re responsible for our actions. If she hits another child at school (something kids her age often do), we make a card for the child and she apologizes. I’m not the kind of parent who hides behind the anonymous incident report daycare provides. I talk with her about what happened, ask her why she did it and we sit down and make a card and talk about her apology. That’s how we roll in this house. Responsibility doesn’t boggle my mind, and I hope that as an adult, it doesn’t boggle hers either.

  4. Great idea! My parents also started our allowance when we were young and too always give back to others! I think it is great that you are teaching your child at a young age the importance of saving, giving and being responsible! Thanks for sharing!

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s