I'd Love Input On An Idea We're Kicking Around for our Kids

[kkbmustang]

The Hubs and I are considering opening checking accounts for our 8 year old and 10 year old. We will deposit in there the amounts we budget for their activities/expenses each year (sports, camp, clothes, school lunch, hair cuts, etc.) and teach them how to manage it. We will also have them earn money by doing work around the house and allow them to deposit it in their accounts.

Do you think they are too young for this? We really want to teach them about the value of a dollar, about budgeting, saving, etc.

Thanks for your thoughts.

As an aside, they each have mutual fund accounts that we started when they were babies. They each own shares that kick off quarterly dividends. Those accounts are separate. They know they exist, but don't know the details (balance, when they get dividend checks, etc.) These accounts are separate from their 529s/college funds.

[kkbmustang]

We've told the kids that when they are 16 whatever they have saved, we will match it and they can use that to buy a car. That's sort of what we've earmarked the dividend savings account for until they're old enough to really get it. DS has almost 5k and DD has about 3.5k in hers. They don't know this, of course. Annual dividends are about $400 (I don't honestly remember, just guessing). The stock itself is worth about 10k each kid. We won't allow them to liquidate the stock for the cars.

I think here we could set up joint accounts for them. Our name and theirs on each one. Or, we could just open two in our name knowing one would be for each of them.

Their grandparents are funding 4 year public university for each of them, so they are VERY fortunate. Their grandparents gifted them the stock, too, when they were each 1.

[NumberJohnny5]

I like the idea, just not sure that your kids can have an actual checking account at that age.  But perhaps one of those savings accounts that supports having multiple virtual accounts?  Same effect as keeping just one account and using a spreadsheet to track various categories.  One account would of course be yours, and would be what you use to transfer money into and out of their account(s).  Spend $50 on a bike, deduct $50 from their save account into your account; allowance time sees money going from your account to theirs.

The way I'd possibly do it, is tell them how much they need to budget for each item, and let them know how much leeway they have.  If they choose to take a sack lunch to school and get their hair cut at home (or even go to the $7 barber instead of the $20 stylist) they'll have extra they can use for summer camp (of course, you have to realize and be prepared that it may go in the other direction; they may decide to scale back on sports and summer camp so they can afford the "cool" shoes, awesome hair style, and an ice cream with each school lunch).  As long as they're following whatever rules I put in place, I'd just grit my teeth whenever they chose something contrary to what I think's best.

[happy]

When mine were younger,  even younger than yours, for a number of years I used a little program called "investment kids". It would pay them their allowance, and give them interest on the balance. The interest was pretty outrageously high in order to get a noticeable effect for learning in a short time frame, but could be manipulated by the parent to reduce as they got older. It ended at 16, when they could have either a stash ( and a poor parent) or not a lot.

I'm not sure it really worked very well, but the fault may have been mine.  One child, saved a little while but then would always blow it all on a piece of technology, and had very little...the other hardly spent anything and had a lot.  Sadly we upgraded our computer and lost the balance, and realised later the software was too old for the new 'puter.  Neither of them could remember their balances and neither really cared as far as I could tell. Anyway their spending behaviour is still the same!

Why didn't it work well?
1. I was a single mum very very frazzled at the time... may not have really been consistent, supportive and educative enough
2. I found it a hassle since I still had to give them the money to spend something, and then remember to withdraw it from their account ( if I was v frazzled when they asked for something I likely said no, because I couldn't cope with the details of remembering and administering the system.
3. I (probably incorrectly) still tended to control what they could buy ie whether they could use their money or not
4. It was a computer program and therefore abstract ( and controlled by mum)... I'm not sure in this screen society now whether that counts, but I think it was too remote from direct cause and effect.

So takehome message from my essay:
no, not too young, make it some thing they own and control directly, be prepared to spend time supporting and educating,  and make a decision about what veto to spend you as parents will have (if any) and what it will cover.

[NumberJohnny5]

What I do, is have a program called eeba on our smartphones.  Nice little budget tracker, you can set a weekly budget amount and refill it once a week (free version has no auto-refill, but it takes less than a minute to type refill, type that you want to rollover the old balance, done).  Our son's and daughter's allowance is put in as a weekly budget; $2 for spend, $1.50 for save, $1 for invest, $0.50 for donate.  Whenever we're out shopping and they want something, I just whip out the phone and within a minute I can tell them how much they have.  If my son wanted a $10 toy right now, I'd check the balance, say he doesn't have enough spend money to buy it TODAY, but if he still wants it tomorrow he could use his save money.  When he does buy something, it takes about another minute to enter the details (the amount, the store being spent at, and which envelope i.e. "Child 1: Save".  I believe the free version works on up to three devices, so you, a spouse, and one kid could run it, or you and two kids.  I also use it to keep track of our dining out, entertainment, and misc budgets.

[bogart]

The Hubs and I are considering opening checking accounts for our 8 year old and 10 year old. We will deposit in there the amounts we budget for their activities/expenses each year (sports, camp, clothes, school lunch, hair cuts, etc.) and teach them how to manage it. We will also have them earn money by doing work around the house and allow them to deposit it in their accounts.

(emphasis added)

I am doubtful about whether kids that age can budget year-by-year.  Heck, most adults aren't good at that.  I had an allowance as a kid (and my son does now) and it's week-by-week.  By teen years (my son's not there yet), some aspects of my allowances (there were various components by then) were monthly.  We don't (and my mom didn't) actually hand over money every week, but keep a spreadsheet showing how much has accrued, and he can get it from us and put it in his savings account, or spend it.  So I'd break it down into smaller time chunks (and amounts).  I was allowed to borrow as a kid, and that worked fine (just as my mother in effect "borrowed" from me by not necessarily handing the cash over week by week unless I asked her for it).  There was no interest involved, but my mom did keep careful records and if money was owed it had to be paid back out of later allowance or earnings.

[Nords]

The Hubs and I are considering opening checking accounts for our 8 year old and 10 year old. We will deposit in there the amounts we budget for their activities/expenses each year (sports, camp, clothes, school lunch, hair cuts, etc.) and teach them how to manage it. We will also have them earn money by doing work around the house and allow them to deposit it in their accounts.
Do you think they are too young for this? We really want to teach them about the value of a dollar, about budgeting, saving, etc.
Thanks for your thoughts.

Our nine-year-old had a checkbook on her birthday.  She really really wanted the prestige but chafed at having to write neatly and do math without errors.  Many tears.  After a year or two (and fixing up her writing/math) she discovered Quicken. Many smiles.

At the age of nine she couldn't even keep track of her ATM card, let alone handle a monthly budget.  By the time she was 12 she was handling monthly amounts, at 13 she had a credit card, at 14 she had a part-time job and a quarterly budget, and by 16 she was doing semi-annual.  There were still occasional problems but she was far ahead of her peers.

We gave her a six-month clothing & toiletries budget.  She could choose to go stinky and look really really good, or smell good and dress from Goodwill.  She got the hint, but I'm not sure that this technique would succeed with your average male teen.

The best you can do is show them the tools and then give them a chance to fail a little at a time before you have to step in with corrective suggestions.  They need to see all these techniques and talk through them with their parents so that they can go to college and totally screw it all up on their own.  Then over that freshman year they get tired of their self-imposed poverty, return to their frugal budgeting roots, and figure it out for themselves.

Today our 20-year-old gets about $6500 each semester to handle her off-campus rent & groceries.  Her motivation is getting to keep what she doesn't spend, and that seems to be a powerful incentive.

[kkbmustang]

The Hubs and I are considering opening checking accounts for our 8 year old and 10 year old. We will deposit in there the amounts we budget for their activities/expenses each year (sports, camp, clothes, school lunch, hair cuts, etc.) and teach them how to manage it. We will also have them earn money by doing work around the house and allow them to deposit it in their accounts.

(emphasis added)

I am doubtful about whether kids that age can budget year-by-year.  Heck, most adults aren't good at that.  I had an allowance as a kid (and my son does now) and it's week-by-week.  By teen years (my son's not there yet), some aspects of my allowances (there were various components by then) were monthly.  We don't (and my mom didn't) actually hand over money every week, but keep a spreadsheet showing how much has accrued, and he can get it from us and put it in his savings account, or spend it.  So I'd break it down into smaller time chunks (and amounts).  I was allowed to borrow as a kid, and that worked fine (just as my mother in effect "borrowed" from me by not necessarily handing the cash over week by week unless I asked her for it).  There was no interest involved, but my mom did keep careful records and if money was owed it had to be paid back out of later allowance or earnings.

We would divide the annual expense into a monthly deposit amount. Then, whatever they earn for "allowance" they can save or spend on top of the amounts we deposit. But we've already set an annual amount for each of the line items in there, so we want them to be able to see what their budget is and where the money is going, as opposed to just assuming we are a black hole of unlimited cash.

[Nords]

... as opposed to just assuming we are a black hole of unlimited cash.

I used to threaten our daughter that I'd make her pay her own portion of the electric & water bills.

But if you threaten to make a teen driver pay for their own gas, suddenly they don't want to drive the car anymore and you can't get them to do your errands...

[SunshineGirl]

About a year ago, we got our kids, then ages 11 and 13, their own ATM cards that linked to a checking account, but we didn't order checks for them. We have $15 deposited into their accounts automatically each week, and it has been (I think) the smartest thing we've done yet in teaching them about personal financial management.

Before, they had an allowance, but we often forgot to pay it, and not both of us were consistent with making them use their own money vs. us buying something. But the deal with this new system was, and is, that they pay for EVERYTHING -- clothes, shoes, movies, outings with friends. Everything -- except a few things outlined below:

-- We do a back-to-school shopping trip;
-- We buy sports-related necessities;
-- We buy if we do something together like a movie or meal out, but they buy if they do it without us. (double benefit = they're still seeing a benefit of having us around!)
-- I often pick up things like underwear and socks.

They have both turned into big savers, AND literally all the nagging has stopped, for going on a year now. They buy what they want (if it fits with our other rules) if they have the money for it.

One very cool result - I used to pay for their twice-a-week school lunches, which were maybe $3 each. After we changed to this, they were free to buy it themselves if they wanted, but both chose to bring food from home instead. They make their decisions carefully, and both have accumulated quite a bit of savings. My daughter mostly spends on itunes and going to movies, while my son likes to go to the bagel shop with his friends. For him in particular (the younger one), it has given him a sense of pride at carrying a wallet and using his own money. For my daughter, it's allowed her to save for weeks and weeks and then take a larger amount out and buy clothes or whatever.

One surprising thing was I intended it to be a subsistence allowance and for them both to want to earn more. However, they were very happy with the amount (it was a raise from the $20/month they'd been getting) - to the extent that my daughter didn't seek out babysitting jobs. That disappointed me, but as a friend said, she was valuing her time over money.

BTW, the amount will NEVER go up, no matter if they're 12 or 18. It'll always be $15/week. They don't have phones yet, and when they want to get them, they'll be paying for them. I might help them buy a shared family car in a couple years (because it will make my life much easier!), but they will pay for some of it as well as some of the insurance, gas, etc.

Anyway -- from my experience, I say go for it! My intention was to help them learn to live within their means and make good choices with their money. So far = achieved.

[Nords]

They have both turned into big savers, AND literally all the nagging has stopped, for going on a year now. They buy what they want (if it fits with our other rules) if they have the money for it.

Our kid has always valued her money far more than ours. 

She's also been very generous with our electricity and our water, but when she got her college off-campus apartment she turned into an environmental vigilante...

[GuitarStv]

I used to threaten our daughter that I'd make her pay her own portion of the electric & water bills.

But if you threaten to make a teen driver pay for their own gas, suddenly they don't want to drive the car anymore and you can't get them to do your errands...

I guess the question is . . . why aren't they biking to do your errands then?

:P

[uspsfanalan]

Before, they had an allowance, but we often forgot to pay it, and not both of us were consistent with making them use their own money vs. us buying something. But the deal with this new system was, and is, that they pay for EVERYTHING -- clothes, shoes, movies, outings with friends. Everything -- except a few things outlined below:

-- We do a back-to-school shopping trip;
-- We buy sports-related necessities;
-- We buy if we do something together like a movie or meal out, but they buy if they do it without us. (double benefit = they're still seeing a benefit of having us around!)
-- I often pick up things like underwear and socks.

They have both turned into big savers, AND literally all the nagging has stopped, for going on a year now. They buy what they want (if it fits with our other rules) if they have the money for it.

That is amazing, I love it. It reminds me of when I was in 3rd grade, I saved up for months and months to buy Teenage Mutant Ninja Turtles II the Arcade games. Things that you earn are so much sweeter than things you receive.

As a side note, I noticed this article where the parent set up an automatic transfer for his two kids. He later received notice from the bank that he was violating some sort of new policy. Really just a minor annoyance, but something to look out for if anyone here is going to be setting up a similar weekly transfer to their kids.

http://bucks.blogs.nytimes.com/2013/04/02/keeping-an-eye-on-savings-account-transfers/?src=recg

[shedinator]

Is there a reason you want to go for a checking account? My parents just gave us cash, which made things very simple- if I had money, I could do with it as I pleased. If I didn't have money, I was entirely subject to the whims of my parents. I did decide on my own to open a savings account, effectively to hide my money from myself until I was committed to spending it, but I'm having trouble coming up with a reason a checking account would have been more effective than cash...

[Mrs. Redbeard]

I did decide on my own to open a savings account, effectively to hide my money from myself until I was committed to spending it, but I'm having trouble coming up with a reason a checking account would have been more effective than cash...

My parents started with the cash and we had 3 containers to store our cash in: "Savings," "Spending," and "Donating." I think I was about 9 and my brother was about 8 when this started. It worked for about a week....then the cash started burning a hole in our pockets. It was much too easy for us to just run upstairs and grab a $5 when we asked for a pack of Pokemon cards and mom would say "You can get it if you use your own money." Once the container reserves ran dry, we tried to bargain for allowance advances and would wash the car over and over again for an extra couple bucks. Parents saw this method not working, and it was to the bank to open a savings account (couldn't get a checking until I was 12...don't know if this is true for all states/areas).

Now I would have to go to the bank with Mom and stand in line for the cash to get something I wanted. It might sound crazy...but it was this extra step that completely changed by 9-year-old spending habits. Simply having to take an extra pause to think about the money, and the work I had done to earn it, was enough to keep me from spending. (Sidenote: parents also started making us track our spending in a faux-checkbook).

Sometimes the cash-in-hand (or cash-in-container) can be too tempting for little ones. But everyone knows their kids best! My husband was able to sock cash away at the same age without issue....just a thought!

It's also great to hear about so many people talking to their kids about investing. I didn't learn what the stock market was until I was 15 in my economics class. Growing up, my parents were not educated themselves on investment opportunities outside of their 401k (which they still did not completely understand)...ahhh the joys of having two foreign parents :)

[Spork]

We've told the kids that when they are 16 whatever they have saved, we will match it and they can use that to buy a car. That's sort of what we've earmarked the dividend savings account for until they're old enough to really get it. DS has almost 5k and DD has about 3.5k in hers. They don't know this, of course. Annual dividends are about $400 (I don't honestly remember, just guessing). The stock itself is worth about 10k each kid. We won't allow them to liquidate the stock for the cars.

I love this.

If you or hubby are mechanically inclined, you might also help them buy something at say... 14... that needs work.... And then work on it as a project together.  This both gives them valuable skills and gives them additional skin in the game.  I know the car my parents provided for me at 16 (with no skin in the game) was ... meh.  But when I bought one at 18 with my own money I earned at minimum wage ... then rebuilt on my own... This became a car I loved and cherished (and, stupidly, still own 30 years later).

[sheepstache]

I used to threaten our daughter that I'd make her pay her own portion of the electric & water bills.

But if you threaten to make a teen driver pay for their own gas, suddenly they don't want to drive the car anymore and you can't get them to do your errands...

I guess the question is . . . why aren't they biking to do your errands then?

:P

My mother complained that if I would hurry up and get my license I could run errands for her.  So I didn't.  As my high school friends were older than I was and had already gotten their licenses I was content to get rides with them and get my license . . . never.  31 years old and still going strong.