Savings Account for the little one (We WERE doing great)

[gpyros85]

Fellow Stache Dads,

             I have a 7 year old boy I am teaching how to save and behind it the investing/compounding principles. He would work doing his chores earning money then saving. I introduced a 10% interest MONTHLY to get him interested (considering he had small sums) and realize that saving does work. We got up to about $60 USD and he was earning $6/month he was happy!

            Two issues!

            First one he got lazy and realized he didn't have to work so much for his money since it would come in "automatically"

            After the first one lasted for several months and lost motivation of chores. When school started his friends all had the latest "Bey Blaze" gadgets and now he wanted it. He spent everything on this toy and is now at ~$3 and begging to work for an extra $4...


What am I doing wrong? This is a short minded view that I am trying to move away... I guess it is good that he is working, saving and paying for his own toys now, this alone is a success for some children and parents. However, I want to teach him the long term values of compound interest. Are we not there yet mentally as a 7 year old?

[ToTheMoon]

Most adults still haven't figured this out, so cut him some slack :)

The fact that he blew all his cash on one toy, and now realizes that he has to work for more WAS the lesson wasn't it?  Better to learn this with small sums now than later in life with big ones!

I cringe when my kids spend their money on crappy dollar store toys, only to have them break almost immediately.  It took a couple of years,  but now at ages 6 & 8 it is starting to compute. My 6 year old still wants everything he sees, and I keep having to remind him his spending money is gone and his saving money isn't for this purpose.  My 8 year old is now saving for better quality toys at the other store.  Baby steps.

[GizmoTX]

My 24 yo DS recently told us how illuminating buying a crappy toy at the local grocery store was when he was very young -- we had warned him but did not prevent him from the consequence of his choice. After the expected bad experience, he never did it again. Hopefully your son will get the same message about wise spending.

Compound interest comes later, both for understanding the concept & for finding meaningful investments while a minor.

[reeshau]

The fact that he blew all his cash on one toy, and now realizes that he has to work for more WAS the lesson wasn't it?  Better to learn this with small sums now than later in life with big ones!

Exactly this.  Learning in the real world requires making mistakes.  Understanding if lessons were learned requires observation of *repeat* mistakes.  If that happens, then you may need to adjust your methods.

It sounds to me like it's working, even if it's volatile.  Your first paragraph sounds like he is a great candidate for a FIRE lifestyle--he won't have to worry about decompression when he's done.  But I take it that the fact he is hustling for work is a very good thing, as opposed to begging you for allowance or gifts in lieu of interest.

The only thing I see missing from your approach, which may keep him motivated when he is "set," is giving.  That's commonly the third "bank" to put money into.