I'll have to check out First National Bank of Dad. We have a similar system, though my kids usually don't get an allowance. They have some seasonally changing chores they do "for the family" (aka they are paid in the pride they get knowing they contribute meaningfully to our success as a family, no money changes hands) and we have a separate list of other age-appropriate chores and amounts they earn each time they do them. They know we are willing to discuss this list with them if they want changes (negotiate). They mostly choose not to do them (even after negotiating higher prices) hence no allowance. Their spending is so low, they'd rather just play outside and wait for some relatives to give them birthday or Christmas money. I'm looking for tips on transitioning them to more complex financial concepts, so thanks for the recommendation. They might be ready for a simple stock intro via index ETFs as they have savings in the hundreds.
Which of the budget line items contains the kids' allowance? If it's not in there, are there other regular expenses you have not reported because they weren't on the list? Not trying to add more punches, but sounds like another regular monthly expense to examine. Until you know them all and track them all, you do not have control.
I hope I'm not coming off as trying to one-up by sharing what we do. We have been frugal for a long time, Mustachian for about a year and still have a long list of things we want to do to improve savings rate. I'm trying to offer some concrete examples to break through a mindset that you are doing enough spending "just" $6200/mo to show some other possibilities.
No I do not take your input as one-upping. I always feel we can improve and that is definitely the goal. When I say "just", because my chart came from a specific post, I am comparing to that post where the typical Middle Class person is spending $10K/month according to MMM calculations. We used to be there, and while our income has not changed, our spending has. I am regularly looking for areas to tighten down on, but I have the situation that many here probably do in that it is not just me and while I might be willing to go to the library to get movies or not have cell phones, the rest of the family is not, so I have to work through the process and reach compromises. My wife, while on board to a good level (while she was a single mom after her divorce and bankruptcy she had to change careers just to find a job and went from IT paying $90K to home health care paying $14/hour), and she has said if we need to pinch pennies she certainly knows how to do that, but she also feels from the dozens of MMM articles that I read to her, that MMM is a "hippie/yuppie who has no concept of a large family, health care conditions rather than having everyone be wonderful and not visit the doctor once in five years, and thinking that everyone has no monetary consequences to just pick up and move". She is willing to make cuts and I am confident we will always live within our means, but it is unlikely that we will "convert to Mustaschianism" fully.
On the flip side, I do not want to come across as making excuses and being unwilling to change, because that is not the case. I am just pushing back with we are "just" spending and we are "doing well" because at this moment in time that is what we can do as compromises and I am looking for some others knowing that change to income is a comin'.
Yes there are other expenses and we have a solid track on all of it. I have been budgeting diligently in a spreadsheet for over 15 years tracking and categorizing every receipt and then looking for improvements. We recently (last December) switched to YNAB once they offered direct import from banks and credit cards to simplify this process. One very large "expense" that some will look at is tithing, which for us in non-negotiable, at a little over $1,000 month, but that is directly tied to income so if our income drops, that will too, but it does remove 10% from the savings rate according to MMM and while his feeling is that you give to charity after you make money, that's not what our family believes. So in the #1 rule of Mustashianism, "Will this increase my happiness", tithing absolutely does that. He also does not have medical in there (because they are the typical young family who do not have health problems yet. I get the "workout and you will live" view he has, but I also have family members that worked out perhaps more than he did and were the picture of health and keeled over and died of a heart attack at age 50, so these expenses may hit them too) but with a Type 1 diabetic in the family and us getting older, there is at least $5,000 on the high deductible plan each year that always gets spent, and I had to have an emergency gall bladder removal last year and I try to eat well etc, but it still put me in the hospital for 3 days, had surgery and follow up and automatically maxed out our out of pocket at $10,000 by this time last year (made the rest of the year "free") but a MMM budget does leave those out and assume you can cover it other ways. Typically we run about $400/month in the budget for medical.
And yes the allowance is missing. That currently runs at $180/month. Can it be cut? Yes. But since you expressed interest in the FNBD (First National Bank of Dad), I will elaborate more. Over the 15 years I have shared this concept with dozens of parents. in virtually 100% of cases they have all come back to me, usually just weeks or months later, and explained how is transformed the financial lives of their children. It really is an awesome, super simple, concept and I cannot praise it enough. Again, using Mustachian principles and logic I am fully confident it has saved our family way more than it "costs" per month because of the frugality it has taught the children (granted this is compared to non-Mustachian levels).
So the overall idea is you want to get your kids to think like an adult about money as quickly as possible. I started every one of my children on the program as soon as they could communicate well (usually 3) and my three step kids joined the "Bank" when my wife and married four years ago. I told you the concept is simple, and I hope the fact that a 3 year old gets it speaks for that.
You set up the bank account in some tracking mechanism (I used Quicken and now use YNAB). To have them learning you must give them a level of "earning" that is meaningful versus what they could get at a real bank, especially these days, so the author recommends, and I have used, 5% interest PER MONTH (yes 60% per year). He also recommends that the allowance not be dependent on anything, that earning a paycheck can be taught other ways. The goal here is to teach responsible money management not the virtues of work. Therefore the get some base allowance just for being alive on a weekly basis. This is explained to the kids like a salary that mom and dad get (but without all the "earning it" overtones). In our case we chose $5 per week per child. Again it has to be enough that they can buy things or they do not learn anything if they get a quarter a week and have to save up two months to get a trinket. That time frame is too long to hold a child's attention. Before you say "this is too high" think of it for what it is, an investment in your child's financial education. It's toddler tuition (This last part is my addition, in no means what the author implies).
At the end of each month you sit down with your child and walk them through how they are earning their interest. So let's say they have their $20 from the month there and you explain how, just by saving, they now have $21.00 because their money worked for them (little green employees in MMM world). Depending on your child this may take several months for them to understand, or they may get it right away. Obviously older kids catch on faster.
Now, this is where parents start to have a hard time. You are trying to teach THEM to be responsible with money. It is not YOUR job to tell them anything. This is how the program works in training. When you get paid, no one tells you what you can and cannot do with that money. This is exactly what now happens with the Bank of Dad. Once the $5 leaves your bank and goes to their "bank", you have no say over it AT ALL. Now, there are exceptions to family rules, like you cannot buy weapons etc. You set those limits at the first discussion. But beyond things that can hurt them, anything else goes, even things you feel are wasteful, stupid and ridiculous. This is where you let the magic of the world take over educating your child and this is where the thanks I told you about above comes from from 100% of the parents who have started this with their kids. Next time you are at the grocery store and little Billy sees the shiny plastic toy or the piece of candy and they look at you with those sad eyes, "Daddy, can I have the ?????" the ONLY question you are allowed to ask is "Do you have enough money in your bank account?" Again, no judgement, not discussion. When you want to buy that car no one asks you. Same goes for teaching your child. Now, if they ask for some help in deciding you can certainly offer advice, but I was always careful to not cross that line of judgement. My beliefs are not and usually will not become theirs unless they internalize on their own. If they do not care about the environment, my lording over them will not make them care. The goal here is to teach good decisions when you are not there to help them, therefore anything they would not think of on their own as advice once you teach them how to weigh pros and cons will not matter. So getting back to the process. If they have enough money (obviously with younger ones you need to help them know how much they have and walk them through tax etc. the first few times) it goes in the cart and you buy it and deduct from the bank account. Very, very quickly they learn if they have no money, they do not get the item. It is so nice to have the "But Daddy!!!??? PLEEEAAASSEE!!!!???" stop in just a few visits. The Bank of Dad now becomes the bad guy and all you need to do is say, "Sorry son. If I did not have money I have to wait too." When they buy that chocolate bar and eat it in the car and then 10 minutes later want something else and find out they do not have enough, this is where the magic of value judgements comes in. More importantly when they buy that cheap toy and it breaks in the car on the way home, and they know you will not just get them a replacement because it is up to them now and they have no money, they start to learn very, very fast the concept of quality. The first question I get from all my kids when they want something now if it is not a family staple is "does this come out of my account?" Even for clothes and things for the teenage girls, and toys for the boys. We will get the what they NEED (we do not let the kids go to school without shoes or pants because their old pair is falling apart but they cannot buy them or they outgrew them), but if we bought the items they need and they want another pair of shoes or three extra pairs of jeans or that cool blouse that costs $120, if they have the money, it is not our call even though we would never spend $120 on a shirt for them.
So the only other part of the program is switching to stocks. This continues to be maintained in your system (Quicken for us). At this point they earn 0% interest on any cash balances. They can only make money by investing. You are not going out and getting them an actual brokerage account. They buy and sell real stocks and you divide all the prices by 100. Disney is selling for $30? That is now $0.30 per share for them in the Bank of Dad. They buy what they want (same no judgement as before) and they just let you know any time they want to transact. It is up to them to keep track of the stock price (much easier now then when I started and they had to go look it up in an actual newspaper, oh the horror!). It makes it a little more challenging if they are trying to use the last of their funds and they are fully invested in stocks, but they way I work that out is that we need to sell what they have and get it to cash.
At this point with six of them the Bank of Dad has about $1,700 in it. Of that one child has an $800 balance and some still burn through money as soon as it hits their account (it is harder on the older kids who are also paying their auto insurance because that only leaves about $5 or $10 each month after they pay that bill and if they are not working that's all she wrote). Just a few weeks ago that balance was over $2,200 but the daughter who wanted to replace her iPhone had to pay for the stolen unit and decided to just pay it all at once rather than pay it as Verizon takes the charges on a monthly basis for the next two years. It was completely up to her what to do. She could have just bought a basic phone for less (which is what I would have done), but it is her money and her decision. If I start dictating it, I totally ruin the learning that has happened over a decade. She did sit with me for several hours and we ran numbers in spreadsheets and had a lot of conversations over a couple weeks as she decided her course of action, so I want to make that clear. I feel she absolutely made the right choice for her needs and did a great analysis. She was able to learn a lot of Mustachian ideas like utility and opportunity cost, but in the end she chose to go against frugality in this case, and that's OK. She is very frugal in other areas (and that's how she had $499 sitting around to just pay for the phone).
One last thing, is once the kids are 14 we move them to $10 per week because things they would buy have gotten more expensive and we want to keep that learning going while we still have them in the home before they head out after high school. They get the "income" through high school. Also when they get gift money from others they can deposit it in the Bank of Dad or do something else. We have accounts with USAA of CapitalOne360 MONEY accounts for those that are 14 to provide them with a debit card they control and their Bank of Dad money can be moved there to begin learning how those true transactions work.
So there you have the details of the Bank of Dad process. Others have tweaked it. Our CFO, who I taught the program to six months ago when he asked me "How do you keep your kids from feeling entitled and wanting things all the time?", pays his kids for grades, which I do not do. Others do not increase (which I believe is a recommendation in the book for the same reason I do it) or give more to begin with and do not increase.
Hope that helps, but it is a very simple concept that has massive returns in the speed and quality of the learning I have seen and that I have heard about from the dozens of others who have shared their results with me after I explained the concept to them.