My 5-year-old daughter and I were standing in a gift shop at Disneyland when it happened: She asked me to buy her a piece of garbage. Actually, what she said was, “Mom, I want the Minnie Mouse ears.” My husband and I had told our kids they could each get one “reasonable” souvenir on our two-day trip to Disneyland. Our 2-year-old son was clueless, but our daughter understood, and she’d made her choice.
But it irritated me. Not entirely because they were $30 — we’d built in some savings by bringing our own snacks and buying our tickets at a discount site. No, it was because I knew she would wear them once and then they’d either be accidentally left in the hotel room or shoved into the bottom of our suitcase, never to be talked about again. I fully accept that nobody takes their kids to Disneyland to save money, but this really felt like throwing cash in the trash. I bought them even so, and as I signed the credit card slip and handed them to her (“These are kind of itchy, Mom”), I thought: This is it. Isn’t she old enough to do her own money now?
I imagine my dad had this feeling when he came up with his plan to teach my younger brother and me — I was 9 — about the power of saving money, and of compound interest: The First National Bank of Dave. As he wrote in an Atlantic article and then in a book, he set up accounts for us in Quicken, and paid 5 percent interest a month. “I wanted my kids’ deposits to grow at a pace that would hold their attention,” he wrote in The First National Bank of Dad: A Foolproof Method for Teaching Your Kids the Value of Money . He “deposited” our allowance the first day of each month, and we could make withdrawals by asking for the cash. He printed statements for us from Quicken, and we could use his computer to check in on how our money was doing whenever we wanted.
It worked — after all, compounding meant the annual interest rate was more than 70 percent (he eventually had to roll the monthly interest rate back to 3 percent). He also wanted us to think of our money as our own. The hope was that my brother and I would quickly learn that purchases like the mouse ears probably aren’t worth it, that money you spend on junk is money you won’t have for something you’d get a lot more enjoyment from.
As I got older, The Bank of Dave expanded. My allowance came to include money for school clothes (never enough, in my view). I got a checking account at an actual bank so that I could withdraw cash on my own, with my dad transferring the allowance in directly. By the time I was in high school, we’d largely switched to a system where I knew enough — and had a sufficient balance in my checking account — that I was paying for things like textbooks and gas to drive to school; I submitted receipts and my parents paid me back. I did push the limits sometimes. At one point I had a Mobil Speedpass to get gas that was hooked straight into my parents’ checking account, and I occasionally bought not just gas but snacks for my friends until my dad noticed and told me to cut it out. But overall, while I engaged in a fair bit of stereotypical teenage bad behavior, I had no incentive to be dumb with money, and I wasn’t. So did my dad’s system work?
I think so. I’m 35 now, married with two little kids, and I manage our family’s money. My husband and I bought a house two years ago and paid off his law school loans this year, about two years early. We have an emergency fund and retirement accounts. I don’t think it would be possible without the financial education I received as a child.
My financial savvy was helped by growing up in a solidly upper-middle-class household and the fact that my parents paid for my college education in full. Most people don’t have that advantage, including my husband and, likely, our kids — a four-year private college education is projected to cost around $580,000 down the road for anyone born today; while my husband and I are also in the upper-middle class income-wise (because he’s an attorney and works a lot of hours), and we have 529s for our kids, it’s impossible to see how we save an extra million dollars.
At some point, we are going to have to figure out how to talk with our kids, Alice and Hugh, about how sexism and racism affect personal finance. But pretty much any parent can apply the basic lessons of the Bank of Dave, using just a few dollars a week. When Alice graduates from kindergarten this month, we are going to start giving her an allowance of $3 a week, which will increase over time. (Here’s how I calculate this: When we go to Target, and one of the kids asks for some silly trinket or candy, I want to be able to say “If you want it, you can buy it with your own money,” and have that actually be possible.)
We’ll use an app for this instead of Quicken, probably RoosterMoney. My kids won’t have to “do anything” to get their allowance; they won’t be paid for doing normal household chores like cleaning up their toys. They will have the opportunity to earn extra money, though, by doing extra jobs. And we’ll pay them a hefty interest rate to help encourage the notion that saving is worth it. My dad maintains, and I agree, that giving kids real control of their resources — not using savings as a form of behavior control — is key. We won’t force them to put aside some of their allowance for charity, but their dad and I will talk to them about the causes we donate to and why — and we’ll match their donations. We won’t take gift checks away before they ever see them. The kids will inevitably make mistakes and stupid financial decisions (as a teen driver I had a penchant for getting into fender-benders. My parents paid for the first couple, but after that it was on me). But they’ll make them in a safe, low-stakes environment.
“I think stores are mean, Mom,” Alice said to me recently. We were walking home after school and the kids were eating Popsicles I’d just bought them from the bodega at the corner. “You buy something and they take your money and never give it back! It’s the same thing robbers do!” I started to launch into a momsplaining discussion of why this wasn’t really accurate. Then I stopped. All I need to do is start giving her $3 a week, and she’ll start figuring it out on her own.