Hi! I'm a long-time lurker but haven't posted much. I semi-retired a few years ago at age 43 to be able to spend more time with my wife and young children.
When our kids were just starting elementary school, we decided it was time to start teaching them about savings, interest, compound interest, and opportunity costs. We gave them each a couple rolls of 100 pennies, and introduced the Bank of Mom and Dad. Each month, we explained, they would add up their money, and we would pay them 1 penny interest for each 100 that they had. Any time they earned money, they could spend it, or deposit it in the BoM&D, or some combination. They could withdraw anytime; it's their money. When they were at stores with us, we discussed wise spending habits. Later we discussed opportunity cost (ie how money spent and can't accrue interest). And over time, we pointed out how compound interest works. What we haven't discussed yet is how 13%+ annual interest (risk-free!) isn't realistic, but that conversation will come. They know about the stock market from Dad, but we intend to eventually help them start investing there. I'm still hoping for a couple cases of (young) buyers remorse, which will open the opportunity for additional conversations. Baby steps.
As for allowance...
We don't pay them to do chores around the house. But we do pay them when they help with the "family business" (rental homes). They don't receive "allowance" per se, but they do receive high returns on their savings. And they don't spend too often but they occasionally buy something they want or as a gift for others. In just five years, they've each managed to accumulate ~$3.3k. Not bad for elementary aged kids. We'll probably keep the Bank of Mom & Dad running (with increased sophistication) until either they turn 18, or we can't afford it anymore.
Time will tell if we did things right.
When our kids were just starting elementary school, we decided it was time to start teaching them about savings, interest, compound interest, and opportunity costs. We gave them each a couple rolls of 100 pennies, and introduced the Bank of Mom and Dad. Each month, we explained, they would add up their money, and we would pay them 1 penny interest for each 100 that they had. Any time they earned money, they could spend it, or deposit it in the BoM&D, or some combination. They could withdraw anytime; it's their money. When they were at stores with us, we discussed wise spending habits. Later we discussed opportunity cost (ie how money spent and can't accrue interest). And over time, we pointed out how compound interest works. What we haven't discussed yet is how 13%+ annual interest (risk-free!) isn't realistic, but that conversation will come. They know about the stock market from Dad, but we intend to eventually help them start investing there. I'm still hoping for a couple cases of (young) buyers remorse, which will open the opportunity for additional conversations. Baby steps.
As for allowance...
We don't pay them to do chores around the house. But we do pay them when they help with the "family business" (rental homes). They don't receive "allowance" per se, but they do receive high returns on their savings. And they don't spend too often but they occasionally buy something they want or as a gift for others. In just five years, they've each managed to accumulate ~$3.3k. Not bad for elementary aged kids. We'll probably keep the Bank of Mom & Dad running (with increased sophistication) until either they turn 18, or we can't afford it anymore.
Time will tell if we did things right.
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