An automated children’s allowance, funded through the Bank of Dad, and brought to fruition through recent advances in technology, has permanently solved a conundrum I’ve kicked around for years. We’ll tweak things along the way, but the basic system is now fixed for our remaining half-decade of parenting minor children. No more flailing around or second-guessing ourselves. This system is elegant in its simplicity. I commend it to you.
Philosophically speaking, I fall into the camp of wages earned from jobs or small businesses in the Work vs Allowance debate. That said, I’m two parts pragmatist and only one part idealist. Allowance wins out, as I am always in search of that easy button—the path of least resistance—in all areas of life. While continuing to push our kids to find ways to make money on the side, I’ve settled in on delivering a weekly allowance as the best way for them to learn money management skills, delayed gratification, a solid savings ethic, the cultivation of generosity, to reduce whining and endless asking for things, to spur conversation about money and values, and much much more.
When the kids were younger we instituted an allowance of $15/month to some success. Then, after I lost my job, it ceased. Immediately. I had set up online savings accounts, deposited $13.50 into said account, and stuffed $1.50 cash into their giving jars. We let the kids make both poor choices and good ones, each being equally valuable elements of their education. Over time, however, the giving side of things fell apart, and there was no real long-term savings component. Further complicating matters were the anemic rates of interest available through banks. How does one instill a savings ethic in such an environment? When I was a kid, in the ’80s and early ’90s, I took regular trips to the bank to make deposits, physically stamped into my passbook, just for the excitement of seeing the interest earned. I went to the bank just to have the interest amount printed in the book, even if I had nothing to deposit. I needed no teaching on the value of saving other than the willingness, even enjoyment, of my mother driving me to our bank. Well, those days are over.
The hot new bank in town is the Bank of Dad. I pay a 7% interest rate on all savings. I’d recommend going higher, if you can, but we have limited means. This solves the problem of motivation, but not the critical issue of automation. Any system must be simple, and ideally, automated. Enter FamZoo, the app that has permanently solved our issues around kids and money. It wasn’t until discovering FamZoo that I became re-energized to provide an allowance, facilitate a financial education, etc..
Now we are able to effectively use the traditional three-bucket system of spending, saving, giving, through the magic of automation. Here’s a screenshot of our current accounts:
The giving buckets are disproportionately low, because we just restarted allowances in 2019, and we weren’t about to impose the 10% giving standard on past savings.
Our allowance is just $5/week per child (twin 13-year-olds), due to our limited means, but it’s still a tremendous improvement from zero. If your family is able, I’d encourage a higher amount. Ideally you’d transfer your child’s portion of the family budget to them entirely for their careful stewardship. Figure out what you spend on their clothing, birthday parties, activity fees, or anything else that you feel would be beneficial for them to manage. I’m not in a position to figure that out yet. Ask me what we spend on clothing per child, and I’ll shrug and say as little as possible. We’ll endeavor to rectify this at some point, but for now, baby steps. I know of a family who did this with their children for years. The kids wound up spending far less money than the parents would have on their behalf, thus pocketing the difference and graduated high school with a significant nest egg of around $10,000 from accrued interest and earnings from investments. That’s money that could potentially be plowed into starting a business. More importantly, the kids received a financial education throughout childhood. Virtually self-taught, they found themselves on more solid ground than the majority of adults in our society of financial illiterates.
So, the Gilmore’s haven’t arrived, but it’s important to get started. Always be moving forward. Perhaps we’ll get there in high school, but it feels great to have a system that works. Now on to brass tacks.
The only money physically going to the kids on payday each week, is to the spending category. This is in the form of a debit card. Thus, generally speaking, there are no awkward moments at 12:01 pm on a Saturday, after the bank has closed, when I only have a single Andrew Jackson in my wallet and one of the kids requires the accompaniment of Mr. Lincoln to some event with their friends. Additionally, I can easily move money from the savings category to the debit card. Our daughter enjoys shopping with her friends, and happily has recently veered down the thrifting route. If she finds something she likes, but doesn’t quite have enough cash on her card, a simple text or call requesting additional funds can take care of it.
The rest of the money, in savings, is physically with me. I’ve got it in savings and investments, so it’s not just sitting there, but the kids can access their FamZoo accounts at any time to see how much they have in their various accounts. Eventually we’ll introduce them more effectively to the notion of long-term savings, but at these dollar amounts there’s not much point yet. Soon, though. Our daughter is heading to Costa Rica next year, and needs to raise funds for half the cost. That’s about as long-term as we need right now. The Costa Rica account siphons off a significant chunk of her money these days, and as the balance grows she’ll learn to appreciate compounding interest. This week $0.29 paid out in interest in that account. Not a ton, by any means, but it is over a dollar a month at this point, so that certainly beats a penny per month at the local bank, which is demoralizing to the concept of saving. If she can grow the amount to $1000, we’ll pay out $70 interest in a year, and she’ll need all the help she can get to pay for this trip. It’s worth paying out a high interest rate—AS MUCH AS YOU CAN POSSIBLY AFFORD—so as to instill this ethic that will serve your child well throughout life.
Once you get your mind wrapped around how FAMZOO works, it’s very simple. The debit card system is easy to use, and prepares your child how to eventually handle credit cards. These, however, will only spend up to the amount loaded onto them.
The cost to use the system is as low as $2.50/month, if you opt for the two-year prepaid plan of $59.99 that we chose. This includes your debit cards. It’s a great deal, particularly if you have multiple kids like we do. There is also an option for tracking everything through IOU’s (like we use for giving and saving, because I’m allergic to allowing hundreds of dollars simply sit on a card doing nothing. If I’m going to pay high interest as a legitimate bank, I’ll be acting like a bank by putting that money to work while it accrues). If you sign up through the following link, we’ll enjoy a small kickback (and you’ll enjoy an extra month free): SIGN UP FOR FamZoo HERE!
The only thing you have to do, on an ongoing basis, is make sure your own debit card (labelled Bank of Dad in my case above) is loaded with adequate funds to pay out to your kid’s spending cards each week. For us, that’s just $2.25/week going to our daughter’s debit card. Our son isn’t quite ready to use his card, so it sits in a drawer for the time being. No need to rush him into it. Soon enough. Side note, it’s interesting how our kids personalities have been consistent from birth (early adopter vs needing to wait and see prior to being comfortable with a new concept).
I’m pretty sure this makes the final installment of the recent financial trilogy. Thank goodness. I think writing these things down—as well as instilling a system that works—has enabled my brain to move on to more interesting matters. That, and a little reading.
Just this morning I felt my brain switch over. I woke up before the rest of the gang, and read from Antifragile: Things That Gain From Disorder. It’s a difficult read, particularly if you’ve been neglecting intellectually stimulating work, as I have. Reading this at night, lying in bed, hasn’t worked so well. This morning, stumbling across several words unfamiliar to me, I stuffed the sheepskin hat onto my head and zipped into a warm coat atop my pajamas, and ventured outside at about 15 below zero to retrieve my New Oxford American Dictionary from the writing space atop the garage, where it had sat unused for at least two years. Somehow this flipped the switch! Here I am after looking up the word heuristic.
I’m reading the book for free, via the Libby app (the book is borrowed from my local library). I love this image. The dictionary is gigantic beside the book, which seems to symbolize larger things happening in my brain. Nassim Taleb covers tough, fascinating terrain. The subtitle kind of says it all. My own life is a kind of illustration, actually. I had become fragile in my corporate job. Unchallenged, listless, going nowhere, etc… The shock of the layoff was the unforeseen stimulus required to put me on the road to antifragile (which is somewhere beyond resilient, in that things that are antifragile actually benefit from such shocks in the long run).
Anyhow, I literally felt my brain shift from mundane matters of housekeeping (I had been obsessed with putting our house into order – financial and otherwise), and now I’m finally ready to be challenged in other areas. Perhaps this will even dovetail into meaningful progress and direction with my next book!!!!
Sensing this, I immediately set off to publish this simple post before the last vestiges of financial obsessions floated away from my obsessive personality. And that’s the beauty of systems like FamZoo. Set it and forget it. Here are some parting thoughts, before I move on to greener pastures:
- Consider setting up Roth IRA’s for your kids. This is the gift that will keep on giving for a lifetime. While allowances do not count as earned income that can be allocated towards a Roth, just about any other income does: odd jobs like mowing lawns, walking dogs, taking out the trash, etc. It just needs to be a “fair and reasonable” wage for the work performed. $1500 compounded over 60 years (you don’t need to spend every dime invested at age 65), at 7% growth with an additional annual investment of just $500 per year will yield a total return of nearly half a million dollars, tax-free (hopefully they’ll contribute more, but starting early gives them the option to be slackers, somewhat). At 9% interest the figure comes to $1.25 million, which clearly shows the importance of minimizing investment costs. This is why I recommend only investing in index funds or ETF’s that track them. Over the past 90 years the S&P 500 has earned nearly 10% in annual returns on average. This might be controversial to say, but one of the worst lessons your kid can learn is successfully investing in a single individual stock. This happened to me with Kohls stock, as a kid. I put paper route money into the stock market after “playing the market” with pretend money in an economics class. Kohls went on to become a ten-bagger from 1993 – 2000. This caused me to think I was some sort of investing whiz kid, sending me down the road for various “hot tips.” The better lesson was the loss of a few precious thousands of dollars on other companies that were supposed to be the new hot thing. Some went out of business, and I lost the entire investment. Modest returns provided through the total stock market are not only safer, it’s the proven way to beat over 90% of all active investors over time. Another way to set it and forget it. Feel free to be a dummy when it comes to investments. You’ll earn more money over time. So will your kids. This is one area where it pays not to obsess.
2. Remove the shackles of debt from your life. More than likely your family is bringing in twice or even six times the income of our family (see prior post). I don’t say this to dredge up any guilt, but to empower you. You have real tools at your disposal to pay it off. If I were to show up at your job site, I’d pull duct tape and bailing wire out of a humble satchel. You, on the other hand, have the equivalence of the big truck with an extension ladder atop nice racks, a chest full of the best tools, air compressor, miter saw, air nailer, etc. You actually have the tools to build this house. Find a way to live off one of your family’s two incomes, devoting the other exclusively to paying off debt. Involve your kids, so they climb aboard the debt repayment train. Consider calculating how much you’re currently paying for kid things each month, cutting that amount by one-third, and putting them in charge of that portion of the family budget. If your kid blows their money irresponsibly in the first week, they’ll have to wait until next week’s payday to obtain needed clothes, extra food at lunch, money for birthday parties, whatever. They’ll feel empowered, and you don’t need to tell them that you’re actually saving money. To them it’ll seem like a financial windfall. This will also help you to say no to all requests for additional funds. Unemotionally remind them how you all had agreed to this budget.
Consider downsizing from two vehicles to one. That’s serious savings right there. If you must have two, the second should be something like a used $3000 Toyota Camry. (For the record we have an absolute jalopy for my farm vehicle with nearly 300,000 miles on it. City driving only!) Perhaps you have just one income. Our family currently subsists on about 0.6 of an income, but with hopes for an increase in 2019. I can’t articulate strongly enough just how critical it is that you permanently rid yourself of that debt emergency. Some of you reading this will lose your job either this year or next. Believe me, when it happens it’ll be an absolute shock. I would have lost it if we had been burdened by any level of debt at the time. Even the $100 student loan payment felt like too much, which is why I quickly paid it off. Cut out vacations, all restaurant purchases, etc. This is an emergency. Get the family onboard and make it fun. FamZoo might be just the tool you need to make this a fun family exercise. With the resources at your disposal, you could wield this weapon far more powerfully than we currently our.
There. I’m over it! No more financial writing for a while. I’m definitely looking forward to whatever comes next. Thanks for bearing with me.