Bank of Mom

As a kid I was full of hustle. My poor neighbors! On any given day I was attempting to sell them vegetables from our garden, homemade cards, or home baked goods. During the summer I would spend all morning earning fifty cents so that in the afternoon I could attend the two hours of open swim at the local pool.

I now have kids of my own and I realize that money skills are not taught in schools. Money is so wrapped up in emotional baggage and intertwined with your values that I can see why it could be difficult to teach in school.  Despite not being part of the curriculum, it's critical to learn money skills.  Making money is a competitive sport. Give your kids private lessons.

I started when my kids were pretty young. My oldest daughter was 8 years old and we marched down to the local Wells Fargo and opened up a child’s savings account. She was proud and I felt terrific getting her started. One month later she had earned a total of one penny in interest and I realized the lesson I was teaching wasn’t about the importance of saving. Even she knew one penny was pitiful. Instead the lesson I taught was how you won’t get rich putting your money in the bank.

When you teach your kids to talk you enunciate very clearly and make the lessons exaggerated and over sized. Clearly I needed to over dramatize the value of saving. Thankfully I had read The First National Bank of Dad: A Foolproof Method for Teaching Your Kids the Value of Money by David Owen.

I immediately opened my own branch of “Bank of Mom”. I wanted my kids to learn how to spend less than they earned, and I wanted to make it worth their while. I instituted a monthly allowance of $25/month, and paid a whopping 5% per month interest. Then I sat back and watched.

It was not flawless. Actually, it was heavily flawed which was the point. I did my best to not pass judgement on their choices.

I wasn’t sure this was a good idea. I watched them make painful purchases. Our only rule was that they couldn’t buy things that were against our family rules. Spending your allowance on candy was fine, spending it on eye shadow wasn’t okay.

There were times they felt broke because they spent most of their money early in the month. I stuck to my guns, I did not bail out a child and give her an early allowance. There were always extra chores to do around the house if someone couldn’t make it to the end of the month but they quickly discovered the value of a dollar while vacuuming, sweeping, and cleaning.

There were many tears. It was painful to see that your sister had more money left. There was regret at having spent all their money too soon. There was angst over having to wait and save for two months to buy the fairy Lego set. There was plenty of remorse over having purchased something expensive that was quickly forgotten.

Sometimes they felt flush. It sure was nice to see the interest deposit in their account which seemed like free money.  One daughter swelled pride at having saved up enough to buy her own sewing machine. Gradually, dollar by dollar, they started developing self-control with money. Each child, on her own timetable, got comfortable having money, spending it, and saving it.

A few notes on logistics. I produce monthly statements showing their deposits, withdrawals, and interest earned. I pump up the lesson by keeping track of the end of the month balance on the bottom of every statement so they can see what has happened over the past 5 years. It took me an hour to make the Excel spreadsheet which is the foundation of the monthly statement. It takes me ten minutes a month to update the monthly sheets. The amount of time I invested in the logistics of making "Bank of Mom" happen was trivial compared to the lessons learned.

Fast forward 5 years. The "Bank of Mom" continues, but I can no longer afford to pay the same kind of interest. The interest rate dropped gradually, but is now 0.5% per month. Instead, they can get a better return investing in my real estate deals.

These days, my kids have two bank accounts. One in the "Bank of Mom", and one at that same local bank. Why? They need to be able to deposit their paychecks and learn how to use an ATM. Soon it will be time to get them a debit card and even a credit card. It's far better to learn all these lessons at home while the dollar amounts are small and adult supervision is available.

The key to building wealth is to spend less than you earn and invest the difference wisely. Both my kids have developed self-control with money and they consistently spend less than they earn. Now on to the next step: teaching them to invest wisely.