interest

We’ve been trying to think of ways to teach L about money, and we tried something randomly which seems to be working well.  We’ve been giving her an allowance for a while, one dollar per week.  She’s figured out that that doesn’t buy much, but not much else.  I’d been promising to open a bank account for her for a while, but I’ve been somewhat disheartened by the 0 interest rates from the major banks.  BECU provides 5% interest annually, or something like that, on the first several hundred dollars you deposit in a basic savings account, so I considered that route.  However, we eventually decided that we would instead open our own bank, the Bank of Daddy as we’ve been calling it.  We found an old bank book and gave her $50 as a bonus for depositing her existing life savings, approximately $30.  Every week, she has the option of taking her allowance in cash or depositing it in the Bank of Daddy.  Further, the Bank of Daddy is very generous and pays 10% interest per month.  Yup, that’s 300% interest annually, assuming full compounding.  Fortunately, given the initial balance of only $80, the Bank of Daddy can afford to be generous.

(I did mention that like all banks, the Bank of Daddy reserves the right to change its interest and terms at any time.)

The cool thing is that even given L’s very limited grasp of math, she has figured out that this interest thing is awesome.  She has been eagerly depositing her allowance in the B of D, and she’s counting the days until her first interest payment.  She really enjoys writing her allowance deposits in her bank book with our help.  She’s totally gotten the concept of money written on paper being the same as real money.

Anyway, I’m kind of excited by how well this is going.  We’ll have to see how it sticks.

3 thoughts on “interest

  1. Daniel

    Can I loan her some money at say 5% interest and she can profit off the difference?

    It is a good idea. What does she typically spend her allowance on? We have struggle with allowance because there would need to be something that they should spend it on that we don’t buy for them. It is nice to let them earn money to gather it and learn the power of money making money, but does she spend it on anything?

  2. admin Post author

    Hey Daniel – Jonathan takes her to Target occasionally and lets her spend it on whatever she wants, but she has learned that a dollar a week doesn’t go very far.

  3. Rosa

    Love this idea – we will try something similar I think. G loves money, particularly saving it (for when he’s a teenager so he can “buy whatever he wants”) and this will be a fun way for him to learn to manage it.

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