The end of the year is a great time for some quiet reflection. Take stock of the important areas in your life — including financial — to provide a little perspective and priority before jumping into resolutions for the New Year.
Like good money habits, the habit of periodic introspection is an excellent habit to start developing early in life. In that vein, this teen guest blogger — who happens to be one of my sons — looks back on a decade of financial behavior.
Once upon a time — 1,086 transactions ago to be precise — my FamZoo experience began. June 16, 2002, marks the beginning of an eye-opening evolution of 50 cents. My humble beginnings of a “gumball” here and a “superball” there (8/10/02) soon transformed into a pattern of impulsive behavior.
I’ll be honest with you, I don’t even know what the “Adventures of Bleeposaurus” means, but apparently it was worth dropping $15 on in 2003. We also can’t forget the heavy toll of a “broken window” the same year (11/01/03) — typical me. But hey, if I could milk my father with back-scratches in exchange for a few dollars, why not take advantage of the extra moolah?
But then it happened, with the devastating combination of both Halloween and sports video games, my bank account dipped into the negative. In 2004, I learned not to spend more money than I had. Unfortunately, that’s literally all it taught the young me because I still had no problem emptying my balance to $0 with a purchase. With allowance and “good behavior during babysitting” fueling my small, yet growing spending account, I managed to save up a decent amount of money. With a little bit more from picking up the yard and washing the car, I made the infamous “Heelys purchase.”
That pair of Heelys roller shoes is undoubtedly my most recognizable purchase, not only because it drained all my funds in one fell swoop, but because it was simply a dumb and impulsive act of squander. Sure, they were enjoyable for a little while, but it was a foolish purchase in the long run considering the cost.
Apparently I was also a punk, racking up some penalties with “rude talk to others” (9/25/05). In 2005, I learned not to make impulsive decisions and not to be a punk. Just kidding, I didn’t absorb either lesson at the time. To this day I still do both, but I make sure I still have money left over after a purchase. For your enjoyment, I bought “Heelys” again in 2007; effectively halving my balance at the time. Whoops!
From 2007 to 2011, I would say my behavior wasn’t too shabby. I saved up and spent money on movies with friends, lacrosse sticks, and video games. The most regrettable purchases being all the money I spent on video games, but so goes the story of a dolt; and admittedly, I still do occasionally spend money on games.
At this point in my journey (2011), I learned to not be so impulsive, save my money, and respect the role it plays in the world. I still waste money here and there, but I understand the significance of my actions and guiltily accept my behavior at these times.
In 2010, my father gave me a loan for half the price of a MacBook Pro. I understand how fortunate I am to have this computer and take advantage of my blessings. I keep very good care of it, and besides the issues it was manufactured with (known problems!), it’s still in pristine condition. While paying off the loan, my allowance would split into four accounts: General Spending, Long Term Savings, Charitable Givings, and Computer Loan. Paying off the MacBook Pro taught me how to respect my property, understand loans, and appreciate my money.
In the current year of 2012, my money handling thus far has been good, but not great. One potential mistake is a “mini longboard” purchase I made over the summer. I used it, but not to the point where I felt it was worth the cost I payed for it. One certain mistake is the continued payment on video games; but at least I maintain a healthy amount of money after each purchase and space out my impulsiveness.
All this reflection is made possible by the Account Transaction tool built into Famzoo. Being able to look back upon my account history is really fascinating. Every single debit and credit, with its date, is captured and recorded for viewing purposes. I can’t tell you how many times I cracked a smile, laughed, and face-palmed looking over my spending habits. Having a graphical version is also interesting because it provides a visual representation of big purchases and the effect it has on one’s balance.
I believe it’s been extremely beneficial for me to see my spending habits and learn from my mistakes and I am certainly pleased with my financial development over the years. Famzoo has taught me through experience how to manage my money, use my money, respect money, and learn from my purchases.
My main concern: Allowance sites can be an impediment to money talks, rather than a way to facilitate those conversations. Why talk about saving for a goal or the family budget when you can just automate your kid’s weekly allowance?
Hmmm — that’s odd. Our design goal has always been to increase those quality conversations and boost fiscal awareness, while automating away much of the tedium that causes many parents to fall off the chore/allowance wagon after just a few weeks.
Beth is a well known personal finance journalist and a member of the President’s Advisory Council on Financial Capability, so I’m inclined to take her analysis seriously. I wondered whether Beth’s harsh judgement was based on personal experience with an online allowance site, and, if so, which one? However, in re-reading the article, I noticed the following tell-tale lead-in to paragraph three:
Having never used an allowance website with my kids...
Hmmm.
OK, so we’re left wondering how Beth came to the conclusion that online allowance trackers discourage meaningful money talks with kids. Pure gut feeling? I’ve tried reaching out to Beth on numerous occasions including just last week on her Facebook post about the article — offering to walk her through our product personally. So far, no response, but it remains an open invitation.
A comment on Beth’s article captures the perplexing nature of her assessment:
I agree about the importance of financial education for our children and I am grateful that you would write to try and increase the awareness. But I think this article and the article about old school allowance are lacking in helping any become more financially educated. In old school allowance it seems you tell a story of how it became too hard to track so you gave up trying to teach about financial education when it became the most important (teenage years). And then this post you discount the tools that allow it to be easy enough to track. We have been using an online tracker for a while now and it has been the best thing for our children and my house has never been so clean. But I do not use a traditional allowance system, the online system allows me and my children to track their financial decisions.
In the same vein, when I asked FamZoo families on our Facebook page whether FamZoo is an impediment to money talks with kids (see post), here’s the feedback we received:
Anne E: We’re recent adoptees of this online allowance process. Truth is, I was always of the view that allowance is kind of dumb. Our children do chores and help out around the house because that’s the right thing to do. We started out with Famzoo so they could learn budgeting and responsibilty with their money. They have tasks or chores equal in value to their weekly allowance. If they don’t do their tasks, they get that amount deducted from their allowance. Guess what this has done? It has them working harder! They now associate their work with money. For our family, it has been helpful and far from an impediment.
Andrew P: That is a shockingly poor article — firstly, she openly admits to not having used any of the sites, then quickly progresses to discussing the pros and cons — on what basis? Secondly, she freely admits they are a ‘cash’ using family. That is admirable, and maybe follows conventional wisdom, but we are increasingly moving towards a cash-free society. It is far better that our kids get used to dealing with money as a ‘cyber’ currency now than have them struggling with the discipline required in 10 yrs time. As far as meaningful discussions with our kids, I fail to see how FamZoo is an impediment. Our family has had many conversations about saving vs spending, benefits of compound interest over time, not rushing into purchase decisions, etc. FamZoo helps in this regard as the kids have their own login and can see their savings grow. So Beth — you can keep your cash methods — my family are sticking with FamZoo.
Shawna C: I just opened a trial FamZoo account this week and explained a bit about the idea of savings goals and compound interest to my 6-year-old tonight. I also set up a chore list for each kid, but it’s not coupled to the allowance so they can’t say, “I don’t need money this week so I’m not going to bother with my chores.” So far, so good with Famzoo!
Denise W: Well, she has not seen my FamZoo account then for sure. FamZoo and watching your money is talked about almost daily in my household.
Melissa K: I have found FamZoo to be a huge asset when it comes to teaching my 11 and 13 year old boys about money! We incorporate a lot of Dave Ramsey’s philosophies as well. We are not creating an “entitlement” culture, we are creating a family that understands that attention to responsibilities and a strong work ethic has positive results. The banking aspect of this site has resulted in a greater desire to save and a true sense of financial empowerment.
Now, these are our fans, so they’re admittedly biased. That said, their responses are based on actual experiences.
I welcome dissenting opinions from those who have had different experiences with online allowance and chore tracking sites — particularly FamZoo. Honest, thoughtful criticism helps us refine our offering and deliver a better service, so don’t hesitate to contact us.
In any case, if you scratch beneath the surface, you’ll find that we offer far more than a “glorified gold star chart.” More importantly, by putting the tedium of your kid’s money management on autopilot, we keep the meaningful money talks front and center week in and week out.
The recent public radio Marketplace segment in which Suzanne Skyvara describes how she teaches her kids good money habits with FamZoo, and Beth Kobkliner expresses her skepticism.
An earlier article by Beth that covers her family’s stuggles with allowance (“With three kids, my husband and I still haven’t mastered the art of giving them allowance in a timely fashion.”)
Last week, Dan Kadlec invited me to chime in on the “allowance debate” for his article in TIME Business & Money:Kids and Allowance: The Debate that Divides Us. I was honored to be included alongside some of the most prominent names in personal finance (Suze Orman, Dave Ramsey, Jean Chatzky, Janet Bodnar), and I was relieved to be grouped in the “thoughtful” corner (I can just see my kids rolling their eyes now).
Here’s my stance on the allowance debate — most of which Dan was nice enough to include in the article verbatim:
I find the allowance debate to be a diversion. To me, the far more crucial thing is practice — early and often. I think it’s critical for parents to make sure their kids get regular hands-on experience making real spending, saving, and giving decisions with a modest, constrained supply of their own income. I don’t think the specific source of that income (unconditional allowance, chores, outside jobs, or a hybrid thereof) is hugely important — as long as it’s thoughtful, consistent, clearly communicated, and in line with the family’s values.
Furthermore, the appropriate source and amount of that income varies with age. As kids mature, they can manage spending for more than just little occasional “wants” and start tackling budgeting and expense tracking for specific needs — like clothing. Over time, they can also be expected to kick in more and more income on their own from outside work.
My bottom-line advice to parents: don’t let agonizing over the allowance vs. chores debate get in the way of getting your kids started with hands-on money practice — pick an approach, get started, and tweak it over time.
Beyond the compliment of being included, I was particularly pleased to see Dan cast a critical eye on the Mandell research that purportedly shows an inverse relationship between receiving an allowance and developing financial aptitude. The less discerning journalists tend to just run with a link-bait headline like “Allowance Does More Harm Than Good” and then couple it with a fluff piece sans any meaningful analysis. A more accurate headline that more closely matched the findings would really read something like: “Thoughtlessly forking over an allowance with no discussion or guidance probably won’t teach your kid good money habits.” No, duh.
My feeling: Allowance isn’t the problem, but parents might be. Allowance is just one simple tool (among many) that parents have at their disposal. If parents are thoughtfully delivering a modest allowance as a way to give their kids regular practice managing a constrained financial resource (also know as operating within a budget), I can’t fathom how that would inhibit the development of their financial aptitude. If the “research” shows otherwise, I’m inclined to think there are other factors at play that are skewing the results (see section 2 of this post for more thoughts on such studies).
Dan Kadlec covers all the “expert” (present company excluded!) angles on the ever polarizing allowance-for-kids debate: no allowance ever vs. pay for chores only vs. allowance as a budgeting tool.
Typically, when parents hear “allowance”, parents think “spending”.
In the worst case, allowances fuel more spending. Thoughtless parents unconditionally shower bloated sums on their entitled kids who rush out to satisfy their “wants” on the latest consumer-driven fads. Instant gratification. Profligate spending. Ugh.
In the best case, allowances constrain spending. Modest sums are saved week after week by patient kids who deliberate over their eventual purchases, weighing the pros and cons of each. Delayed gratification. Disciplined spending. Good stuff!
But there’s another word I wish allowance would more readily evoke: “giving”. Allowance can be a great tool for introducing your kids to philanthropy, and cementing a lifelong habit of charitable giving. Here’s how you can get started today:
Pick a giving goal. Sit down with your child and pick a charitable giving goal that matches her interests and means. Need some ideas?
I’ve written about DonorsChoose before here. Your kids can help students in need by helping to fund projects posted by public school teachers across America.
Lots of FamZoo families recommend the microfinance non-profit Kiva. Individuals can lend as little as $25 to help create opportunity around the world.
In Mark Hurst’s 2013 Gift Guide, I read about a more personal way to reach out to Sandy victims through the organization Family-to-Family.
Want more ideas? Check out pick #1 below.
Make a fund-raising plan. Help your child work out a gameplan to raise the funds for the donation. Here are a few ideas to mix ’n match: set aside a portion of allowance, tackle some odd jobs, hold a fund-raising event, or convince mom or dad to kick in some matching funds.
Track progress. Review progress each week with your child. Fine tune the plan along the way if things are getting off track.
Create a memorable giving moment. When your child donates her own hard-earned money to a cause, it invariably creates a strong sense of fulfillment and pride. It’s a powerful moment. Reinforce it. See picks #2 and #3 below for two recent examples of memorable giving stories involving young philanthropists.
There are lots of neat family philanthropy ideas in this article that came out as part of the #GivingTuesday campaign this year. Here’s what that campaign is all about:
#GivingTuesday™ is a campaign to create a national day of giving at the start of the annual holiday season. It celebrates and encourages charitable activities that support nonprofit organizations.
When used properly, allowance can be a great tool for helping kids make a habit out of both disciplined spending and thoughtful giving.
Good luck and happy giving!
We’re constantly scouring the Internet looking for articles related to family finances and teaching kids good personal finance habits. You can visit our ever growing list of family finance bookmarks here. We’re up to 3,024 now!
Like every adolescent, your teen craves independence. And now your teen wants the freedom to make purchases on a credit, debit, or prepaid card. Yikes! Since your teen’s frontal lobe isn’t fully developed yet, you’re understandably hesitant about this next step up in fiscal responsibility.
How do you know your teen is ready?
If we were talking about a youngster learning to ride a bike, the answer would be simple: start with training wheels. That’s how we avoid lots of nasty bumps, bruises, or far worse. When it comes to kids learning personal finance, where are the training wheels? If we just turn our kids loose on bank accounts and credit cards without some practice beforehand, they’re going to get hurt.
In our teen’s case, the training wheels were accounts in our virtual family bank. It’s a way for kids to practice making real world spending, saving, and giving decisions while parents remain firmly in control of the actual purchasing.
Here’s how a virtual account works in a nutshell. Suppose my son wants to buy something. He checks the current balance in his virtual spending account. If he has enough, he comes to his family banker — me — and either asks for a cash withdrawal (the ATM model) or asks me to make the purchase on his behalf. After I hand over the cash or make the purchase, I subtract the amount from his account balance accordingly. On the deposit side of the ledger, his account is credited each week when FamZoo automatically delivers his allowance. That’s the personal finance “training wheels” system we’ve used over the past several years to teach him how to manage his own money and spend within his means.
So, now it’s time for the training wheels to come off. My son has proven he’s ready to start riding the purchasing bike without direct assistance. But, I’ll still be running alongside just in case. In other words, I want to retain visibility and some measure of control over his purchases. I also don’t want him to be able to spend more money than he actually has. And, lastly, as a teen, he’s not ready for a long term banking commitment yet — which is what signing up for a traditional checking account feels like. As a result, I’ve decided the right next step is a teen prepaid card.
Here’s how we’ve made the transition from a virtual spending account to a prepaid card account.
Step 1: Get prepaid cards for both of us. I want to minimize card loading fees and delays, and I know card-to-card transfers are typically free and immediate. So, I’ve decided to get prepaid cards for each of us. I’ll use mine as the “funding card” for my son’s card. I’ll load up my card every once in a while with relatively large sums of money. Then, I’ll periodically make “micro-transfers” to my son’s card for things like his modest weekly allowance, payments for odd jobs, and even “Bank of Dad“ interest payments to encourage good saving habits. Sometimes, the payments will actually flow in the opposite direction — from his card to mine — if he racks up a fine or reimburses me for a shared expense.
In our case, we’re test driving the new FamZoo prepaid card integration that allows us to manage and monitor a “family pack” of prepaid cards together through the familiar FamZoo user interface. We can keep using all of the FamZoo conveniences like automated allowance delivery, interest payments, auto-debits, checklists, budgets, etc, while turning our son (semi) loose with his own prepaid card. To get started, as soon as we received our prepaid cards in the mail from our partner TransCard, we activated them online from within FamZoo.
Note: we’re currently in private preview mode with our prepaid card family pack capability, and we’re shooting for making it generally available in early 2013. If you’d like us to email you as soon as it’s ready, just contact us on our site.
UPDATE: FamZoo prepaid cards are now shipping. Find out how to order your family pack here.
Step 2: Load up my parent “funding” card. For the first load of my parent “funding” card, I purchased a GreenDot MoneyPak at our local Walgreens. It cost me a flat fee of $4.95 to load up the MoneyPak. Then, from the GeenDot web site, I transferred the amount on the money pack to my prepaid card (no additional charge). It only took a few seconds online. There are lots of other options for getting money onto your prepaid card — this just happened to be the most convenient option for me at the time. (Update 3/27/15: Green Dot has since replaced their MoneyPak offering with the safer, quicker Reload @ the Register program.)
With our cards activated in FamZoo and the initial load completed, I can see the balances on all the cards in the family pack along with the transaction details for each. My son can sign into FamZoo separately and see the balance and transaction history for his own card right alongside the rest of his FamZoo accounts.
Step 3: Roll my son’s virtual spending account over to his new prepaid card. Since I’ll no longer be making purchases on my son’s behalf, the next step is to move the amount currently in his virtual spending account over to his prepaid card. First, I’ll initiate a card-to-card transfer from my card to my son’s card that is equal to the current balance in his virtual spending account. Then, I’ll zero out his virtual spending account since we won’t be using it any more.
With FamZoo, this was just a simple transfer action from my son’s virtual spending to his prepaid card. Behind the scenes, FamZoo performed the appropriate card-to-card transfer and debited the virtual account accordingly.
Step 4: Redirect my son’s allowance to his prepaid card. I still want to split my son’s allowance between spending, saving, and giving, so I’ll just redirect the spending portion to go directly to his prepaid card by pulling that amount off my card and transferring it to his card each week. For now, I’ll keep his saving and giving as virtual accounts. I’ll transition those to the real world later when he heads off to college and opens bank accounts — just like we did for his older siblings.
With FamZoo, I just edited my son’s allowance definition and switched the spending split over to to his prepaid card. Now FamZoo automatically delivers the spending portion of his regular allowance directly to his prepaid card by performing the appropriate card-to-card transfers in the background each week.
Step 5: Redirect my son’s shared expenses to his prepaid card. I still want my son to pick up his portion of the fees for some shared services he enjoys — like the monthly data plan fee for his smart phone. Those regular deductions used to come out of his virtual spending account. Now, I’ll just take the amounts off his prepaid card instead and transfer them back to my “funding” card.
With FamZoo, I just updated the account selected for each of his Auto Debits to be his new prepaid card account. Now, each time an auto-debit hits, FamZoo takes care of moving money off of his card and back onto my funding card. By the way, the same holds for the penalties we assess when my son blows off his expected chores, like making the bed. I just rewired each of the items on our “chore fail chart” to take money off his new prepaid card account instead of his old virtual spending account.
Step 6: Offer a special incentive to curtail spending. Unlike most card rewards programs, I’d like to provide my son with a little extra reward for not spending — in other words, a savings reward program instead of a spending rewards program. Specifically, I’ve agreed to pay him 0.2% weekly compound interest on the balance on his prepaid card. At the end of each week, I’ll calculate the interest on the current balance and transfer it from my card to his. Easy money! (And, no, you can’t join my Bank of Dad rewards program!)
With FamZoo, I just edited the optional savings interest rate settings on his prepaid card account. The payments are now made automatically each week using my prepaid card as the funding source.
That’s it. The training wheels are off! I have now transitioned my teen from a virtual spending account to his own prepaid card.
Let’s hope he keeps his helmet on!
P.S. If you want to reduce some clutter and hide the old virtual accounts (what we now call “IOU accounts”) from the normal view, see the instructions here.
Strong differences of opinion, extreme positions, insistence on “perfection” — they’re all classic roadblocks to progress. Just ask Congress!
Those classic roadblocks can get in the way of teaching your kids about money, too: strong differences of opinion between spouses, extreme controls on your child’s spending, a fixation on finding the perfect all-encompassing system.
How do you move beyond the roadblocks? Find some middle ground.
This week, each of my three picks illustrate the middle ground when it comes to some classic kids and money debates.
Maybe your spouse feels strongly that an allowance is a terrible idea — a work ethic crushing entitlement! Maybe you, on the other hand, view allowance as a simple, effective tool for practicing basic money management habits like saving and resisting impulse purchases. Instead, your spouse wants to pay your child a “commission” for doing chores. How else will your child learn to appreciate that money is earned through hard work? But, you worry that paying for chores sends the wrong message about pulling your own weight within the family. After all, nobody pays you to make the bed or fold the laundry! Do you want your child demanding payment for every little request for help? Nope.
You and your spouse are at an impasse. You can’t agree on a system, so you continue to be ad hoc or even inconsistent with your child when it comes to money. With no reliable, predictable income source, your child has no opportunity to practice good money habits.
What’s the middle ground in this case? Perhaps Jack Otter, the Executive Editor of CBS MoneyWatch and author of the book Worth It... Not Worth It?, has the answer for you. In this article and short video, he handles a rapid fire pop quiz on 10 common money questions. Among them is the classic: “Kids, allowance or pay for chores?” His answer is short and sweet: a modest allowance coupled with pay for “big” chores that are outside the normal, expected household duties.
You’re disgusted with all the focus on consumption within our society. The thought of kids running around with the latest, greatest shiny techno-gadgets or trendy fashion items turns your stomach. And now your child announces she wants to save her money to buy that bleeding edge, “insanely great” tablet computer. Absolutely not! You’ll decide what’s appropriate for your child to purchase. Everything beyond that — money from birthday checks, odd jobs, you name it — goes right into to her savings account. No questions asked. After all, you know best from your own experience.
The problem is: by withholding all financial decision making responsibilities from your child, you’re robbing her of the most effective teacher of all: personal experience. It’s awfully hard to learn a skill without some of your own trial and error.
What’s a good middle ground solution here? Relinquish some financial decision making responsibility to your child, but couple it with some smart spending guidelines to ensure an appropriate level of frugality. That tablet for example? Fine — as long she purchases a gently used one. As Gary Forman, founder of The Dollar Stretcher, advises in tip #1 of this excellent article: teach your kids that “hand-me-downs” are acceptable. That will lead to smart money decisions later as a young adult, like buying used cars instead of new ones. Read the rest of Gary’s list here.
Budgeting is the cornerstone of personal finance. So you’re determined to teach your child that critical money management skill. Many experts recommend putting your children in charge of their own spending and tracking it relative to a budget. In a perfect world, that budget wouldn’t just cover pocket money for modest “wants,” but real world “needs” too: school lunches, birthday presents for friends, mobile phone charges, clothing, entertainment, you name it. And if your child mismanaged her budget? Tough!
In this article, Beth Kobliner describes why her “tough love” allowance/budget failed for her tween. She abandoned it, and went back to a nominal allowance to cover just miscellaneous “wants.”
That’s too bad, because I think there’s a middle ground learning opportunity in the real world “needs” budgeting department. There’s an approach that keeps things simple while retaining a little of the very effective “tough love” learning element. Just focus on a single, well-defined area of spending that your child truly cares about — clothing is a classic example. Work out a budget together focused on just that area of spending, allocate an allowance that matches the budget, and have your child manage spending within the budget. It’s far more manageable than an all-encompassing budget, and it teaches the basics of the skill effectively.
We’re constantly scouring the Internet looking for articles related to family finances and teaching kids good personal finance habits. You can visit our ever growing list of family finance bookmarks here. We’re up to 2,978 now!
Many financial institutions consider it a core principle to improve the quality of life for their members and the surrounding community. Those efforts often revolve around member education, and naturally, the educational focus for financial institutions tends to be on financial literacy. With all of the challenges in the global economy, that focus is increasingly relevant and urgent. Ben Bernanke, US Federal Reserve Chairman, reinforces the connection when he says:
Financial education supports not only individual well-being, but also the economic health of our nation.1
James Rajotte, Chair of the Canadian House of Commons Finance Committee, echoes the same sentiment:
I firmly believe that one of the key pillars of a strong Canadian economy is having a financially literate population.2
So the “why?” is pretty clear, as is the “when?” — that would be yesterday!
As for the “who?”, I’ve never heard anyone take issue with the old adage: “start early!” So youngsters are clearly a key part of the “who?”. And when money and kids are involved — regardless of what you’re doing in the schools to teach money concepts — you’ll need to involve the parents and guardians. Why? It’s about practice. Like any other skill, kids can’t master personal finance without practice. And, kids can’t practice personal finance without real money. Where do young kids primarily get their money? Their parents, of course. So, the parents need to be involved to make it all work. Even if we were to ignore such practical matters for the moment, it’s very clear that money and values are intimately intertwined. Just ask parents whether they care about how their kids earn, spend, save, and give their money. You’ll invariably hear passionate responses deeply rooted in their unique family history and values. Parental involvement in financial education is a moral imperative.
That brings us to the “how?”. How does a financial institution figure out what’s next and what’s best when it comes to financial literacy? The answer is research. Lots of research. Start by analyzing a large sampling of viable candidate solutions — say, 60 or more. Then, score each according to key criteria, like whether the solution is targeted, interactive, accessible, scalable, and effective. Finally, use that data to pick a handful of best solutions with the most potential.
Sounds like a lot of work, right? It is. But, here’s the good news: it’s already been done for you. All you have to do is check out the System Brief delivered this month by Credit Union Central of Canada. It’s called “Financial Literacy: What’s Best and What’s Next.” You can download it here.
Spoiler alert!FamZoo, our online and mobile application that helps parents teach their kids good money habits, is among the 8 selections for “What’s Best” culled from 67 candidates. And when it comes to “What's Next?”, FamZoo is among just three identified on the “Short Term” list as suitable for rolling out right away.
So, if you’re with a financial institution looking for what’s best and what’s next in financial literacy, we’d be delighted to set up a live, private online demo to show you how FamZoo works and how it can be customized for your institution. Just contact us here.
If you use allowances in FamZoo, you’ve noticed that we let you automatically split the total amount between multiple virtual accounts. Each split is defined as a percentage, and together they must add up to 100 percent.
One of the reasons we use split percentages instead of amounts is because parents frequently make the allowance a function of their child’s age. (To be precise, FamZoo parents create age-based allowances 47.6% of the time.) If we have the splits defined as percentages, it makes it easy for us to automatically calculate the adjusted split amounts as your child grows older and the total allowance increases.
Percentages usually do the trick, but sometimes it just feels more natural to specify the precise amounts of each split. Michelle, a FamZoo mom, recently contacted us, and eloquently explained it this way:
It would be nice to have a type of allowance that wasn’t divvied by percentage but by dollar amount. In other words, at the moment we give our daughter $3 for long term, $2 for short term, $2 for charity and $2 for float (which she decides where she wants it). It would have been nice to add her allowance that way instead of having to muck around with the percentages to get it to work out evenly (33.34%, 22.22%, 22.22%, 22.22%). It’s not that it was hard, just a bit tedious. I understand if you want to have a standard split rate for other deposits that the percentages would be good, but it would also be nice to have a type where you can just put in the dollar amount per account. It obviously would only work for an allowance that doesn’t change (very often) vs an ad hoc new “contribution.” It just would be nice to have that option.
Well said Michelle, and it’s something we’ve added to our feature candidate list. In the meantime though, it turns out there is a way to simulate a regular allowance with fixed amount splits using a FamZoo Checklist. Here’s how you do it:
Step 1: Create the accounts. Click on the Create Account link (found on the Overview page or the Accounts page of the Bank tab) to get to the Create Account form. Fill out the form for each account to which you’d like to distribute allowance amounts. In Michelle’s case, that’s three accounts: one for long term saving, one for short term wants, and one for charity.
Step 2: Create a checklist. Click on the Create List link (found on the Overview page or the Checklist tab) to get to the Create New Checklist form. Name the checklist something appropriate like “Allowance,” and be sure to check the box to allow the assignment of rewards to items on the list.
Step 3: Create a checklist item that delivers the allowance. Click on the Add Item link to add a new item to the list.
Name the item something like “Allowance Payment.”
Pick a start date that is one day before the desired delivery date.
Select the repeat options to match how often you’d like the allowance delivered.
Set the Expires setting to be 0 days after the due date so that this repeating item will always automatically expire immediately after its due date.
Add a reward entry for each split that indicates the target account and associated dollar amount to be delivered by the allowance. Make sure that you have when item expires selected for each reward entry.
That’s it. Now, whenever the repeating item expires, the allowance amounts that you supplied in the rewards settings will be automatically delivered to each account.
Now what about the $2 “floating” amount that Michelle’s daughter gets to assign to the account of her choice? I’d recommend setting that up as an additional repeating item on the Allowance checklist with a single reward of $2 to the desired account. I’d also set up a reminder on the repeating item. It serves as a prompt to ask your child whether she’d like to change the current account assignment for the floating component of the allowance. If so, just edit the floating checklist item, and update the account pull-down in the Rewards section accordingly.
Once you’ve got this setup, here’s what the payments will look like in your child’s Transactions page:
For the step-by-step instructions in pictures, check out this slideshow.
Practice, practice, practice. Everyone agrees that kids need lots of practice to master a skill, right? Whether its sports, academics, music, you name it.
So why not give your kids lots of practice when it comes to the critical life skill of managing their own money? Without it, your kids are headed for trouble. Kids can’t fully develop personal finance skills by playing games or by having you make all their financial decisions for them. That’s like expecting your child to become a great hockey player by playing an online hockey video game or just watching you skate around the rink.
So, where do you start?
To practice, kids need some real money of their own. Don’t get too bogged down in classic allowance vs. paid chores debates when it comes to determining your child’s source of income. Just pick an income source and amount that makes sense for your family’s situation. Then, give your child the freedom and responsibility to make regular spending, saving, and giving decisions with that money — within some minimal set of basic boundaries that you establish.
Through repetitive trial and error along with your guidance, your kids will develop the skill of making wise money decisions.
Practice makes perfect — or, at least proficient.
With the “real world practice” theme in mind, here are the family finance picks of the week:
A bit of a “party pooper” post from Investopedia about Monopoly, but a good reminder that the best games are designed first and foremost to entertain. To really learn something, like personal finance, nothing rivals real experience. It’s all about (real) practice.
FamZoo Mom, Suzanne Skyvara, was back on public radio again
last Friday in this longer four and a half minute interview segment — an expansion of the original shorter broadcast here. Suzanne describes how FamZoo helps her kids practice making financial decisions like the trade-off between spending extra money on a soda now versus saving it toward a video game purchase later. The experiential learning includes living with the consequences of truly bad decisions, too: like losing $10 to your brother over a spontaneous bet about the name of a video game. Oops.
Ryan pens a solid, and pretty typical, article on allowance basics. He wades into some of the classic debates such as whether or not to pay for typical household chores. The gold of the article is all in the “Bottom Line” section at the end. Ryan reinforces the notion that the true value of an allowance is creating an environment in which kids can practice making financial decisions. That’s nicely captured in the classic allowance-amount axiom that Ryan highlights:
A child’s allowance should be enough to allow them to buy something small right now or save for something big later on.
We’re constantly scouring the Internet looking for articles related to family finances and teaching kids good personal finance habits. You can visit our ever growing list of family finance bookmarks here. We’re up to 2,992 now!
Recently, I had the privilege of joining Heather Wagenhals on her Unlock Your Wealth radio show. Heather is a personal finance columnist, author, and radio show host who focuses on financial tools designed to help everyone manage their finances and attitudes for the dual purpose of achieving financial wellness today and financial independence for the future.
In this 26 minute interview, we cover the following topics and more:
How financial literacy is much more than just knowledge.
How a virtual family bank works and gives kids hands-on experience with money decisions.
How technology can make mentoring easier for parents and learning more engaging for kids.
How to let kids learn through "failing."
How to get 6 months of FamZoo for free through the end of November.
You can listen to the recorded interview here or read the transcript below.
Heather: Greetings everyone. Welcome to the broadcast. You are listening to Unlock Your Wealth Radio with Heather Wagenhals. I am she, your hostest with the financial mostest, guiding you through the murky money waters into the promised land of wealth and happiness helping you get your money mind right so that wealth and happiness can follow, and we do that each and every week right here at unlockyourwealthradio.com. We are so glad to have you. We are beginning our 5th key in our Keys to Riches Financial Wellness Series this week, and that is, "Take Emotion out of the Picture". In this episode we are going to learn how we can keep our passions in perspective when we make financial decisions.
Also coming up on today's show we have special guest Famzoo.com creator, Bill Dwight, joining us to talk about kids and money management tools that you can use to help teach them how to be good stewards financially so they won't have a need for this radio show when they get older. That's one of the things that I'm trying to create, obsolescence with my radio show by sharing how we get our money minds right, and we do that each and every week with our Keys to Riches Financial Wellness Series. For those of you who are joining us for the first time, welcome to the broadcast. We're so glad to have you.
The Keys to Riches is simply a bakers dozen of financial concepts that I designed to help you get out of your own way when it comes to managing your money. We're going to learn more about this week's key and how it fits into the bigger picture, and specifically why this key is so important to you because as we say at the beginning of our show, it's about getting your money mind right.
Why do we say that? Well, it's simple. It's because we all know to spend less and save more, but we don't. Why is that? Because when we say it's all about the money, it's actually not about the money. We're going to learn about that today and how emotions are connected and how we can work to overcome those. And so, we'll do that on today's show. I'm so excited.
Let's get to our guest shall we. The Famzoo website is pretty amazing. Bill Dwight created this website because of a personal reason. A father of five was looking for a way to teach his kids about money. He designed this really incredible way to do that. But I'm going to let him tell you about that because his story is so unique.
I really haven't featured a whole lot of money management tools. We've have Sharon Lechter on with her kidpreneur program, but how do we take whatever we decide as our money teaching tools for our kids and translate that into something that is simple and easy for us implement that we can be - the key - consistent with. Because consistency in our children is super important because they're hawks, and they will hold you accountable. All you have to do is goof up once with the kids and they will be all over you. "But Mom, you said..." or "Dad you said...", and all it takes is one time to make a mistake, and if you're too tired, or too busy, or your system for teaching kids is too complex, you're going to get hung up in that. So, I am so excited to have a conversation with Bill Dwight.
So, let's get started shall we. Welcome to the show Bill.
Bill: Hi Heather. Thank you for having me.
Heather: I'm so excited to have you on the show today because one of the things that is so important to me is the right programming, and for those who are regular listeners understand this all too well because they're busy smacking their forehead, "If only my parents would have programmed me right," because what they find out when they start the process of financial literacy is it's more than just financial literacy. It's about health and wellness both mentally and physically, and they realize that a lot of the things that they do are just simple little injunctions that seemed innocuous at the time as a child that have deeper ramifications, and you have one of the neatest solutions I have seen so far regarding educating children.
Bill: Well, thank you. I mean, you have this quote on your about page where you say, "Knowledge is superfluous without application." I think that is so relevant here because kids really need to practice personal finance to get these habits down. My wife and I have five children, so we've kind of been through this a couple of times, and we were really struggling to find something that would allow kids to practice personal finance on a regular basis versus just talking to them about it, or a piggy bank kind of runs out of steam real quick.
I mean, kids are super smart and they catch on really quickly. They can really deal with a lot of pretty sophisticated financial concepts. But banking products really aren't appropriate for them, because they're not there to help you make mistakes - they profit from mistakes. So, that's kind of how FamZoo came about. It was my quest to find something I could use with my kids to give them a lot of hands-on practice.
Heather: Yes, when I was young I had my own little business, and so I did have a checking account for my lawn mowing service and I had Holly Hobby checks.
Bill: That's awesome.
Heather: All I wanted to do was write them though. My mother kind of ultimately controlled the purse strings on that because I was a familial contributor as a child. So I had an unusual financial experience, but for kids that come up with parents that maybe didn't have stuff and they want to give their kids the world, they want to make it easy on their kids, it's not always the answer and sometimes lifestyles, these middle class and moderately affluent lifestyles just don't permit the opportunity to teach kids about personal finance. How does Famzoo work?
Bill: Well, the way it works is basically the parent sets up a bank. So, from the kid's perspective, they have an online bank, and mom and dad are the "bankers." It sounds a little complicated, but actually the whole point is to make it really super simple. So, from a kid's perspective they have an online bank account which shows them their balance - how much they can spend, or how much they've saved or whatever - and then the parents are the ones who are putting the deposits in whether it's allowance, or chores, or work outside the home.
To me, the really important thing is that a kid has some money that they are making spending decisions over. There is lots of interesting discussion about do you do allowance, do you do chores or whatever. We support any of those models that are appropriate. You decide for your family what's appropriate, but the key thing is: the child is deciding whether or not to spend or purchase something using their own money and living with the ramifications of those decisions. That's such an important practice. They need to make mistakes early on.
Heather: Yes. I think about the motto of "fail early and fail often" in order to get your feet underneath you, and I like that it allows them to do that. When you first started this, what were family's initial responses to the website? I know you're an award-winner. You've gotten Finovate's Best of Show. What was the initial response from parents when you started your website?
Bill: Well, it's kind of new. We are really a pioneer in this area, so the concept is kind of new, so often the response is "I don't totally get it, walk me through it." So, when we walk people through it and say "oh, see, like if your little kid finds a quarter in the sofa because the 49ers finally won and some change fell out of your pocket, they can bring it to you and say, 'Dad, put this in Famzoo for me.'" So, I, being the banker, take that quarter, and I credit their account.
So, the kid gets used to managing their money as a number, as a balance on the website. Then when we're at the store, and your kid is at the checkout stand and thinking "hmm, I would really like those jelly beans or that gum," instead of just nagging you and screaming and crying about it, they'll say, "hmm, what's my current balance in my account?" You whip out your cell phone and check it and say, "Oh, you have $3.50." Then they decide whether they want to make that purchase. After they make the purchase, you debit the account accordingly.
So, this works really well with young kids who don't necessarily have their own debit card or whatever. They might not be ready for that. We use technology to make this super simple and engaging for the kids. That's the key thing. Kids are really wired up really young these days, so there is this opportunity now to use mobile and web technology to make it super, super simple for parents who are insanely busy to run a little more systematic online bank for their kids and not be so ad hoc with money with their kids.
Heather: I think that you are totally going in the right direction with the technology idea, and I have some more questions for you about the technology angle, but first we need to hear a word from our sponsors. You are listening to Bill Dwight on Heather Wagenhals' Unlock Your Wealth Radio, and we'll be right back with more coming up after this.
Heather: Welcome back to the show everyone. You are listening to Bill Dwight on Heather Wagenhals' Unlock Your Wealth Radio, and Famzoo.com is who we're talking about, or specifically what we're talking about on today's show. Bill, I think that you brought up such a great point about being at the checkout and having the phone app there to be able to check the child's balance because one thing that I've noticed, and I was having a conversation about a financial literacy program I'm facilitating for another organization, is that they said they were sitting there with their grandchild and they were talking about money and something, the cost, and the kid wanted to go do something and they said to the grandparents, "Well, just go to the machine that spits out the money." And, we get hung up in teaching our kids about dollars and cents in the physical paper sense, but our children aren't growing up in a paper money world.
Bill: Yes, and parents have this interesting fear that if they don't use real coins and real dollars (or physical, I shouldn't say real - physical coins and dollars) that their kids aren't going to get it. In fact, I think the important thing is that kids understand that a balance - an online balance - is a real sum because this is how young adults and kids get themselves into real trouble. They don't perceive that as real, and so the neat thing about a program like Famzoo is that kids gets in the habit of online banking and electronic money and realizing that that's real money making real purchases, has a real impact on sort of their overall net worth, and they're basically getting a primer for online banking and an electronic purchasing world through the product.
Heather: Yes. I really like that aspect about what you've done, because when we get taught with paper money, and that's precisely why casinos give you chips instead of money.
Bill: Yes, absolutely. The paper is fine. That's just like I carry around a wallet that has paper currency in it, but I also have a bank account. So they need to look at the whole picture. Why would we just show them part of the picture?
Kids are very savvy. I just had a conversation on the way to school with my 10-year-old just last week about how a credit card works. They can get all these concepts. He asks, "Dad, why does the noodle shop only accept cash?" So, we've even talked about things like merchant fees. And you know what? He totally gets it. I'd like to think of course my kids are little Einsteins, but he's just a normal little 10-year-old. If you take the time to explain these things, and they get lots of practice along the way. They can completely get this stuff. I think if every 10-year-old sort of understood right away how a credit card works and how electronic money works, I think we'd be better off.
Heather: I agree. Now, you mentioned letting kids make mistakes. How can a parent use this as a teachable moment? How do you let them fail with your system?
Bill: There are so many great examples. I think one of my favorite examples is when kids get in the tween stage typically they have an area of spending that they're very passionate about. My daughter was very passionate about clothing. Now she's 22, but at the time we basically said okay, here's what we're going to do. You make a budget for the year for your clothing, and that's very instructive because kids realize "wow, this really adds up to a lot of money!" What seems like a pretty reasonable budget is actually an astounding amount of money, right?
So, we gave her an annual allowance that equaled that clothing budget. Then we said, "You know what? Now you make the spending decisions." So, she had separate accounts in Famzoo. The neat thing about Famzoo is you can set up any number of accounts and allowances and stuff because there are always different kinds of scenarios. So, she had this clothing account, and she was making her own spending decisions, and then halfway through the school year her boyfriend asked her to the prom, and she decided that she absolutely had to have the Neiman Marcus iridescent chiffon gown. It completely torched her budget.
Instead of nerdy dad giving her a lecture about how she was going to regret that or whatever I said, you know I gave it the old college try, "You probably won't wear that again." "Yeah, right, whatever dad." So, she purchased it, and I said "as long as you stick by the contract of sticking by the budget." So the wonderful thing was, she purchased it and then she had to go cold turkey on clothing for the last 4 months of the school year. That was a far more valuable lesson for her, something that really stuck with her, versus me arguing with her about it.
So, the neat thing about numbers and keeping track in an account like this and having the child make the decisions, even making the budget under your guidance and so forth, and then tracking their own spending is: They feel in control. They feel empowered. When they make mistakes they own up to them because it's their decisions. It's a lot less emotional. If you've ever had teenagers in your life, you know you don't need additional emotion. If you can have a system that helps teach them it also reduces friction. That's a win-win.
Heather: Agreed. I remember being a teen, and I remember all of the friction. A question for you. Can you share with us a success story from one of your website participants?
Bill: Absolutely. What is always a success story to me is when a family finds an incredibly creative way to use it. We found that so many families are different - we've worked with, thousands of families over the years now. One of my favorites is the mom who set up this chore chart system where, if the chore expired, she credited this special account called "The Money You Could Have Earned."
Heather: Oh man! What a great idea!
Bill: Every month, when the kids would blow off their chores or whatever, she would roll out their account and say. "See, this is the money you could have earned." I thought that was such a clever usage of our system because we had never envisioned that, and she was able to put that together. So, we're all about matching our system to your values. Money and values are so intimately intertwined.
We're not here to tell you what your money values are. We're here to give you a helpful tool that keeps you on track. So many parents start something and then it falls by the wayside 2 months later or whatever because it was too hard to keep up. Life is busy. Parents are busy. So, the whole thing is: maybe we can use technology to keep things rolling in the background while you're busy and diverted and it will be there for you in your next "kid financial crisis." So, that's where technology really comes in to help.
Heather: Yes. What a better... I can't think of a better way to illustrate the economic theory of opportunity cost.
Bill: Absolutely. And that runs in an automated fashion in the background. She didn't have to do anything. She just rolls it out each month. So, we're always looking for ways that we can use technology to simplify and automate stuff that basically lowers the bar for parents to be good money mentors. That's the whole goal of Famzoo.
Heather: Yes, because as listeners know who are working to create their own financial wellness and overcoming all of those limiting beliefs they gathered as children, this is one really elegant streamlined way that I have explored personally to figure out how you can seamlessly integrate it in your life without having to sit down and create this monthly lecture, or having to have a structured learning plan. This is an actual, an experiential teaching device.
Bill: Yes. If you have to work hard, that's a real impediment to them following through, and also a lot of folks are anxious about their own money habits, right? The neat thing is that technology can help you feel less anxious about that. The technology is kind of helping you enforce these good habits, and you don't have to be perfect yourself. The neat thing is when parents work with their kids, they also clean up their own habits.
Heather: Yes. I was going to say I bet that it has a reverse effect because now they're wanting to walk the walk, they're wanting to walk the talk. This has been an incredible discussion with you today, and I'm so delighted that you wanted to be a part of our show. And, in addition to being a part of our show, you also have a special offer for Unlock Your Wealth Radio listeners.
Bill: Yes, we do Heather. It's a coupon code that you can enter when you register your family, and it's... (Whoa, not so fast! You'll have to listen to the broadcast!) That will give people a 6-month free trial which is 4 months beyond our typical 2-month free trial. Hopefully that will be more than enough time for parents to figure out "hey, does this work for my family and does it help me out?"
Heather: I think that that's a super offer, and I hope our listeners take us up on that. I am just so grateful that you stopped by to help us learn how to have another resource to educate our children better and for free. For those of you who are driving around never fear, unlockyourwelatheradio.com is here, and that's where you can go to find the coupon code and the link to Bill's website. You are listening to Bill Dwight on Heather Wagenhals' Unlock Your Wealth Radio.
Here’s a solid article on teaching young kids about money with one caveat. At the end, Gail recommends: ”Get a piggy bank, as it’s a tangible way for little kids to understand money and saving, as opposed to an offsite, virtual account.“
I think a physical piggy bank is a great start, but the sooner kids understand the concepts of online banking and the fact that a balance in a statement or on the screen represents real money, the better. They’re growing up in an increasingly online world and need to understand how to handle all forms of money — from physical to electronic. We’ve found that kids as young as 4 or 5 easily grasp the concept of online banking — kids are pretty darn smart these days, they just need a little explanation and lots of practice making wise money decisions.
Gertrud Fremling, a PhD in Economics and a Mom of 5, shares her 7 economic principles for teaching her kids good habits. There are some clever and perhaps controversial ideas here — maybe keeping it too real for the kids? Keep in mind that economics is nicknamed the “dismal science”:
No allowance, minimal TV, tightly restricted video/computer game time
Pay for household jobs
When multiple siblings want same paid job, hold a reverse auction — lowest bidder gets the job
Let kids propose their own jobs
Allow siblings to rent items like games and toys to each other
Have long term contracts for things like agreeing to take care of a pet if purchased by parents
Impose fines for violations like swearing or hitting a sibling
We’re constantly scouring the Internet looking for articles related to family finances and teaching kids good personal finance habits. You can visit our ever growing list of family finance bookmarks here. We’re up to 2,981 now!
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