How to Give Your Child an Allowance Advance, Responsibly.

Kid with empty pockets

Will you let your child practice paying the piper?

A mom recently wrote in:

“I frequently loan my kids some money against their weekly allowance or chore money for the following week. Can I use [FamZoo] to keep track of what they owe me?”

You might be thinking: “Wait, what? Payday loans for kids? Never!”

Not me. I think loans can be a valuable educational experience for kids to get under their belt.

Of course, it’s your call. Do what feels right for your family.

But, if you do grant Junior an advance, make sure you track it. Nothing good is learned when parental loans go unpaid. Fortunately, FamZoo's IOU accounts are perfect for tracking them and enforcing accountability.

The Setup

Here’s how to set up an IOU account to track any outstanding advances to Junior’s spending card:

  1. Select Create IOU Account under Bank > Accounts.
  2. Choose the family member (Junior in this example) from the drop down and select Next.
  3. Fill in a descriptive account name, like “Advances from Mom/Dad”.
  4. Optional: if you want Junior to feel the heat for dragging out any repayment, fill in a loan interest rate to be applied to the outstanding balance after a certain date. You can cap the interest amount assessed if desired. You’re the shark... err umm, I mean bank... so, you set the rules.

    This is the perfect time to explain the pitfalls of payday loans to Junior.

    If the message doesn’t stick up front, a few interest penalty payments will drive the point home later.

  5. Select the Create Account button at the bottom of the form.

Now Junior will see an “Advances from Mom/Dad” IOU account next to their spending card account on the Accounts listing screen. A negative balance represents the current amount owed for any advances including interest (if any).

Issuing an Advance

An advance can be issued with a single transfer operation.

On the Accounts screen, you’ll find the Transfer link in the left hand sidebar (or in the menu in the upper right on mobile).

To issue a $10 advance to Junior, simply transfer $10 from Junior’s “Advances from Mom/Dad” IOU account to Junior’s spending card. Give the transfer a meaningful description like “Advance from Mom”.

The following two things occur as a result:

  1. The balance of Junior’s “Advances from Mom/Dad” IOU account shows -$10.00 (assuming it was at $0.00 to start with).
  2. $10 flows from your parent funding card to Junior’s spending card.

This is all based on the unique behavior of transfers between IOU accounts and card accounts described here.

Repaying an Advance

To recover the advance in the future, do the opposite transfer when Junior has enough funds on hand — like after allowance hits. Transfer $10 back from Junior’s spending card to Junior’s “Advances from Mom/Dad” IOU account (or more if interest penalties accrued in the meantime). Give the transfer a meaningful description like “Repay Advance from Mom”.

The following two things occur behind the scenes:

  1. The balance of Junior’s “Advances from Mom/Dad” IOU account returns to $0.00.
  2. $10 (plus interest if any) flows from Junior’s spending card back to your parent funding card.

The debt has been erased, and the transaction histories clearly document the exchange for posterity.

Junior now understands the piper must be paid.

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