Reddit reviews The First National Bank of Dad: A Foolproof Method for Teaching Your Kids the Value of Money

Thanks! Yes, both kids get allowances. We set something up similar to this:

https://www.amazon.com/First-National-Bank-Dad-Foolproof/dp/1416534253

Even the 4yo gets it. He gets excited when he gets his interest. The other day at Target he picked up some BS toy and I said “you’ll have to spend your savings to buy that” and he put it back down.

(It’s not always that easy)

The First National Bank of Dad is a very similar book, and I think OP might enjoy reading it for ideas.

I'd recommend reading [First National Bank of Dad] (http://www.amazon.com/First-National-Bank-Dad-Foolproof/dp/1416534253/). The author went through the same challenges (and made some of the same mistakes) you are facing. I am currently using it as the model with my kids.

Top-level, forcing savings is a bad idea, as is implying you cannot do something because of the need to save. Immature brains are not wired to process the subtlety you wish they could handle. If you follow that route, they may come to see savings as the antithesis of fun and that any money earned/received should be spent immediately, lest Dad take it away for "savings" in a bank earning sub-1% interest.

Better to prompt the desire to save. Rather than a real bank account, create your Bank of Dad that pays significant interest. By doing so, Junior will see that he can spend that $5 now or put it in "The Bank" and have $10 soon (you define what "soon" means). Help him see what that $10 could buy that $5 today could not, which helps clarify the benefit of putting that $5 away today. He may even find that between when he puts the money away and when it grows to $10, the thing he wanted to buy is no longer as interesting.

By doing all of these, you show the power of compound interest and the magic of delayed gratification. You are helping to form solid habits, ones he will hopefully continue on his own (and when the compounding interest rate is less stellar...).

As for results, my own efforts are too early to tell (ask me again in 20 years).

> I've always liked the idea of offering them a physical bank with a ridiculous interest rate so that they can see interest with their own eyes

This is the premise behind The First National Bank of Dad, which David Owen wrote a book about, but which you can learn about for free via a podcast:

> David Owen, author of The First National Bank of Dad, talks with EconTalk host Russ Roberts about how to educate our children about money and finance. Owen explains how he created his own savings accounts for his kids that gave them an incentive to save and other ways to teach them about postponing gratification, investing, keeping money in perspective and other life lessons. The conversation closes with a discussion of the value of reading to your kids.

> http://www.econtalk.org/archives/2012/05/owen_on_parenti.html

Penny stocks are all companies he's never heard of, and paper trading isn't fun.

To engage him, you want him to have real skin in the game and to be able to buy shares of companies he recognizes -- McDonalds, Apple, Google, etc.

The best way to do both is explained in the book The First National Bank of Dad.

You act as the market. Your son uses his allowance money to "buy" stock from you treating pennies as dollars. For example, McDonalds is trading today at $120 per share so your son would give you $1.20 for a share of McDonalds. You both track the stock, and when he wants to sell you pay him the appropriate value of his share.

The trouble with a bank account is that the interest is so paltry. An idea I got from The First National Bank of Dad is to act as a bank for your kids and to pay them an exorbitant interest rate (like 5% monthly). Then they have a real incentive to save and can experience the fun of watching money meaningfully grow. You can reduce the interest rate as they get older and start to accumulate adult-like amounts of money.

To add to the reading list, I enjoyed reading 'The First National Bank of Dad' teaching kids a safe way to invest, and how to work allowance. In regards to what others have said, just being there and living by example is way more important.

late to the game, but i highly recommend "The First National Bank of Dad" by David Owen

Key Points

• Give an allowance for being a member of the family (not tied to chores)
  
• The child has full ownership and do whatever they like with the money
  
• Help the money grow via very high Bank-of-Dad interest rates (5% per month)
  
  There are a lot of great pieces of wisdom in this book. Based on it, i have set allowance at $1.75 per week for 5 yr old and $2.75 for my 9 year old, increasing by a quarter each year. So far, my daughter has saved up $200... which has made me put a cap on interest payments.

I will probably do 5% a month as long their accounts are not very large.

I got most of these ideas from The First Bank of Dad. The match is from Dave Ramsey.

Details:

http://www.amazon.com/First-National-Bank-Dad-Foolproof/dp/1416534253/

This book covers this topic along these lines but in much more detail:

https://www.amazon.com/First-National-Bank-Dad-Foolproof/dp/1416534253/

I've found it to be super useful. The part about paying kids way higher interest because of their time horizon and inexperience is especially important for my kids.