Thursday, March 23, 2017

a money system that works addendum

A blog reader (Dave Stroud) sent me these calculations yesterday and I loved them (thank you, Dave!).  I loved them even more when I read them to my daughters and their eyes lit up with excitement.  Maybe this is the boost they need to start working on those job charts a little more diligently!

The explanation for this "money system that works" is back HERE.

Here are the calculations of what kids can earn if they earn their money:

I constructed a little chart that shows how much money is earned between ages 8 and 18 if a child is paid their age in dollars every week, they save 20% of that amount every week, and their savings accrues 10% interest every quarter. 

If the child is perfect and they are paid a full amount each week (we wish, right?), this is how much they will accumulate:

Starting at age 8: $0 
By age 9: $106
By age 10: $275
By age 11: $535
By age 12: $929
By age 13: $1519
By age 14: $2396
By age 15: $3694
By age 16: $5608
By age 17: $8423
By age 18: $12,558

That could just about cover all of their college tuition if they attended community college, then transferred to a cheaper 4-year university.

Or it could pay for a 2-year mission :) 

Yeah, pretty great incentive right there!

35 comments:

  1. This comment has been removed by the author.

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  2. OK so other than the "family bank", where is someone going to get a 10% interest rate? Rates average about .06%

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    1. Yes, I had the same thought. and this is 10% per quarter, not annually. But I think bonusing a kids' savings account as a reward for actively saving isnt a terrible idea.

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    2. vanguard has some great money market accounts that pay a good interest rate. not 10% right now, but decent.

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    3. Yes there aren't any other places like this that I know of where you could invest your money that give this kind of return. That's the whole point, to get your kids to learn to invest in a safe place: the family bank. Remember that this is only a framework that worked for our family growing up and that dave and I have changed a bit for our own family and it is far from perfect. I'm sure every family that deliberately wants to teach their children how to deal with money will figure out their own variety. But it's helpful (in my opinion) to gather all kinds of ideas as we all adjust and ponder on the needs I our own individual families.

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  3. As an accountant I love seeing the total amount calculated out. I have a question on the overall logistics. For the 20% savings, do you have your kids put in exactly 20%? Do you pay out cash, or keep track electronically? We've started using this with our 3 and 6 year old, but since we are trying to teach money management separate from family chore contributions they get the amount every week no matter what. Since the percentage concept is difficult to understand and manage at younger ages, we're leaning towards setting a flat dollar amount that's rounded each week for the savings portion ($1 out of the $3 for the 3 year old and $2 out of the $6 for the 6 year old. When the 3 year old turns 4 we'll keep the savings at $1)

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    1. Love that you are figuring out how this works for your own family. We keep track in check registers, which we really should update because I know there are several good apps that would be better. And yes, they save exactly 20%. That's just part of the deal. And that's the part I love the most. Dave and I have such a strong feelings about how important it is to save, we are so grateful to have been taught this growing hobby both sets of our parents!

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    2. I can give you the logistics of what my family does with kids about the same age as yours (6 and 4). We give them half their age once a week. They keep 50% in their piggy bank. Ten percent goes into a charity envelope and the remaining 40% goes into a savings envelope. We do use real money, as we want them to see a tangible object tied to $$$. This does get tricky to handle. What I've done is write out a card for each of their amounts. So for my six year old, the card says $1.50 keep, $.30 give, $1.20 save. We get out our money cup, the cards, envelopes and piggy banks each Sunday evening and distribute the funds. When it's time to deposit the savings in their real bank accounts, I write them a check and put all the cash back in our cup.

      That might sound like too much trouble, but it's ended up being easier than I thought. And though my kids don't get percentages (yet), I feel like they are starting to understand the process.

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    3. And thank you, thank you Shawni for sharing your system. This is actually how I found your blog. I asked for ideas from mom's I trust and one recommended your posts on your family money system. I've been a fairly regular follower ever since!

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  4. It is nice to see how money can grow.

    I think for the parent trying to do this they might have a problem coming up with their age and that 10% interest (in what they saved leading up to that point) four times a year. In the last year you have to put 4K into just their savings besides the amount they can spend and donate on top of any other kids in your house. The older they get the more expensive it gets and its closer to retirement. The laziest and easiest way to get to over $10,000 by age 18 is to stick $55 a month since birth into a youth savings account which has slightly higher interest, the market, or maybe into one of those plans that prepay your state college plan good for community college and state schools. I think the age system is a disadvantage to the younger kids in families. Max would have more real dollars than Lucy since a state school could double in cost in ten years time. It would be more fair to pledge a percentage of a state school or perhaps two years of college and they can pay for the other two years and a the difference in cost to the private school themselves. That way if they don't go they don't get anything.

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    2. Yes every family has a different philosophy on this, and it's an important thing to figure out what's best for your own family. The point of this money system is to teach kids to have their own ownership of money in whatever way works best for you.

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  5. I also take issue with kids earning money for things they should be doing anyway as a member of the family and resident of the home.

    Do you pay them for the obvious like making up their bed and setting the table? Chores like vacuuming and dusting, taking out the trash?
    These are chores that they should do because they live in the house, not for pay.

    Maybe for something extra or more intense like cutting the grass or washing the cars.

    But truthfully if you have 5 or 6 kids like most families who are reading this blog, there are only so many paying jobs available in a family? I mean, really - how many dishes need washing and how many people does it take to set your table and feed the dog?

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    1. Good point, that's why we didn't do this system in the beginning, I figured kids shouldnt be paid to do things that are part of being in a family. But over the years of trial and error dave and I decided it was s good way to help our kids learn how to take care of money. This takes money we would be spending on their clothes anyway and gives it to them to learn with. It is a way to filter the money to them and have them be in chaRge and make important money decisions while at home with us to help guide them. Again, every family is going to have their own take on what works and I love hearing what others have come up with!

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    2. I used to think this too, but the money we have belongs to our whole family. And, in general, if our family didn't do our chores, we would have to pay someone to clean our house. So, our kids are saving themselves money (as they are part of the family) by doing their chores, and they get to keep that money. And as Shawni says, it helps us teach them about money. We did have some lean months a few years ago where one of us was unemployed, and we sat the kids down and explained the realities that we would be partially living off of our savings and that included some chore money.

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  6. I also noticed that someone above commented about their 1 and 3 year olds. Shawni at least had the sense to start the age at 8 - the age that a child could actually do a chore and actually be of some help in the home. Your 1 and 3 year olds doing "jobs" around the house is actually causing you more stress and work rather than helping. Although it is good training for them. But really they are just being given money, right?

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    1. I think we under estimate little kids. They can learn so much at early ages! I did a post on this a while back, when I get to my real computer (I'm typing this on my phone right now) I'll try to find it. It's all about a book called "the parenting breakthrough"

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    2. Here's the post about that book with so much info. about how to help younger kids learn to work: http://www.71toes.com/2010/09/parenting-breakthrough.html

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  7. Sorry to keep commenting, but this intrigues me. I just went to the link you posted about this above - from 2012. You say there that starting at age 12, each kid has to pay for half of all their clothes. Not really realistic, but ok.

    How does that figure into your calculations in this post? I don't see anything subtracted out from age 12-18. Can't accrue interest on money that is spent.....

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    1. I bought all of my clothes starting at about age 12, with the exception of socks and underwear. I was earning money by babysitting, and it really taught me how to be a smart shopper.

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    2. Maria, the calculation above wasn't from shawni. It was from another reader. The amounts are only 20% of their age amount per week with then 10% compounded quarterly. A parent would actually pay out more like $18,000 for the perfect scenario btw 8-18. They save 20%. They tithe 10% and they spend 70% on stuff. Like clothes. Then they add to it with babysitting and part time jobs or any money given by parents for gifts. Shawni covers half of clothes.

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  8. True, but it's not included in the calculation, so the accrued amounts are skewed from age 12 on. The outcome this way is a lot less. And unless you get the Mormon rates at BYU or go to another really cheap school, $12k is not going to pay for your tuition, room and board, books, incidentals.... it sounds good but it is not realistic.

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    1. She didn't say it would pay for all expenses during college, just tuition - including community college option. Again the calculations above only consider 20% of the allowance given the child and 10% quarterly interest on all money saved up to that point. It doesn't count the money the parent gives for tithe and spending. $20 a week for ten years will also get you to $10,000.

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    2. Thanks for the clarification, kms!

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  9. Example - an undergraduate degree from Stanford University is $63,108. Per year. So $252,432 for 4 years. In today's dollars. Inflation and tuition increases when your now 8 year old is ready to go - astronomical. At least triple this. That's a lot of tidying up and poetry memorizing.

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    1. This system is not to pay for college. It's to help kids learn to manage money. If it can help pay for part of college too, that's awesome! Every child will figure it out in a different way and will probably spend it differently as well.

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  10. Okay, just gonna chime in here and say, chill out, Maria! Personally, implementing this exact system wouldn't work for me because I don't think I could afford this kind of payout with four kids. But, guess what? The idea of teaching my kids to work and helping incentivize them saving is great! So, I appreciate what I've learned and how I've been able to think about putting a system like this into place once my kids get older based on our family's circumstances. I think it's perfectly acceptable to ask questions and even point out areas where you don't this the system would work well for you, but to keep harping endlessly on it and say "college is too expensive so don't bother" (what I took away from your last comment, at least) is just rude.

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    1. Emily.. ITA
      From a mom who has been reading for 13 years and doesn't have 5+ kids 😂..and is mormon

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  11. I just wanted to say that I think you are doing a great job with teaching your kids finances and talking about money and responsibility overall. My mom never talked about any of that and as such, I had no concept of a budget or how to spend my money well. By the time I was 20, I was over $2k in credit card debt and I'm still climbing out of that hole three years later.

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  12. We started a very simple money system with our four year old because of your posts. It has been amazing to see how much she gets it and the amount of tantrums we have avoided at the store because once it is her money she has to spend , she quickly decides she doesnt really want it. Recently she saved and did extra jobs until she had enough to buy a Moana fishing pole. As we drove home from buying it she said I am so proud of myself! It was such a sweet parenting moment. I just wanted to say thank you for sharing about your money system it made a difference in our home.

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  13. Shawni, I started this system with my 6 and 4 year old too. They love to earn their money and before Christmas each year, they donate their charity money. It makes them so happy!
    Trying to figure out how this will work for us long-term; when do you give the kids their "savings" total? Not until they graduate high school? And are there any restrictions on it then--ie. money must be spent on college..?? I'm not sure I would have been very wise at 18 when given a large sum of money--I probably would have spent it on material things thinking I can just take out loans for college. I realized they "earned" this money, but still...that savings total will add up and can make material things seem like a necessity! What do you guys do? (or other readers?) Not saying I will do the same thing, just looking for ideas to see what works for our family.

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    1. Great question. It's important for kids to be aware that those savings from the family bank can only be used for investments...college, a mission... think Elle used some of hers towards purchasing a camera (which was a great investment since she ended up earning some good cash with that). Part of the reason my parents (and now Dave and I) were willing to pay such a premium interest rate was to help in some way with future investments. If the kids have nothing to invest in, the money stays there until they do. Does that make sense? It's not just for them to take out and spend (even though they did kind of "earn" it, but they are aware of that. It's kind of fun to see how those savings accounts build just simply by keeping the money in there until it's needed. That's just what's worked for us.

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    2. I know how busy you are--thanks for answering! Everything makes sense and I like having the rules laid out so there are no big surprises later! Sometimes I forget that I'm the Mom now and I can make the rules!! :-) I should mention that the kids do get the spending money which I thought would be a little too much given their younger ages of 6 & 4 (we start at age 4), but they use that money to buy gifts for each other at Christmas and Birthdays and it's been really special!!
      Thanks again!

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  14. Weve been doing this for the last 6 months and love it!! Fine tuning it to fit our needs has made for a lifetime habit for our fam!

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