Interest in Interest
JediBoy’s allowance just went up by a dollar – now that he’s 7, he gets $7 a week. That’s the cause of much excitement around here!
Last year we gave him 6 dollar bills each week, and he had three boxes, which were marked SPEND, SAVE and GIVE. The idea was that he would put $2 in each box each week. The SPEND money could be used for anything he wanted at any time (mostly junk from the dollar store); the SAVE money should be spent on something bigger and long-desired (like a $20 Lego set) and the GIVE money was for presents, donations, etc. as the need arose.
We’ve tweaked our system a little for this year. For one thing, it was hard to remember to have 6 dollar bills on hand every week, so we’d often wind up writing little IOU slips which were sometimes lost or – quite possibly – exchanged more than once. It was also very tempting for him to just spend that ol’ SAVE money since it was sitting there so sweetly. I know that temptation myself… I’m much less likely to pick up a treat if I have to put it on my card, but if I have the actual cash I’ll go for it.
So this year we’re using an allowance book – a little notebook with four columns, with SPEND at the front, SAVE in the middle, and GIVE at the back. Each week, he will decide how much money to put in each “account,” with the understanding that he’s to put at least $1 in each account.
The other big change is that we’d like to help him see how it can be more beneficial to sock money away on that SAVE page. We’re asking that he give us one week notice before he withdraws that money, in part to make sure he really wants whatever toy or book he’s buying, and also to make sure we have the cash on hand because he likes to make the purchases himself. In exchange for the one-week-withdrawal clause, he’s going to earn a whopping 10% interest compounded weekly. (Yeah, if you find this offer at a bank near you, jump on it! I’d love an account with these terms!)
For the first three weeks (he gets his allowance on Fridays), he has decided to put $4 in his SPEND account, $2 in his SAVE account and $1 in his GIVE account. He hasn’t spent anything yet, so he’s got $12 in SPEND, $6.62 in SAVE and $3 in GIVE.
He is marking certain sets in his Lego catalog that he’s going to save up for, and he wants to use his GIVE money to buy PisecoDad a DS for Christmas (at $1 a week it might be Christmas 2011!).
We’re already having some good conversations about how interest works, and how percentages work, and what’s really worth spending money on.
image courtesy of sxc.hu