Our Daughter’s First Savings Account
After discussing it for a while with my wife, we’ve decided to open a savings account in our daughter’s name. She’s almost four, and we’ve decided now is the right time to start formally teaching her about money. Up until now, most of her financial education has been informal or came from credit card companies.
To that end, I opened a First Start savings account through USAA. USAA continues to be the most awesome financial services company ever. This product is specifically targeted at kids and getting them to save. It is the best saving account for kids there is (And, no, they don’t pay me to write that. Attention USAA: I’d love to start being paid to write this stuff). Here’s why it’s so awesome:
- No service fees whatsoever (for low balance, etc)
- APY of 2.05%, so they actually earn some interest you can point to
- Better-than-free ATM access (USAA not only doesn’t charge ATM fees, they actually refund the fees other banks charge you)
The plan
My wife and I have tentatively developed a plan for our daughter’s finances.
- Her allowance will be $1 per year of age per week
- She will have to put a portion away to donate to charity. My wife suggested we make giving tangible by having our daughter save her ‘charity’ money and purchase gifts that our church suggests for our sister parish and the local needy. I really like the idea.
- The rest of her ‘pay check’ gets split between savings and spending. Which, in practice, means long term savings and short term, since the amounts we’re dealing with are so small.
I’m still figuring out how I want to do it, but I want to develop some sort of ‘matching’ contribution. The idea is to match her long term savings like an employer might match a 401(k) contribution. I’m thinking the best way to do it is in a lump sum at the end of the year. I figure the impact will be that much greater that way, since the match would be a sizeable amount of money. I’m thinking dollar for dollar is reasonable.
One key thing about this whole allowance business is I’m adamantly opposed to tying it to chores. From everything I’ve read on the subject, doing so is counterproductive. The theory behind not tying allowance to chores is that every member of the family has responsibilities to the family (e.g. setting the table or helping with laundry) independent of any allowance.
I never had an allowance as a kid, so I’m just guessing at this stuff. If anybody has suggestions regarding kids and allowances (what works, what doesn’t, did you have one) I’d love to here them.
(By the way, I opted not to get the ATM card with the account. At least not right now 
)
November 27th, 2007 at 5:06 pm
Let me preface this with *** I am not a parent, nor do I have any real experience or good understanding on raising kids *** so I am in no way making any judgement on how anyone feels it’s best to raise their own children, rather just offering another idea to think about.
I think it’s absolutely awesome that you’re starting to teach you daughter about money issues from the get go! The saving, charity, budgeting, matching ideas all sound good to me…. and I really love the notion of chores as “responsibilities to the family”, but I wonder about what the whole allowance thing teaches to begin with (I also never had one as a kid). Doesn’t an “allowance” teach entitlement (aka welfare) versus earning (work)? Granted, at 4 years old, there probably aren’t many options for work… and delaying the start of money lessons until it is is also probably not a good idea either… but at some point in the process I would think it might be good to start making the transition between the two…. just a thought
November 27th, 2007 at 5:28 pm
I think this is awesome. So cool. You are an inspiration.
I will probably tie mine to work at some point. Not chores but extra work maybe. I dunno. Still thinking
November 27th, 2007 at 5:36 pm
I agree on USAA being pretty awesome. My dad was in the army, and so far all my banking experience (except savings I’m learning now, unfortunately) has been through them.
Also, on the allowance tied to chores thing. I agree with what you say here, as a youngster who has gotten allowance tied to chores, it just makes you feel tied to those, and having a brother and sister, you didn’t want to do what theirs were. Also, it started out strong and fizzled out, as we just weren’t keeping up with it. Your idea seems like a good one, as it’s more of an honor system, in that she’s getting paid, so when she gets older and thinks about it (or maybe now, i remember some pretty advanced thoughts from a young age) she’ll want to do the things so that she can feel she’s earned the money. That right there is part of why I feel good about having a job finally, I feel like I’m actually earning something, not just getting a gift (although gifts are always nice too, heh).
Hope it goes well, looking forward to hearing more about how this develops.
November 28th, 2007 at 9:23 am
@EJD - I really appreciate your thoughts on this. We didn’t take the decision to tie or not tie allowance to chores lightly. It’s just that from what I’ve read of child development, tying chores to allowance can be counter-productive. I see it more as a paycheck than an allowance (or ‘entitlement’), but that may not be how everyone (perhaps including my daughter) sees it. I’m not saying it’s right for everyone, or even us for that matter. We’ll have to see…
@paidtwice - We’ve kind of thought the same thing. She could earn additional money for doing specific things above and beyond that we all agree to. She’s too little right now, I think, for that yet.
@Thryah - It’s definitely an experiment for us. I’m not sure how it will all go; just hope I don’t mess it up too bad. I’ll certainly post about it again, I’m sure.
November 30th, 2007 at 2:59 am
I’m not sure I get the concept of matching what you’ve already been putting in as an allowance gift rather than an allowance that is earned through chores or something else. I understand if you want to match once she is old enough to get a job and earning money, but right now, without an “earned” portion of the equation, it makes no sense and doesn’t teach her anything except she will get double what you have told her she would get to begin with as a bonus for doing?…
Part of the savings equation I would include is towards 529, ESA, or education bonds. You want to teach her financial goal planning, so having her save towards her education, spending money, donating, and retirement (see next bullet) gives her a good foundation once she gets out on her own.
Once she is old enough to have a job, then I would start matching her savings towards 529/ESA/EDU Bonds and/or Roth. http://www.fairmark.com/rothira/minors.htm
another option through USAA if you have the deposits (you will have to check if your accounts could be bundled with your daughter’s account for qualification purposes in order to qualify her. For spouses they can be) is to open an Asset Management Account (AMA) account under her name. AMA earns more, plus gives .5% on debit card charges, unlimited check writing, the standard USAA ATM fee reimbursement, etc. Checks may be outdated by the time she grows up, but it is also another important part of the equation given many people’s propensity to overdraw and bounce checks. I remember we learned how to write checks and balance a checkbook in elementary school.
December 14th, 2007 at 2:06 am
I’m a huge fan of USAA as well. I was particularly surprised when they reimbursed us for sales tax when our car was totaled. We received the blue book value, but our local sales tax on the blue book value.
As great as USAA is, there might be an even better savings account out there for kids. Affinity Bank offers a savings account that pays 10% on the first $500. The only catch is that the parents need to have a checking account with Affinity. I haven’t opened an account for any of my kids yet, but I’m planning to soon.