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 :) )