Introducing the 401(kid)

I’ve written in the past about teaching kids about money in general, and our allowance system in particular. With regard to the latter, we provide each of our boys (except our toddler) with an allowance of $0.50/week for each year of age, meaning that our eight year old gets $4/week, and so on. We then divide this up with 10% going to the charity of their choice, 30% going into long term savings, and 60% being spendable. The boys each have an account at ING Direct where we stash their long term savings, as well as gift money that they happen to come across.

All in all, this approach has worked quite well thus far. The boys have quit begging for stuff in stores because they now have the power to buy (or save up for) pretty much whatever they want. They also love logging in to ING to check how much they’ve earned earned in interest over the past month, and it’s really helped familiarize them with the concept of money. That being said, I’ve been looking for ways to get the kids interested in saving beyond us simply telling them that they have to put aside a certain amount for the future each and every week. And then it hit me…

Matching funds! Why not offer to match their savings deposits on a dollar-for-dollar basis when they choose to put additional (i.e., spending) money in the bank? I offered this deal to our eight year old, and it didn’t really resonate with him at first. But after thinking about it for awhile, he began to come around. In the end, he decided to test the waters with some of his ‘backpack money’ (random change that he had picked up at the bus stop, on the playground, etc.) and stashed in his backpack. He ended up depositing something like $1.09, and was absolutely thrilled when I matched it. His younger brothers, on the other hand, couldn’t care less.

Our six year old is a good little saver, but prefers to keep all of his money ‘spendable’, whereas our four year old doesn’t make much (yet), and he tends to spend it as fast as he makes it. He also has a tendency to lose his weekly allowance when he does things like dropping trou in public just for the shock value. But that’s a story for another day.