David Owen - The First National Bank of Dad: The Best Way to Teach Kids About Money

W HEN OUR SON WAS BORN, my wife and I needed a baby blanket for his crib. Our daughter, who was three and a half, had several old ones in her closet.

What are you doing in my closet? she demanded.

Just getting one of these old blankets, my wife said.

Why?

To give it to your new baby brother.

I want it! our daughter screamed.

But, honey, I said, you didnt even know that old blanket was there.

I need it!

Its a baby blanket. Dont you want to give it to a baby ?

I want it!

My wife and I looked at each other in despair. What to do? Suddenly, my wife had an inspiration.

Would you take five bucks for it? she asked.

(No more crying.) O.K.

Money is a handy tool if you use it wisely. Even very young children get the hang of it in a hurry. In the baby-blanket incident just described, my wife narrowly averted a family crisis by offering to swap an emotionally neutral symbol (money) for an emotionally loaded one (the old blanket). With a crisp five-dollar bill in her piggy bank, our daughter felt justly compensated for this latest unpleasant ramification of the birth of her baby brother. And my wife and I were delighted to give her the cash, because doing so let us go back to what we had been doing before the argument arose: changing diapers, ignoring laundry, and not getting enough sleep.

If my wife hadnt suddenly thought of monetary compensation, our fight would have escalated along a predictable trajectory: my wife and I would have stepped up our efforts to make our daughter feel like a bad child, and our daughter would have stepped up her efforts to make us feel like bad parents. Instead, everyone went to bed that night in a pretty good mood. A couple of months later, our daughter even reconciled herself to the idea of no longer being an only child. Walking alongside her brothers stroller, she said suddenly, with a sigh of resignation, I dont know who Ill marry. Him, I guess.

Money is so easy to understand in theory that youd think more people would do a good job of handling it in practice. But they dont. In many families, financial matters become a psychological theater of war not only between parents and children but also between parents and parents. Why does that happen? We probably dont want to know the real reasons. (One familys story: I claim to think money is pure pragmatism, while my wife believes its all symbolism and neurosis.) But there are ways of sidestepping the problem altogether, especially where children are concernedas long as parents take advantage of human nature instead of ignoring it or futilely attempting to change it.

Most efforts by most parents to teach most kids about money are doomed from the start. Those efforts usually begin (and often end) with the opening of savings accounts. The parents suddenly decide that the time has come to impose order on their childrens chaotic financial affairs, so they march the kids down to the bank and sign them up for passbooks. The children are intrigued at first by the notion that a bank will pay them for doing nothing, but their enthusiasm fades when they realize that the interest rate is minuscule and, furthermore, that their parents dont intend to give them access to their principal. To a kid, a savings account is just a black hole that swallows birthday checks.

Kid: Grandma gave me twenty-five dollars!

Parent: How nice. Well put that check straight into your savings account.

Kid: But she gave it to me! I want it!

Parent: Oh, it will still be yours. You just have to keep it in the bank so that it can grow.

Kid (suspicious): What do you mean grow?

Parent: Well, if you leave your twenty-five dollars in the bank for just one year, the bank will pay you fifty cents. And if you leave all of that in the bank for just one more year, the bank will give you another fifty cents, plus an extra penny besides. Thats called compound interest. It will help you go to college.

The main problem with these schemes is that theres nothing in them for the kids. College seems a thousand years away to young childrenwho, at this point, probably think theyd just as soon stay home, anywayand the promised annual return wouldnt cover even the cost of a pack of chewing gum. Most children immediately realize that banking plans implemented by their parents are actually punitive in intent: their true purpose is not to promote saving but to prevent consumption. Appalled by what their children spend on candy and video gamesand also appalled, perhaps, by the degree to which their childrens profligacy seems to mimic their ownthe parents devise stratagems for impounding excess resources.