Tuesday, June 16, 2009

Book Review: The First National Bank of Dad

More on allowances ...

As I mentioned in yesterday’s post, we really liked the book, The First National Bank of Dad by David Owen. It fits in with my philosophy of giving kids as much responsibility as possible and letting them benefit (or suffer) from the resulting outcome.

Basically, it says to give your kids a decent allowance and let them use it as they wish ... no parent-designated restrictions (within reason, of course). The parents don’t decide how much goes to charity or how much is saved - that’s all the kids’ choice.

The allowance is not tied to chores - those are part of living in a family - but the children can earn extra money through "odd jobs." However, the kids are responsible for buying all extras out of their allowance. For us, that means buying presents for any birthday party they want to attend (which is great because it cuts down on how many birthday parties they want to go to!), getting an ice-cream cone when we’re at a carnival, or buying a souvenir t-shirt.

What about donating to charity and saving, you ask? According to the book, when a child receives an allowance and is told to donate a third to charity and a third to savings, he mentally thinks of his allowance as a third of what he received, not the total amount. Say he receives $6 per week; his brain immediately says that he has $2, not $6. By allowing him to use the whole allowance as he sees fit, he takes ownership of all $6, and may end up giving more and saving more. He may not, but at least he’s seeing that money as his and is taking responsibility for it.

Owen says that the idea is to get kids to donate of their own volition, based on the example set by Mom and Dad. Giving is something you can't force someone to do. You have to model that behavior - that's the only way to make it stick. This has proven to be true for us as well. All of our kids give freely now (sometimes to a fault, LOL).

And the kids learn to save by keeping the money in the bank. That's different from the way I was raised, like lots of you probably, with my parents telling me how much to save and donate. Basically, his theory is that they will learn about money in a more realistic way than having someone else (parents) tell them how to save it and spend it.

Here’s how it works: You set up a dummy account on paper or in a program like Quicken and give the child a starting sum of $25. You then give them a large monthly interest rate to encourage them to save, and they can spend the money in any way they want. The idea is to let the kid figure out that the longer they keep their money in the bank the faster it grows. 

This has worked well for us. S, who was leaning toward being a “spender,” immediately blew through her allowance when we started giving it, and she quickly realized how long it took to make that money back. These days I never have to argue with her at all when it comes to spending money. If she sees something she likes when we're out and she wants to buy it, all I have to do is say, "How much money is in your account?" She's learned that, by leaving the money in her account, it builds up quickly so that she'll have it when she wants something special. She, like the boys, has ended up being quite thrifty.

When one of the kids wants to save up for something, they'll offer to do "odd jobs," which I pay them for: cleaning out cabinets, decluttering the garage, pulling weeds, etc. That way they can buy things that I don’t want to spend money for. For instance, some years ago, S wanted an American Girl doll (which I think is a total rip-off) because her then-best friend had one and got her turned on to it. I told her that there was no way I was buying her one, because we didn’t want to spend that much money on a doll. ($95 for a doll? You’ve GOT to be kidding!) 

If she wanted to spend her money on it, I had absolutely no problem with it. She looked through all the catalogs, priced them online (don’t forget shipping and tax!), and wished and yearned and saved. Then one day we were getting some groceries at Sam’s Club, and she found a doll that looked almost identical to the American Girl dolls (except that S liked the facial expression more) that were only $20! And each doll had two outfits included. The cost savings was incredible. She saw on her own how much she could benefit by waiting, comparing, and rethinking. She was incredibly happy with that purchase, and because she bought it after a considerable delay from “want” to “get,” she cherished it even more. To this day, “Cindy” is well loved, though not played with terribly often anymore.  

This brings me to another thing. When the kids realized that they could spend their money on anything they wanted - and ended up blowing much of it at the beginning - their later purchases became much more valuable to them. Once they had to save and purchase things on their own, they appreciated them more. Even for those "crap" toys, when the kids realized quickly that they'd blown their money, the lesson learned was much more valuable than any lecture I could have given them.

One of the nice things about this system is that I never have to say "no" to something they want. My kids say, "Can I have that?" I say, "How much money is in your account?" It totally takes me out of the equation, and the decision is up to them. If they ask, or if I think it's appropriate, I can tell them if I think it's a good value or not, or I can give them tips on how to get something cheaper. But the final decision is theirs.

The only problem that we’ve encountered with the system is when an older child chooses to save over the years instead of spend. He ends up with a bunch of money! Owen talks about this, but honestly I don’t recall how he said to handle it, since our children were much younger then. What we’ll be doing instead is giving our kids an education in investing and allowing them to save and invest in real ways. That will be the best money education of all.

Photo of $5700 in a circle by AMagill from here

Photo of crumpled money by e-magic from here


  1. Thanks Camille, This's useful. What would be the system for an 8 yr old, and are there annual raises? What chores are just chores and what are jobs around the house that he could be paid for? What's the general principle you sue here? How do you determine that/ deal with arguments about it? I find that A LOVEs to clean and organize things, and also loves to clean the car, clean the table (with a rag and soap and water). How do I make sure the joy from the work is not diluted by thots of money here? Thanks...

  2. Got the book just now. Thanks.

  3. Great ideas here. The only problem we've encountered was the "bank of Daddy" handing out IOU's :)

  4. Oh. Uh. Re: the doll. You're not going to like the post I just published! Oh well. :-) E does have an AG doll now, as a gift from her 4 grandparents, but she's saving to buy clothes on Etsy. Does that count?

    It's a great system, and I always found it very sweet when S would choose to spend some of her own money on getting Caroline a treat at The Hideout.

    Does he give guidelines on how much allowance is appropriate?

  5. Hannah, I got the book today from the library - how old are your kids? I can look it up....

  6. For the record, Hannah, I like the AG books, and the dolls are okay. They're just SO dadgum EXPENSIVE! I simply couldn't justify the cost, especially with that hair that tangles so easily.

    As to the amounts of allowance, I think different people do different things. We decided on the formula of age - 5, so now that T is 9, his allowance is $4 per week. I thought it sounded like a lot, but DH wanted them to be able to have enough that they could actually use it.