Review of: The First National Bank of Dad – The Best Way to Teach Kids About Money

by David Owen, copyright 2003 published by Simon & Schuster

Summary.

Owen gives a down to earth, humorous set of examples to help parents teach kids about money by letting them have control.

When his own kids were 6 and 10 years old, he created his own bank, which existed only on his computer. He wanted to provide a means to better show them the power of compound interest. Banks pay low rates and it takes years before the saver sees any growth. He wanted to encourage his kids to save and also put the kids in charge of their own money. Here is how he did it.

• Named it: First National Bank of Dad.
• Invited kids to deposit in it: telling them that if they hang on to some of their wealth, in a little while they will be able to double or triple their allowance. He sold it by saying that the more they save and the longer they hold it the more they will be able to spend.
• Gave the kids money to start their deposits: $25 each.
• Enticed them with earning an extra $1.25 at the end of the month (5% per month).
• Kids could add money to or take money out of their account any time.
• Interest was credited on last day of month so it compounded monthly.
• Allowance was paid into the account on the first day of the month.
• He set up Quicken accounts on his PC – with help of the kids.
• He set up Quicken to add their allowance to their account automatically on the first day of month.
• He manually calculated interest and credited it to each account.
• To make a deposit or withdrawal, kids just told him, then he would eventually update the account with the deposit or withdrawal.
• He would change it if starting now, to put a ‘cash box’ in the kitchen loaded with $5s and $10s and let the kids take out their own money and record the date, amount and nature (money in or out) of the transaction and put it in the box, with shortfalls in the box to be divided equally between the kids – to keep them honest.
• Kids didn’t care about account statements or categorization of their expenses. He had thought he would do that. Kids cared about current balance, recent interest payments and did their allowance get credited and did any raises in their allowance get handled.
• He let them look at their accounts on the computer.
• He did have the kids calculate their interest payments for awhile but everyone got bored with it.

His kids saved $400 in two years and he decided to lower interest rates to 3% per month.

In addition to describing the Bank of Dad, he goes into his views on child rearing on several topics such as allowances, responsibility, learning concepts by actual practice (such as making and losing money on eBay aka the free market) – with a whole chapter devoted to the importance of reading to your kids – even after they can read to themselves.

Once his kids graduated from the Bank of Dad (age 12 when they requested real accounts), he started the Dad Stock Exchange to help them learn about the stock market. Similar to his bank, he opened Quicken accounts for each child and funded them with a gift of $250 each, picked a beginning portfolio for them and invited them to become investors. He picked real stocks, but set the price in pennies as opposed to dollars. For instance, if Walmart was one of the stocks and was selling for $74.10, Dads Stock Exchange would list it for $7.41. He created an account for a money market account attached to the broker account – just as many firms do – to hold the monies from the sells and any deposits made to the portfolio. The kids could take all the money out, change out the stocks and generally control their portfolio.

Read this book to understand and address:

• How to encourage your kids to save and invest.
• Reasons to read to your children.
• One persons views on allowance.

What I liked.

Owen is spot on in saying that children need access to money to learn how to manage it, and need relatively unfettered control over their money so they can make their own mistakes.

He gave a very detailed description of his bank and stock exchange.

The book was a light read, sprinkled with humor and stories of his childrens financial exploits.

What I wished for.

I would have preferred seeing some suggestions left out – such as the one to bribe kids to be good at the store by handing them money up front and saying the kid could keep it if they behaved.

Favorite quotes.

“How could she possibly learn anything about handling money if I was just going to keep dreaming up new excuses for taking money out of her hands?” p.9

“The question my daughter has to answer is not “How can I talk Dad into paying for this” but rather “Is this something I really want”? P 50

“Responsibility is impossible without control” p 51

Children need money of their own and paying an allowance is the best and easiest way to ensure they have it.” p 57

“To children who control little or no money of their own, the sudden appearance or disappearance of a ten dollar bill is just an act of God: it’s unfathomable and unpredictable, so why make plans?” p 60

“A rich friend of mine once told me, ‘The secret of happiness is to have poor friends’” p 163