Teaching your children about savings and interest

Many children see their parents everyday in life going to ATM machines, sticking a car in it and having money come out. How magical! The child does not realize many times that it is hard earned money that you had to work for.

Giving your child a small allowance is a great tool to teach your children about saving and banking. Let me share my experience of how I do it with my kids.

I give my three kids $5 per week. I tell them that they can spend the money if they want to or they can save it. We have saving boxes for all three of them at our home. Each week I will see how much they have in their savings box and I will pay them 50% interest on their savings, this is my way of showing them how interest works. If they have $20 in their savings box when Monday comes around they will get $10 interest and the new $5 allowance for the week. It's a great way to show them how to save.

I have been doing this for years with them but the only problem now is that my oldest child is now 12 and she's really getting good at saving and I will probably have to lower her interest rate because poor old dad here will not be able to afford to pay her 50% interest. Geez! I hope she realizes that in real life the banks are not so generous. Imagine the disappointment when she grows up and a bank wants to pay her only 1% interest!