What is First Kid Bank

First Kid Bank is a virtual bank that tracks allowances. It's designed to make it easy for you to know how much money you kids have saved up, and keep a record of where they got it and what they've spent it on. With First Kid Bank, an allowance is just an amount tracked electronically and there is no cash to get lost or stolen. When your child wants to make a purchase, you pay for it and simply deduct the amount from their electronic balance.

Why Give Allowances?

Many experts agree that an allowance is the best tool parents have for teaching financial competence. Having allowance money and making choices about what to do with it is an excellent way to learn about saving, trade offs, and the value of different things.

Without an allowance, kids ask their parents whenever they see something they want. That approach rewards kids who ask a lot and pester ("persuasively argue") for things. There is also no consistent, predictable consequence to their choices. Having asked for and gotten one thing doesn't necessarily mean they won't get the next thing they see. It all depends on which adult is with them at the time, how that adult is feeling, and what they remember of past requests. Usually this also results in a situation where parents have no idea how much kids are spending.

Tying Allowance to Chores

There are two schools of thought on this. Some experts feel strongly that allowances shouldn't be tied to chores, while others argue the contrary.

The "no chores" argument is that kids should have family responsibilities they are expected to do just like parents do. By introducing allowance into the mix, you create a "loophole" that they can skip some (or all) of their responsibilities as long as they are willing to forgo that part of their allowance. Additionally, developing financial competence, which is the whole point of an allowance, doesn't happen if the kid has no money to make choices about as a result of poor performance on their chores.

The arguments for tying allowance to chores are based on the recognition that, in the real world, if you want to earn money, you need to perform work. Some people consider allowance for chores a way to get kids used to the idea of having to contribute in order to get the money for the things they want. In addition, the effort it takes to earn their allowance will make them value the things they buy with it more highly.

First Kid Bank supports automatic allowance and chore based allowance. With First Kid Bank, you can do either, or both!

Other Links With Thoughts About Allowances


Savings & Charity

Some parents believe that having their children save some of their money for the long term and give some to charity teaches better long term habits. If you want to follow this approach, First Kid Bank makes it easy.

If you're setting up a new child in the system, login and then click the 'Add a child' button to start the Create Child Wizard. In the initial accounts section, select the Three Accounts radio button and everything will be setup automatically.

If you've already got a child setup and want to add additional savings and charity accounts, select that child and then click 'create an account' to setup a savings account (and repeat for charity). Click the settings link under the child's allowance account. At the bottom of the settings for that account, you should see a Splits section that shows the new savings and charity accounts you just created. Fill in what percent of each deposit to allowance should be diverted to savings and charity and then click Update Account.

Fred would have freedom to spend the money in his Allowance account however he wanted, but the Savings account would have more restrictions and maybe pay interest. With the Charity account, Fred should sit down every 6 months and research a charity to make a donation to.

Earning Interest

In order to encourage savings, some parents pay their children interest on the balances in their accounts. If you want to do this, First Kid Bank allows you to turn on interest for any account and set an interest rate.

With small balances typical of young children, a realistic interest rate may produce so little extra money that children don't find it an incentive to save (e.g. 2% per year paid monthly on an average balance of $30 is 5 cents/month). To combat that, First Kid Bank will allow you to set high rates with frequent payments (e.g. 3% per week), but limit the maximum payment to a fixed dollar amount (e.g. but no more than $1/week in interest payments) so you aren't bankrupted by compound interest payments to your child.

Borrowing Money

For many young adults, the lure of credit cards is irresistible and they soon find themselves mired in debt they can't afford to repay. For children who are old enough to understand debt and repayment, First Kid Bank allows parents to enable overdrafts and charge finance charges on money their child chooses to borrow. This enables a child to learn about investing (e.g. buying a hedge trimmer to increase their earnings cutting lawns), or to make mistakes and get themselves into debt in a situation where the consequences are limited and their credit rating isn't tarnished.