Photo courtesy of jswieringa

Not long ago on a shopping trip with my daughter she said something very profound. After telling me 17 reasons why I should buy a new Disney DVD for her I stood my ground and told her we could not afford it this trip. She wasn’t giving up that easy, and continued to remind me that I had just been to the bank and “ought to have money from my work.” That’s when it hit me - it was time for the talk. No, not that talk! It was time for the budget talk, you know the “money doesn’t grow on trees” talk.

When we got home I gathered up four quarters and gave them to my daughter. I told her that the four quarters represented Daddy’s paycheck, and I explained that she had to give me quarters to pay for ALL the expenses we had during the month.

• 1st Quarter - Taxes. Before we could spend anything I asked for one quarter and explained that the government collected this one right out of Daddy’s paycheck for taxes. The inevitable question, “What are taxes?” came next. Taxes are money that the government collects on income to pay for schools, roads, libraries and other important things that help people (I decided to keep it light, and not mention the hundreds of millions of dollars in wasteful government spending).

• 2nd Quarter - Housing. I gently plucked the second quarter from her palm as she frowned. With the second quarter we pay for our house, our power for lights and heat, cable, internet and telephone bills, and any other monthly expenses. At this point she looked down and half her money was gone. She wasn’t impressed with this exercise, but I could tell it was starting to sink in.

• 3rd Quarter - Transportation. I took her next-to-last quarter and told her this paid for Mommy’s car, insurance to help in case we have an accident, gas and regular maintenance like oil changes and new tires. She was ready to pocket that last quarter and was growing impatient. However, the most important part of this exercise was coming up next.

• 4th Quarter - Savings, Spending, and Giving. This was our last quarter, and with this money we had to fit all our remaining goals into a budget. First, we wanted to save some money for our future. Then we needed to give some of it away. *This is a good place to talk about the importance of giving. Giving doesn’t always have to be in monetary form. My daughter has attended a wonderful workshop called Project Linus where people get together and knit blankets for children who have experienced some form of hardship (death in the family, accident, etc.). This is an excellent opportunity for her to donate both her time, and her money, to a very worthy cause.

After saving and giving away a portion of that last quarter, we also need to budget for our spending. This last bit of money has to pay for our food, entertainment, cleaning supplies, paper products, and gifts for the entire month. The more we spend on gifts and entertainment, the less we have for food.

After wrapping up the lesson with this last quarter I could see a light bulb go off. By giving my daughter something tangible to represent our income she was able to understand that there are things you have to pay for (food, shelter, transportation), and things you can choose to spend money on (gifts and entertainment). All categories must be paid for with a finite supply of money. By reducing the discretionary categories we have more money to spend on those we value more (saving, giving, our home, etc.). Since that conversation she has asked me a few follow up questions regarding taxes. I try to answer them the best way I know how, but I have to confess I’ve been paying them for 15 years and I still don’t fully understand them myself! Oh, don’t forget to give her the quarters back, cheapskate.

Photo by theritters

Few habits are as important to instill in our children as saving money.  And let’s face it, discussions about finance, banking and saving money are not all that exciting to most kids.  But ING Direct has a high yield saving product designed especially for the online generation. 

Daily Interest Tracking

The ING Direct Orange Savings account is one of the best online banking products around.  We opened an ING account for our family savings a few months ago and have enjoyed the features ING offers.  From a kid’s perspective, one of the most exciting features in ING Direct’s online interface is the “Interest Earned This Month” field that shows the cumulative interest accrued each day for the current month.  With most interest-bearing accounts you are forced to wait until the end of the month to save how much interest you earned.  Not so with ING Direct.  Their interest field updates daily, and is a great way to introduce kids to the power of compounding interest.

Creating Sub-Accounts

Another great feature of the Orange Savings Account is the ability to create multiple accounts from a single login.  These “subaccounts,” as they are frequently referred to, allow customers to create individualized accounts right down the description that displays online.  For instance, you could set up a savings account for your child labeled “New Bike” where they will save money earned by doing chores.  This could be separate from a child’s “Giving” account, or an older child’s “Back to School” account.  Allowing kids to watch their balances grow for specific goals is great visual reinforcement and goes a long way towards teaching them the importance of saving and investing.

You may sign up for an ING Direct Savings account here.  With enhanced security features, top-notch customer service, and a great online banking interface, I guarantee you will not be disappointed.