I don’t do many product reviews here at Frugal Dad, in fact this may be my first one outside of books. However, I felt so strongly about this product that I wanted to share it with my readers, especially those with children. A couple weeks ago I had the pleasure of exchanging emails with Money Mammals creator, John Lanza. We exchanged ideas on the subject of kids and money, and John shared with me a link to his creation. He suggested my kids give it a whirl and let him know their feedback. Well, I did just that and what I found was an incredibly fun, insipirational way to reinforce solid principles of money management for children. I was blown away with the creativity and quality of their production. John was nice enough to send us a copy of the award winning Money Mammals DVD, which was equally entertaining and held my kid’s attention for the duration of the DVD. It even sparked some good questions from my daughter about the concept of sharing.

Money Mammals, the Baby Einstein of Financial Entertainment for Kids

Very few companies have tapped into the children’s financial education market, which is a bit surprising considering how desperately our children need a proper financial education. Perhaps it is because many still consider financial education a bit boring. I remember suffering through my share of borning finance classes in college, and can imagine the subject of money is even less interesting to a child. However, Money Mammals present their message in such an entertaining way that I suspect kids don’t even realize they are learning. The music, artwork and puppetry is masterfully done in a quality comparable to the popular Baby Einstein DVD series. I even found myself singing the theme song the day after…”We Share and Save and Spend Smart Too. We Share and Save and Spend Smart Too.” Trust me, it’s an addictive little tune!

The Money Mammals Website

The Money Mammals website offers a wealth of resources for both kids and their parents, including links to their online store, Club Money Mammals (which features several games for kids, all centered around the concept of money management), and video presentations. If you have kids of your own, or are a grandparent, aunt or uncle, I strongly recommend you check out Money Mammals today. This is just the kind of thing young kids need today. It would also make a great birthday present to help a little one become a frugal “money mammal!”

Additional Resources:

• Purchase the Money Mammals DVD at Amazon.com
• Club Money Mammals (customized for Rogue Federal Credit Union)
• Sarah Harden, financial consultant for Money Mammals, reviews the concept of sharing
• Product Reviews and Testimonials

Several parents have written to me over the last couple weeks asking for my recommendation on how much to pay their kids in weekly allowance. My response probably surprises them initially, until I have a chance to explain. Zero. I do not pay my kids an allowance. My kids are on a commission schedule. They have a list of chores required of them daily for which they earn a small amount, and they have the option of completing a few extra chores for additional commissions. At the end of the week we add up the totals for each chore completed and they collect a commission payment.

photo by terren in virginia

Allowance vs. Commissions

I don’t like the word “allowance.” It looks too much like receiving money whether you work for it or not. I personally do not believe this helps to prepare kids for the real world where they are expected to get out there and earn a living. So around the frugal family household you actually have to work to get paid (novel approach, isn’t it?). The various daily chores are age-appropriate and do not require a great deal of time to complete. We also include some larger chores for the kids to pick from in order to earn a little extra money. These larger chores are optional, but provide our kids the opportunity to stretch to earn more money.

Sample Commission Schedule

Here is a snapshot of the commission schedule for my daughter. Notice the daily chores which pay $0.05 each are things you would expect an 8-10 year-old to do anyway. The $0.05 is really just my way of encouraging her to get in the routine of completing these tasks every day. By rewarding her with a nickel for making her bed I get better results than fussing about a messy bed later in the day.

The “Extra-Credit Chores” range from $0.10 to $0.50 depending on their degree of difficulty. My daughter loves to work this section (so much so that I’ve had to renegotiate the costs to keep from going broke) when she has a savings goal in mind. If a new CD or DVD is due out that she really wants we suddenly find her wanting to vacuum, dust the furniture, etc. every single day! We try to encourage her not to take it too far, but it is hard not to be impressed by her entrepreneurial spirit.

The “Bonus” section is reserved for any extra chores the kids may be asked to help with during the week. I have plans over the next couple weekends to add some wood stain to our privacy fence. Instead of buying or renting a paint sprayer, I plan to hand the kids a paint brush and let them help. Tom Sawyer would be proud! I will pay them something like $0.25 a panel so they can easily tick off their earnings in their head.

Random Acts of Kindness

The “Act of Kindness” section is something Mom and Dad fill in when they witness the kids doing something nice for others. It could be as simple as holding a door open for a mom with a stroller, or as elaborate as volunteering some of their Saturday to help make crafts for a charity. The point is, we want our kids to be givers and we encourage them to find creative ways to be help others. They don’t receive a reward every time they perform a random act of kindness, because if they got paid for it each time it would change the spirit in which they perform the good deed.

My daughter loves to complete her commission schedule on a daily basis, and looks forward to weekend payments. To really make this tool effective you have to resist the urge to give kids “extra” money throughout the week, or buy them too many extras without requiring them to work and save.

Do you pay your kids an allowance, or commissions?

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Compounding interest is one of those mathematical mysteries that we tend to take for granted. We all hope through diligent savings over the course of many years, compounding interest will continue to do its thing behind the scenes, doubling, tripling and sometimes even quadrupling our money over an investing lifetime.

Most adults do not fully appreciate its power and chose to ignore the benefits of making compounding interest an ally at an early age. If grown adults do not fully understand the inner-workings of compound interest, imagine trying to explain it to your kids.

In my own words

I’ve tried to explain compound interest to my daughter, who is eight years-old. She nods in agreement with everything I say, and when I’m finished she summarizes back to me, “So, you are saying if I put $100 in the bank then when I turn sixteen the bank will give me $200?” That’s a pretty aggressive return, but she has already grasped more of the concept than I understood at her age (and older). She is kind of like her dad, she understands these concepts, but they are not really solidified for her until she sees them in action.

Compounding Pennies

I gave my daughter a Ziploc bag with a handful of pennies and told her over the course of a week I wanted her to give me a penny a day. For the next seven days I would be her personal banker. I would deposit the penny in “The Bank of Dad” and compound interest would begin to accrue the day she deposited the penny. At the end of the week we would check her balance at the “ATM” (Automated Tell-me-how-much-money-my-dad-has-for-me Machine). Fortunately, she is already checked out on how to use this kind of ATM.

Each day my daughter handed over one penny at the breakfast table and I deposited it in her bank - which is really just an old plastic film container with a lid. I gave her a “receipt” for her deposit and explain that she needs to keep up with the receipts to see how much money she has added to her account. In an effort to make this a little more realistic, I deposited a penny from my own piggy bank every other day to give her an additional four pennies at the end of the week. I could have just matched her penny for penny, but I didn’t want to set the unreal expectation that it is easy to double your money in a short time.

Balance Inquiry

On Sunday evening we gathered receipts and confirmed she had deposited seven pennies in “The Bank of Dad.” I asked her how much money that represented, and she correctly told me, “Seven cents.” Using that ATM she is so familiar with, she performed a balance inquiry. I opened the old film container and counted out its contents - all eleven pennies. “Hey, there are four extra pennies in there!”

Yes! She got it! I explained that her original seven pennies had grown to eleven pennies because every couple days the bank paid her a penny for letting them use her money - that’s interest. I gave her back all the pennies and told her to put them in her savings envelope. She paused and asked, “Dad, what would happen if you deposited like a hundred million pennies in the bank?” Well sweetheart, you would have a lot more money than The Bank of Dad does!

Help your little one get started early. Open an ING Direct Orange Savings Account today!

A fellow writer recently asked, “Who do you blame for your financial problems?” One of the possible answers was “your parents.” I wonder how many people really blame their parents for their financial problems. I do believe parents play an important role in teaching life skills to their children, particularly when the public education system does such a poor job of preparing students for the real world. However, I don’t subscribe to a line of thinking that parents are to blame for poor choices made by willing adults. There is plenty of blame to spread around.

Lack of Financial Education in Public Schools

There has long been a serious void in public education when it comes to “real life” studies. And in no subject is this truer than the area of personal finances. We continue to teach kids to pass exams, to recite from memory, and to conform to so-called “advances” in new teaching methods. Despite noble efforts, educators are for the most part equipping our children with the wrong skills. Don’t believe me? When was the last time you used an algebraic expression to balance your checkbook, or calculus to solve your 1040 tax form? There is a place for those skills, however I believe that place is college, where it is required of students to indicate a path of studies that may require the knowledge of these higher levels of math and sciences (such as medicine, engineering, etc.). For the rest of us, a basic introduction to personal finance topics would be helpful to prepare for the perils of the adult financial world. Upon graduation, and many times before, students will be exposed to credit cards, predatory lenders, car salesman and if they work part time jobs, Uncle Sam’s maze of tax laws. We should push for educational tracts that teach youth how to be responsible citizens, with their money and beyond.

Poor Role Models in the Media

The media is full of poor financial role models. Soap opera stars who live lives of luxury, but never seem to work for it. Entertainers and sports celebrities who earn ridiculous amounts of money and lead lavish lifestyles none of us could ever afford. Trust fund babies who spend entire decades partying and living it up while waiting for their inheritance. Unfortunately, these are the role models kids are attracted to. In their eyes Warren Buffet, Bill Gates and Dave Ramsey are just “some old guys they saw on the news.” As a society, we worship these celebrities and further highlight their irresponsible behavior by portraying their lives as something we should all aspire to - something that is within reach of the average person. Young people chase this ideal by buying cars, clothes, homes, jewelry and other elaborate goodies they see their idols purchasing. Pretty soon they find themselves in a real financial crisis with limited means to undo their mistakes.

Accountability Crisis

For the last several years we have had an “accountability crisis” in this country. People refuse to accept responsibility for their own misgivings, and shortcomings. The fault always belongs to someone else. You can easily detect this line of thinking in the responses made by poor people. Don’t earn enough money? “Poor man just can’t get ahead.” Spending too much money? “Well if the government would bring prices down!” Can’t afford college? “College is only for rich people.” No one ever responds, “I’m broke because I want to be.” Or, “I can’t attend college because I am not willing to work for the money to attend.” Imagine how much better off we would all be if we stopped pointing fingers and took control of our own destiny. If we quit waiting on “the government” to pay for something, or bail us out of everything, or to save us from ourselves.

So maybe your parents weren’t the best example, and you did follow the wrong crowd financially growing up and made a few mistakes. Congratulations. You are human. We have all made mistakes. What separates you from serial failures is that you are willing to learn from those mistakes. You are willing to get smart on personal finance topics by reading magazines, books and blogs. You are willing to work extra to dig out from your own financial hole and change your family tree. Quit waiting on someone else to save you, or someone else to blame it on. Take responsibility for your financial decisions, and start making better ones to provide a brighter future for yourself, and your loved ones.

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I caught a segment on the CBS nightly news the other day that told of a growing trend across the country whereby kids, and their parents, are being paid for meeting educational milestones. So called “Learn and Earn” programs now exist in eleven states and are currently funded with a combination of public and private funds.

In New York, Mayor Bloomberg even pitched in his own money to fund Opportunity NYC, New York’s version of the “Learn and Earn” program which compensates the cities “poorest kids” for passing required regents exams. They also pay parents $25 for attending parent-teacher conferences, and $200 for taking kids to annual physicals. Two Georgia school systems have also recently gotten in on the pay for participation trend, offering to pay kids $8 an hour to attend after-school tutoring.

Maybe I’m just old-fashioned, but I believe kids ought to have some innate desire to want to learn, and should not have to motivated by the promise of cash. Parents should foster this desire by encouraging lifelong learning, both inside and outside a traditional classroom setting. When did it become the responsibility of taxpayers and private donors to motivate students and their parents to educate themselves? What this really sounds like is a complex welfare system which operates under the guise of an educational reward program.

If you really want to pay low-income students and their families, why not create incentives around good, old-fashioned work, and leave educational goals out of it. By converting current volunteer activities to paid, part time work, parents could be compensated for time spent improving school grounds, working at after-school activities, or assisting teachers with much-needed oversight during the administration of standardized tests, etc. Students could be paid for tutoring younger children (but not for receiving tutoring), assisting with sports programs (team managers), and performing after-school jobs such as painting, grass cutting, etc. Perhaps then kids would take more pride in their schools and parents would be more visible on school grounds, leading to less disciplinary issues.

When I was in school the only motivation we needed to be successful was the threat of failure, summer school or after-school detention. Today’s kids aren’t as concerned with punitive threats, but teaching them to expect cash rewards for doing minimal work will create an entitlement mindset that will stay with them their entire lives. This mindset will lead to a generation of underachievers, content with doing just enough to get by and receive their government rewards. That’s not what American capitalism was built on. Kids should be encouraged to learn, to excel, and to develop and chase their own dreams.