For years, we have puzzled as to how to motivate our four children into saving money. When they were very young, the concept of a weekly allowance in conjunction with a piggy bank was popular. No matter what the piggy bank was made of, the darlings were able to get into it. If it had to be broken to gain entry, then the ability to save was undermined until another type of piggy bank was found. All proved to be unsuccessful. The kids would spend the money.
As they hit age eight, the local bank allowed them to open an account with their very own passbook. The first deposit to open was always easy. Subsequent deposits proved to be more and more difficult and just never seemed to happen. As wise parents, we devised a contribution matching strategy. We proposed to match dollar for dollar every contribution. The only stipulation was that the money could only be removed for a "worthwhile" expense (bicycle, roller blades, etc.) not for frivolous items (records, tapes, movies, etc.). If the money was removed for a purchase in the latter category, then the matching dollar for dollar had to be returned. In essence, the interest rate was 100% at the time of the initial contribution.
A few contributions were made under this program, but, surprisingly, not many. We suspected that having to have purchases approved resulted in the poor contribution rate. The dollar-for-dollar program did not cost much because income generation between age eight and fourteen was marginal.
And then came the summer of 1999. All four were over age 16 and had summer jobs. Total earnings of the four approached $9,000. Thankfully, the dollar-for-dollar program had been abandoned years earlier. However, the poor savings habits of the darlings continued. And then the wise parents became Fools. A new savings program was devised. They would open two discount brokerage accounts in the names of the two eldest (over 18). They would buy stocks in both these accounts. The Foolish parents would guarantee that they would not lose money by the end of the summer regardless of what the stock market did.
If they left the money in a bank account until the end of the summer they would have made all of 0.2%. At worst they would lose a few pennies by going this stock market route. They managed to actually get $6,000 into the two accounts over the summer of 1999. Mom and dad have not had to put one cent into these savings (Actually Mr. Dow and Ms. Nasdaq have put up the guarantee). Current value is approaching $12,000. There are no stipulations for withdrawal, but no one wants to withdraw any money. We have just passed the six month mark. Talk already centers around next summer's earnings.
It has taken over 18 years to find this savings strategy for our kids. We highly recommend it for any Foolish parent because:
Our four little piggies went to the (stock) market...