Teaching Children the Value of Saving

I recently got an IPod Touch (FAR with new apple laptop) and downloaded a free Tower Defense game for it called Tap Defense. The basic premise of the tower defense genre is that enemy monsters walk along a pre-determined path and you must build assault towers to shoot the enemies before they reach the end of the path. You have limited resources to build towers and the game is about resource management. Each enemy you kill gives you more money, but the enemies get harder so you must selectively choose to build new towers or upgrade old towers to make them more powerful.

Tap Defense adds a nice twist to the mix in that any money unused between turns is rewarded with interest. The interest earned can be a lot more than money from killing enemies each turn. The game rewards saving money. In fact, its impossible to beat if you spend down to $0 each turn. The most powerful towers are the most expensive and the only way to afford to build them is to save and earn ~20% interest per turn on unused money.

I realized after playing that this can be a very useful tool to teach young children the value of saving. Perhaps a game could be designed (either within the tower defense genre or something entirely different) where the player can also go into debt. Suppose I wanted to build a new tower but couldnt afford it. I could borrow money at 30% interest to build it. Then watch 3 turns go by with all the earnings from killing enemies go to the bank as interest.

Suppose we can get the child interested in such a game between the ages of 5 to 10 years old. Then around age 10 you start giving them an allowance. And offer to be a bank for them, giving them absurdly high interest - perhaps 10% a week. Tell your child that he can have his $10 allowance this friday or "save" it in the "bank of dad" and get $11 next friday plus a new $10 for $21 total.

I think the problem with using traditional banks and savings accounts to teach children to save is that its not exciting enough for them. I think a video game system would work. I also think bank savings rates are too low. Its hard to teach a 10 year old the value of saving at 2% annually on small sums of money. But if you offered high rates over short periods, it could get them excited and ingrain good habits for life.

I like Bloons 3. Monkeys and Balloons are much more kid friendly than monsters.

Kids will learn a lot of finance from reading your blog.
Congratulations on inventing the idea of having a game teach kids certain life values.
If only you could dedicate all of your efforts to marketing it not posting on FWF
If that doesn't work, maybe you can apply the same interest principles to your posts, where you skip posting for a few days and accrue enough for a good idea and then post...

-Grey

Be sure kids don't find a cheat-code to clear their debt.

medicine said: asarat said: Be sure kids don't find a cheat-code to clear their debt.

1. hit enter twice
2. OBAMA09
3. hit enter

Or if you are too lazy to do that, the game will be voice-controlled so if you cry loud enough, they will send someone to your house to enter the cheat code for you.

medicine said: asarat said: Be sure kids don't find a cheat-code to clear their debt.

1. hit enter twice
2. OBAMA09
3. hit enter

That code's been tested. It doesn't clear your debt, it doubles it.

You just have to take your kid to the bank to make a deposit... aaand it's gone!

tripleB said: I think the problem with using traditional banks and savings accounts to teach children to save is that its not exciting enough for them. I think a video game system would work. I also think bank savings rates are too low. Its hard to teach a 10 year old the value of saving at 2% annually on small sums of money. But if you offered high rates over short periods, it could get them excited and ingrain good habits for life.

What's going to happen when this kid grows up and finds out banks don't normally offer 10-20% interest rates?

narshe14 said: tripleB said: I think the problem with using traditional banks and savings accounts to teach children to save is that its not exciting enough for them. I think a video game system would work. I also think bank savings rates are too low. Its hard to teach a 10 year old the value of saving at 2% annually on small sums of money. But if you offered high rates over short periods, it could get them excited and ingrain good habits for life.

What's going to happen when this kid grows up and finds out banks don't normally offer 10-20% interest rates?

I doubt the kid is going to be able to do percentages (or understand APR/interest rates) at 10 years old. And if he does, then you probably don't need to worry about him not making enough money in his lifetime and should probably save that $1 a week to send him to college very soon (early). Anyway.. when you tell the kid he'll get an extra dollar if he doesn't spend that $10 it's not giving a percentage or interest rate, it's just an incentive to save money. I never got an allowance (just money if I wanted to go to the movies or something), but I wish my parents had taught me more about how to save (well, maybe just more about worthless purchases) when I was younger. They taught me to only buy on sale and I did save quite a bit of money for someone my age, but I'm sure I could list a bunch of stupid kid purchases I could have forgone to have an extra grand or two now.

You know with an APY of 14,204.29%, I'd like to make a deposit into the bank of dad! I mean what happens when the kid learns about compound interest?

tripleB said: narshe14 said:
What's going to happen when this kid grows up and finds out banks don't normally offer 10-20% interest rates?

It wont matter. By then he should be indoctrinated into saving money. Just like parents who brainwash their children in church. They still believe in God later in life.

I would disagree with this. I went to Catholic school for 12 years and I don't even set foot in church on holidays. All of my Catholic school friends, including my bf who went to Catholic school in another city looooong before I knew him, are the same way. By that theory, your kid will be a hardcore gambler by the time he starts college. Plus, do you really want to "brainwash" your child into anything? That just sounds like a really bad idea.

green14 said: narshe14 said: tripleB said: I think the problem with using traditional banks and savings accounts to teach children to save is that its not exciting enough for them. I think a video game system would work. I also think bank savings rates are too low. Its hard to teach a 10 year old the value of saving at 2% annually on small sums of money. But if you offered high rates over short periods, it could get them excited and ingrain good habits for life.

What's going to happen when this kid grows up and finds out banks don't normally offer 10-20% interest rates?

I doubt the kid is going to be able to do percentages (or understand APR/interest rates) at 10 years old. And if he does, then you probably don't need to worry about him not making enough money in his lifetime and should probably save that $1 a week to send him to college very soon (early). Anyway.. when you tell the kid he'll get an extra dollar if he doesn't spend that $10 it's not giving a percentage or interest rate, it's just an incentive to save money. I never got an allowance (just money if I wanted to go to the movies or something), but I wish my parents had taught me more about how to save (well, maybe just more about worthless purchases) when I was younger. They taught me to only buy on sale and I did save quite a bit of money for someone my age, but I'm sure I could list a bunch of stupid kid purchases I could have forgone to have an extra grand or two now.

Little OT rant, two things that always have bugged me about items being "on sale":

1 - If it's on the shelves, it's ALWAYS on sale. Are you going to give floor space to merchandise you don't intend to sell?
2 - People thinking that because something is "on sale" for a certain percent off, its a good deal. Like an old roommate who would get so happy when he scored such a sweet deal on his jeans at Barney's New York Co-op. 45% off man, they are only 185 now.

TheDragonn said: Dare I ask, were these Magic: The Gathering "cards"? I only ask because I walked down that dark path myself... tell him to get outside and throw a ball around while he's still young lest he miss hot college co-eds on the quad while he's in his dormroom perfecting his deck!

princessida said: My kid got a good financial education with his video games. He started out buying the console and games full price, retail, with gift money, like everybody else. Then discovered used games - and selling the games he either finished or didn't like. Then discovered buying games cheap/on sale/garage sales/rare and reselling at a profit. Made a bundle on Wii just by knowing where to get it when others couldn't find any. He was a card freak and won all sorts of tournaments, started training other people how to do well at tournaments. He's got a pretty good business going in rare game cards, and in specialized winning card decks.

He's got a great eye for spotting the valuable stuff in a pile of random junk.

To be honest, I don't know how you'd teach this to an average child. But it's something to think about.

+1, I played that game for a couple years starting in 4th grade, but didn't turn into a huge nerd who doesn't go outside! I only am afraid of the sun half the time, and I did talk to a girl yesterday...even if it was at a drive through

tripleB said: And offer to be a bank for them, giving them absurdly high interest - perhaps 10% a week. Tell your child that he can have his $10 allowance this friday or "save" it in the "bank of dad" and get $11 next friday plus a new $10 for $21 total.
You'd better hope your child is too stupid to actually take you up on that offer for long or you will go bankrupt pretty fast.

Shandril said: tripleB said: I think the problem with using traditional banks and savings accounts to teach children to save is that its not exciting enough for them. I think a video game system would work. I also think bank savings rates are too low. Its hard to teach a 10 year old the value of saving at 2% annually on small sums of money. But if you offered high rates over short periods, it could get them excited and ingrain good habits for life.

Even harder to convince them that getting 2% APY interest is awesome once you factor taxes and inflation. "See if you save your money now, you'll have this much more later. Ok it may no longer be worth enough to buy this toy ... but it'll still be a bunch of money. That said you don't want to miss the gravy train. If you actually borrow irresponsibly to support your toy purchases, the government and all the other suc... err savers, will give you bailout money." Tough sell.

Personally, I think it's easy to encourage saving by showing the pain of paying credit interest. Take them with you shopping. Eventually there should be a day where there is this super cool thing they just must have today but don't have quite enough with their allowance/gift money. Then offer to buy it for them with payback plan that includes an outrageous usury rate. Do an amortization loan based on their allowance and have them pay back the loan slowly. Put the money they pay back aside along with the interest. Once they finish paying it off, show them the receipt along with how much they paid back to show how much credit cost them. Then you can make the case for savings being the exact opposite. Oh and give them back the interest since bank of mom and dad is friendlier than your average lender.

It worked great for our daughter (7) when she wanted a DSi. She ended up paying it off in 2 months (2 long months for her with little allowance at all) but eventually when she saw that she had paid in interest 2 weeks' worth of allowance, she was mad (until I gave her back the interest). She concluded that she shouldn't borrow money and she should either buy cheaper stuff or save her allowance until she has enough. It also prompted her to ask me how you know when something is cheap. I don't think she got my explanation on the concept of value but she was interested.
Let's see... Bad purchase choices, high APRs, bailouts, loan modification programs. Still not understanding what went wrong. The parallels to "real life" are eerie!

Edit: To put it more plainly, I think it takes a certain maturity level to really understand the consequences of making bad financial choices. Until that maturity level is reached, I think it's more productive to show children the positive value of certain financial actions and decisions, where they can see an actual good result than to teach by showing negative outcomes.

I know that real life savings rates are low, and that inflation might make things even worse, but we are really talking about gradually building up financial awareness than plunging young children immediately into real-world situations. While I know that I can't shelter my child from everything, that doesn't mean that my child has to confront everything awful about the world all at once either.

I also know this is extrapolating from purely financial issues, but I try to use the same type of reasoning when making my child more aware of finances. Thus the emphasis on the "value of savings" versus the emphasis on the more comples negative consequences of assuming bad debt -- at least, as a starting point.

glxpass said: Let's see... Bad purchase choices, high APRs, bailouts, loan modification programs. Still not understanding what went wrong. The parallels to "real life" are eerie!

Edit: To put it more plainly, I think it takes a certain maturity level to really understand the consequences of making bad financial choices. Until that maturity level is reached, I think it's more productive to show children the positive value of certain financial actions and decisions, where they can see an actual good result than to teach by showing negative outcomes.

I know that real life savings rates are low, and that inflation might make things even worse, but we are really talking about gradually building up financial awareness than plunging young children immediately into real-world situations. While I know that I can't shelter my child from everything, that doesn't mean that my child has to confront everything awful about the world all at once either.

I also know this is extrapolating from purely financial issues, but I try to use the same type of reasoning when making my child more aware of finances. Thus the emphasis on the "value of savings" versus the emphasis on the more comples negative consequences of assuming bad debt -- at least, as a startin point.

The problem of showing the upside of savings is that children are often not interested in amassing wealth in itself and lack the long term perspective to see the advantages of having more money available later. At a young age, they should have no true needs that are not covered by parents. It's all wants and they don't generally anticipate their future wants let alone the need to save for those undefined future purchases. At least this hasn't been a hit for our DD.

Between buying something as soon as they have enough to buy it vs. saving their allowance and earning even as much as 10%/wk interest, it is not gonna be in favor of savings very often.

As far as bad purchase choices, bad consequences, it's easier to introduce those earlier. First they're out of money for a while which should make just them twice about whether their big purchase was worth the sacrifice. As a result, DD has been both more careful with her recent purchases (she's now figuring the cost of those prospective purchases in number of weeks of allowance), and has been more careful with her stuff knowing how long it takes to pay for them.

And secondly I'd rather have our kids experience those relatively minor bad consequences on a $7/wk allowance budget rather than at 15 when their allowance is also supposed to cover clothes, supplies, phone costs, lunch cafeteria money, entertainment, etc.

IMO there's some point in sheltering them for harsher realities but those basic financial decisions are far from the worst things they'll have to learn. They should know early that there are good and bad choices for societal behavior (good vs. bad manners, talking vs. hitting) and extension of this into managing their allowance isn't too far a stretch for a 7 yr old (at least not ours).