Learn to Earn: Teaching Children Money Management Skills — One Ice Cream Cone at a Time

Recently my nine-year-old, Iris, did something that amazed me. Sure, I find it mind-boggling when she claims that she literally doesn’t know how to clean her room. But this time her feat of logic was admirable and financial.

Here’s the scenario. Iris is obsessed with a macabre series of Lego toys called Monster Fighters, which is being discontinued. (Lego is always discontinuing beloved series; I say we declare war on Denmark.)

Monster Fighters are pretty awesome; if you remember Elvira, Mistress of the Dark, you understand the aesthetic. The last must-have on her list is the Vampyre Hearse.

As I’ve discussed before, Iris keeps her allowance on deposit at the Burton Bank, an institution with only one customer that pays a ludicrous rate of interest (5% per month) to encourage saving.

In the age-old battle between monster toys and interest payments, monsters win every time. Iris checked her balance and found she was about $30 short of being able to afford the Vampyre Hearse, a toy that will be discontinued any day now.

If you’re a parent or former kid, you know exactly what happened next. First, this constituted a financial calamity that made the Great Depression seem like an overdraft fee. Second, Iris asked for an advance on her allowance.

I checked her credit score (zero) and said no to the advance, but I made a counteroffer: I would buy the Hearse and put it on layaway, and she could buy it from me when she’d saved up the money. After some grumbling, Iris accepted the offer.

The amazing part is that Iris actually had plenty of money to buy the toy but chose not to use it.

Kid banking

Every Wednesday morning at Iris’s elementary school, tellers from the local Umpqua Bank branch set up a table in the lunchroom and take student deposits through the Learn to Earn program.

The program started in 1996 but only came to Washington State in 2012. Throughout Umpqua’s territory, it serves 14,000 students at 165 schools.

“There are a lot of grown adults who don’t know how to save,” says Stacey Krynsky, Umpqua Bank vice president and branch manager. “So it’s really important for children to understand the aspect of saving.”

Iris loves Bank Day and brings in 50 cents per week. I figured she enjoyed it for two reasons: students get a cheap plastic toy with each deposit, and when the school hits a savings target, Krynsky drives over with the bank’s ice cream truck and gives the entire school free ice cream.

If you have a hard time imagining kids falling in love with a bank executive, you haven’t met Krynsky. “How can you not enjoy ice cream?” she says.

Like a regular grownup bank, Learn to Earn attracts all kinds of customers, saving for all kinds of goals, but the most popular wish-list items start with a lowercase I. “iPad, iPhone, iPod. I hear that one the most,” says Krynsky.

But she remembers one child who wanted to buy his mother a Christmas present. “He went to the Value Village and bought her a really nice pendant, and so I actually gave him $50 of my own money to get her a really nice necklace, and she was elated.”

The back-up plan

As much as I like the Learn to Earn program, this is Financial Literacy Month, and what’s more important to financial literacy than understanding compound interest?

Iris’s Burton Bank account pays 79.6% APY. Her Umpqua Bank account pays 0.03%APY.

I asked Krynsky whether low interest rates make it harder to get kids to participate in the program. Not really, she said, because young kids don’t understand interest.

“Once they hit a certain denomination, about $500,” she says, “we do contact their parents or contact the child and encourage them to look at higher-interest options, like putting some money into CDs.”

But Iris definitely understands interest, and she still loves her Umpqua Bank account. Finally, after the Vampyre Hearse incident, I get it: Learn to Earn is her emergency fund. She doesn’t even want to know how much is in the account.

On some level, she realizes that there’s something out there even more important than a plastic car full of vampires, and she’s mentally walled off her Umpqua Bank balance for that rainy day, the same way her parents do with their own emergency fund.

I asked Iris what the money is for, and she honestly doesn’t know. “It’s funny how as a child she’s already picking up on the same habits that us responsible adults do,” says Krynsky. (Hey, she said it, not me.)

When she said this, I realized that I do almost exactly the same thing: my emergency fund is in CDs and I-bonds, not just because they pay better interest but because they’re tricky to break into.

Before we dip into the emergency fund, we have to stop and discuss whether this is a real emergency that merits paying a small early withdrawal fee.

Thanks to the artificial barriers we set up, Iris and I have no trouble keeping our hands off our emergency fund.

However, that Vampyre Hearse is hidden in the closet, and nothing is stopping me from busting it open while Iris is at school and acting out some sweet monster fighting scenarios.

Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.