This is the story of why I created The Parent Bank. I wanted my kids to learn that saving money also means earning money. A piggy bank is too simple and a "real" bank isn't user friendly for younger kids.
The Parent Bank
Howdy! I'm Matt Sly, the founder of Parent Bank. More importantly, I am a father to two daughters.
When my oldest daughter had started to accrue some of her own money from the Tooth Fairy, a birthday gift from a great aunt, etc... like many families, we got her a piggy bank where she started saving cash and coins.
One night after she lost a tooth, my wife and I realized that neither of us had any cash to, um, give to the tooth fairy to put under her pillow. And as I thought about, I realized that in fact the last time I needed cash was to pay up for a lost tooth. I mean, cash is annoying. And old fashioned. I basically never, ever use cash. Except for Tooth Fairy payments. Do we really want our kids to learn about money primarily with cash?
But of course I wanted (the tooth fairy) to compensate my daughter for her lost tooth. So in lieu of cash, I (uh, I mean the tooth fairy) wrote her a note that said "this entitles you to $5" and put it under her pillow.
The next morning, my befuddled daughter came downstairs not sure what to make of the note and wondering what was wrong with the Tooth Fairy.
"Huh?" she said as she handed me the note. "Cool!", I said, "I will deposit this into the "The Parent Bank" (Truth be told I originally called it "The Daddy Bank", but I'm applying a bit of retroactive editing here...) "What?" "Yeah - we will keep your money for you, and it will magically grow on its own just like a tree! You see, when you invest your money, it can make more money - it's like magic! That's much better than putting it in your piggy bank where it just sits there!"
I'm not sure the tree metaphor landed, but I did launch into a simple explanation about how banks and investments work, and how "present you" saving money now means basically that you are giving "future you" even more money. I also explained that she could ask for money out of The Parent Bank when she wanted to spend it, but that would mean whatever money she spent would no longer magically grow.
That morning was when I became a piggy bank hater. Filling a ceramic swine with physical cash and coins is a pretty naive way to teach kids about money. Not only is physical cash on its way out, but a piggy bank only helps kids learn about saving. Cash in a piggy bank does make not any money, and in fact, it loses value because of inflation! We want our kids to learn that saving money also means "magically" earning money on that savings!
So I set up a Google Spreadsheet named "The Parent Bank" (here is the original!) which was a ledger of transactions and included a 10% annual interest rate that it would automatically add to their deposits which we called "Magic Money." I purposefully set the interest rate high to try and really demonstrate the power of interest and compounding - at a rate that approximates the historical return of an investment portfolio. If my kids wanted spend their money (to rent a movie, etc...) then I would simply withdraw that amount from the The Parent Bank. And I would also let them know that they were not just spending "present" money but also "future" money in the form of lost interest.
After honing this new system for a few months, one day my daughter arrived in the kitchen holding her physical piggy bank.
"Here" she said. This time it was my turn to be befuddled "I want all of this money to earn magic money", she said, "so can I please put my Piggy Bank into the Bank of Mom and Dad?"
