IT’S ONE OF THOSE indelible teenage memories: visiting the Bank of Baltimore in suburban Washington, DC, in the late 1970s. I would hand over my babysitting or lawn-mowing money to the bank clerk, who would slide my green bank book into some magic typewriter. After a joyous clatter of keys, my bank book would be returned, and there would be recorded not just my deposit, but also the latest quarterly interest payment.
My children and stepchildren—ages 10 to 27—all have bank accounts. But there’s no joyous clatter of keys and, more important, there’s little or no interest to be had. As it happens, they are better off today than I was then. In 1978, we earned around 5% in pretax interest—but inflation was 9%. Today, my kids earn nothing—but annual inflation is running at just 0.2%. It’s hardly the stuff of playground or barroom boasts, but they are losing money far more slowly.
Still, I suspect I was more motivated to save. I may have been the victim of a money illusion—imagining I was making money when I was actually losing ground—but I had the pleasure of watching my account grow both because of the money I socked away and because of the interest I earned. By contrast, my children and stepchildren’s accounts are firing on just one cylinder, the raw dollars they deposit.
How can you making saving money more exciting for your kids? You could beat Federal Reserve Chair Janet Yellen to the punch and raise interest rates for your kids. Every three months, you might pay 5% interest, adding an extra $5 to their bank accounts for every $100 they have saved at that juncture. Depending on how good your kids get at saving money, this could become an expensive proposition. But that, of course, will be the sign that you’ve succeeded.