Generating Interest

Alan Cronk

TWO DECADES AGO, I read an article in The Atlantic magazine about building a home bank for small children. But this wasn’t a bank that would sit on a shelf or table. Its home was in an Excel spreadsheet—with a phenomenal interest rate of 300%.

If real, that kind of return would end the debate on index vs. actively managed funds. Fortunately for banks and mutual funds, the Belwick Bank—named after the street we live on—only had one customer: our four-year-old son and his weekly allowance of $1.

With a little help from a spreadsheet guru in the accounting department at work, I built the spreadsheet, so it would make new interest calculations each day and automatically deposit his allowance each week.

Our hope was that this bank would instill a fun lesson: that saving money and compounding interest can lead effortlessly to more money and a bigger Belwick Bank account. It just takes time, patience and an appreciation of delayed gratification.

One of the beautiful features of the spreadsheet was that our son could gaze into the future by scrolling down and seeing what would happen to his money three or six months later—if he didn’t touch it. But if he was thinking about spending some, he could plug in a withdrawal and see how that would influence his total today and six months later.

It’s hard to say with certainty how this exercise influenced him and whether it made him more careful with money. But my memory is that he didn’t withdraw much, didn’t buy much—and was happy to see his money grow. My firm belief: The Belwick Bank helped our four-year-old develop an early understanding of the power of compound interest and of delaying gratification.

Alan Cronk retired after spending 32 years in the newspaper industry as a marketer, editor and writer at the Winston-Salem Journal. This is the third in a series of articles about his and his wife’s experience educating their child about money. Alan’s previous articles: Baby Steps and No Laughing Matter.

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