PARENTS who decide that the time has come to teach their children about money usually begin by opening savings accounts. The kids are intrigued at first by the notion that a bank will pay them for doing nothing, but their enthusiasm disappears when they realize that the interest rate is minuscule and, furthermore, their parents don't intend to give them access to their principal. To a kid, a savings account is just a black hole that swallows birthday checks.
Kid: "Grandma gave me twenty-five dollars!"
Parent: "How nice. We'll put that check straight into your savings account."
Kid: "But she gave it to me! I want it!"
Parent: "Oh, it will still be yours. You just have to keep it in the bank so that it can grow."
Kid (suspicious): "What do you mean 'grow'?"
Parent: "Well, if you leave your twenty-five dollars in the bank for just one year, the bank will pay you seventy-five cents. And if you leave all of that in the bank for just one more year, the bank will give you another seventy-five cents plus two and a half more cents besides. That's called compound interest. It will help you go to college."
The main flaw in such saving schemes is that there's nothing in them for the kids. College is a thousand years away, and they probably think they'd just as soon stay home anyway. Indeed, the true purpose of such plans is usually not to promote saving but to prevent consumption. Appalled by what their children spend on candy and video games (or, rather, appalled by the degree to which their children's profligacy seems to mimic their own), parents devise stratagems for impounding their children's resources. Not surprisingly, kids quickly decide that large sums aren't real money and that all cash should either be spent immediately or hidden in a drawer.