Four-Bank System

Consider how we, as adults, use money – we do more than just pay routine bills. We save to spend: to buy a plasma TV. We also save for the unexpected, so we build an emergency fund. We invest our money for far-off needs, like college educations and retirement. Many of us want to help others, so we set money aside for giving. Managing money means we tuck dollars away in compartments to be used in different ways.

We must help our kids learn to “compartmentalize” and manage money. Otherwise, they will get into the habit of regarding their allowance as money they can spend entirely on things like movies, toys, music, and clothes. It’s not a realistic view of money. As adults, if they treat their paychecks the way they treat their allowances they will be in real trouble. That’s why we need a better bank: to teach a more complex money lesson.

Here’s an ideal way to teach kids to compartmentalize money. Instead of one bank, try four.

• A spending bank for money to be used soon.
• A saving bank for money to be used later.
• An investing bank for money that will grow on its own.
• A giving bank for money to help others.

Do you have to purchase four banks? Well you can, but you can also start out this adventure with containers as simple as plastic zipper bags. Banks that are transparent are more fun for children. They can watch their money grow. You can use –

• Glass or clear-plastic jam or pickle jars 
• Plastic water or wide-mouth beverage bottles
• Cylindrical potato chip containers

Label each bank

Take four containers and label them Save, Spend, Give, and Grow.

Decorations: visual incentives

By turning the project into a fun activity, you make the message memorable. Decorate each bank using stickers, images cut from newspapers or magazines, or drawings to illustrate your child’s money goals. What do you want to buy? Save for? Support a cause?

Back to basics

This four-bank idea will get you talking to your kids in a very practical and comfortable way. You may find that this system can actually remind you of the basics that we as adults often forget when we’re dealing with larger amounts ourselves. But be forewarned: As your children learn the principles of the four-bank system, these smarter kids will begin watching more closely how you model good money management at home. Your actions always speak louder than words! 

Dividing money among banks

You should decide what part of your child’s allowance or gift money should go into each of the four banks. Once you’ve decided, stick to your plan unless there are really good reasons to change. You are trying to teach your children a routine and a discipline that will protect them financially. If you are constantly adjusting or making exceptions, the child loses the idea that there is a system at work.  

The Four-Bank System teaches children to divide their money so they can use it different ways. Want to know more about talking to your child about each of these ways? Click on the highlighted word in each bullet.

• The Savings Bank
• The Spending Bank
• The Investing/Growing Bank
• The Giving/Donating Bank