How to Master the Allowance Question and Prepaid Cards in One Shot

Virtual family banking site FamZoo has introduced a prepaid card that actually makes sense--for kids and parents.

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Some years ago I was looking to set up a simple third-party automated allowance system for my three children and discovered that banks could be a costly facilitator. The fees for sub-accounts and weekly transfers were ludicrously high, given the small amounts of cash involved.

But I was determined to get out of the business of handing cash to my kids either weekly or upon request. I was equally determined to put the kids on a budget and in charge of their own spending decisions, believing it to be the most effective financial teaching tool in the universe.

So I chose the bank with the most efficient set-up, swallowed hard and signed up. At my Bank of America branch I was able to get the features I wanted most—automatic transfers to each child’s account either weekly or monthly with a provision that did now allow the accounts to become overdrawn. When the money was gone, they would get denied.

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But I had to open both a savings and a checking account, and three sub-accounts. The complicated fee structure and transfer limitations were such that I deposited money in my savings account and then moved it to my checking account, and then moved it to the sub-accounts. Most of the accounts were subject to a monthly maintenance fee and there were the usual ATM withdrawal fees as well.

It was a relatively costly and inconvenient system. But it was the best I could do. Today, parents have much better options by avoiding the banks altogether. An online cottage industry has emerged to simplify and automate allowances, allowing parents to track spending and, if they choose, tie their payments to chores.

I count a couple dozen such websites, ranging from the fairly well known ThreeJars.com to recent entrant Tykoon.com. But as far as I can tell no one has attacked the issue more thoroughly than FamZoo.com, where founder and father of five Bill Dwight is now introducing a “family pack” of prepaid cards that will do everything I wanted from Bank of America for a fraction of the cost and far fewer headaches.

“A lot of money flows through families,” Dwight says. “No other payment system is designed for it.” FamZoo has teamed with TransCard to offer the family packs for one low price. Transfers between the cards are free of any fees.

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The family pack comes with one parent card, which serves as the primary account. You load this card from your bank or some other third-party source. There may be a fee of $3 or so associated with that transaction, but it will be the last fee you pay.

You can get as many sub-cards as you like. If you have three children, you might consider three cards for each of them—one for near-term saving, one for immediate spending and one for giving. You designate how much and how often money automatically moves from the parent card to each child’s set of cards.

These are all MasterCard branded prepaid cards accepted just about anywhere but the Olympics. They do not picture Justin Bieber or vampires. But they are real plastic that will help your kids become familiar with an increasingly popular form of currency, without being crushed by fees.

You must subscribe to the FamZoo service for $5.95 a month or $60 for two years. To put that in perspective, each of my Bank of America sub-accounts was charged $12 a month for maintenance. In time, the family pack will sell for around $10 on top of that. But it is available now for no extra charge. Through the FamZoo website you can monitor the kids’ spending and you can reward them by offering matching funds or, say, a generous interest rate on money they save.

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Money can move both ways. You can ding the kids for not making their bed or using too many cell-phone minutes. And the system tracks what’s owed so that if you forget to load your parent card the kids will get an IOU, which will be funded first when you finally get around to loading your card.

“The whole point is to incent good money habits,” says Dwight. It’s also nice to set up a turnkey allowance system that avoids unpredictable fees and gives your kids one of the few prepaid cards around that may actually make sense.

13 comments
bethdean
bethdean

@lealea wow rad they are still using those icons I did, I forgot about that!

lealea
lealea

@bethdean hehe, yep. we've mixed and matched w/ free icons as well. you don't happen to have SUPER large/vector version of them do you?

bethdean
bethdean

@lealea I don't think so, but I'll check when I am at my personal computer!

lealea
lealea

@bethdean np. just wondering! :)

FamZoo
FamZoo

Darn! I've tried to post a response to TenaciousJim twice, but - perhaps due to length - they aren't getting listed. So, I've posted a detailed response over at our blog instead. Please see today's post at blog dot famzoo dot com. Many thanks, Bill

TenaciousJim
TenaciousJim like.author.displayName 1 Like

@FamZoo I didn't realize that the product being touted wasn't really up and running.  I rarely see a company with the integrity to answer concerns publicly and right away. I'm very impressed.  There appears to be a real market for your product. If there are no ATM or transaction fees (on signature transactions at least) the monthly fee works pretty well.  I would encourage working with as many P2P services out there such as POP Money, PayPal, etc. Getting into the billpay stream works also. 

Livefyre can be very touchy to work with from what I have seen so far. It can be especially difficult to respond to a post but it is taking over comments on a lot of top blogs pushing Disqus out the door.

TenaciousJim
TenaciousJim

Funny Famzoo shows no link to the terms and conditions. Sometimes those don't show up till the sign up page but there is nothing there either.

That is usually a sign that something isn't right. They are hiding something or a link to the accounts terms and conditions would appear somewhere. 

They are not a bank. Are funds FDIC insured by a Bank? What are the associated fees for ATM usage, for transactions etc.  None of this is mentioned.  The list of partners shows no bank listed.

Dan mentions that the card can be loaded by a Bank account for $3 or so (he apparently cannot remember an exact number) and says that is the last fee you'll see. However what happens the next time you load money? Ooops, there is that $3 fee popping up again. Dan forgets to mention that ACH transfers between banks (again what bank is behind Famzoo?) take 2-3 business days so when junior needs the latest game that night he has to wait for 2-3 days. A transfer between accounts at Bank America would be instant.  

MacSteynberg
MacSteynberg

In real life you get people who live from "hand to mouth" spending as fast as they earn.  I believe that is commonly done.  Such people are likely to struggle, no matter how good their income might be.  The idea was to allow them to think about purchases, plan and motivate and not to be put in a situation where they would have their spending capped by their income.  Such people know how to save and plan ahead.  They paid their school fees and everything out of the cash box.  Ten years ago there was no internet ordering of goods and services, but perhaps they could have paid the parent in cash for such purchases.  

Perhaps the most important aspect could be the sense of mutual trust and responsibility that such a system engenders?

MacSteynberg
MacSteynberg

I don't like this and I believe I have a better system.  Providing a regular and fixed amount of pocket money is wrong.  It does not teach children discipline in money matters.  Typically, when they grow older they will (hopefully) receive a salary at the end of the month and they will probably spend it with the end of the month and the last of there funds converging.  Running out of money forces them into a lending cycle that is all to common. I provided a strong box for my two sons until they left home.  They had free access to the money in the box that was kept topped up by me.  The catch?  There was a little ledger inside the box and any withdrawals had to be noted and the reason for expenditure stated.  This made them think about money and the use of money beyond "the end of the month" and they both grew up to savvy and responsible about the management of their finances.  They learnt to accept personal responsibility and to plan ahead.  It worked!

FamZoo
FamZoo

@MacSteynberg Mac, I actually like elements of your system with its personal responsibility focus and have done something similar with my kids using FamZoo's existing IOU accounts. They can record their transactions/reasons online instead of on a paper ledger. I just like the idea of a fixed constraint - a budget - instead of unlimited "topping off" of the "strong box" (sorry if I misinterpreted your approach there). The growing issue for parents is that so many things kids buy these days - iTunes, NetFlix, online games - can't be procured easily with cash (whether we like it or not), so the prepaid card option becomes increasingly necessary as the kids get older and more payment goes digital. Regards, Bill Dwight

donacollins
donacollins

@TIMEBusiness Really fantastic idea - and something you can use not only at a younger allowance age, but through college, too!