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.
(MORE: How to Celebrate Anti-Valentine’s Day)
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.
(MORE: Will Obama’s Minimum Wage Proposal Help or Hurt Workers?)
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.
(MORE: Time Really Is Money: Five Tips for Maximizing Both)
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.