The Bank of Mom and Dad (MAD)

In order to help teach our children about banking and saving, we started what we called The Bank of MAD, which stands for “The Bank of Mom and Dad.”  Each of our children was given a passbook. As they made deposits we credited them in their pass-books and each month (or when they were interested) we credited interest.  This bank pays 5% interest for all funds deposited into it.  (Sorry, the bank isn’t accepting any new depositors.)

This resulted in a very interesting micro-economy in our household.  As our children would do various jobs around the house, I would pay them from the money I kept in my dresser.  They then would typically deposit the money into the Bank of MAD, at which point I would put the money back into my dresser.   Eventually, they started skipping the cash step and just started writing the deposit into their pass-books when they did a job.

I started to wonder if this is really what it was like in the real economy, where you work for a company, so they write you a check, which you then deposit in the bank.  You then write a check to pay your bills, and the money goes back into their account.  While you may not be paying your boss directly, there is probably some sort of circular path the money takes.

FIREd by Fifty: How to Create the Cash Flow You Need to Retire Early

Eventually, they would decide to buy something, at which point I would typically put it on a debit card and deduct the money from the Bank of MAD account.  The only time I had to go to the real bank to get more cash was when one of them made a run on the bank and decided to cash everything out.

My son also said he wanted to tell his friends about the Bank of MAD.  Actually, I told him they could work out an arbitrage scheme, where they would borrow money on a 30-year loan at 3.75% and put it in the Bank of MAD at 5%.  Unfortunately, as I stated earlier, the Bank of MAD isn’t taking any new depositors.

The other thing I noticed is that my son at times wanted to save every dime and not spend anything, then at other times, he would want to withdraw everything to buy something.  I’ve tried to work with him to get him to save some, spend some, and give some.  It is probably better that he makes his mistakes now, though, rather than when he is out on his own.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Picture Credits: Marc Garrido i Puig, Website , downloaded from stock.xchng

Comments appreciated! What are your thoughts? Questions?

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.