Fake savings with Mobile Apps
17 Dec 2014
By David Raits
As a Shadforth financial adviser, one of the most common questions I am asked is how to manage small savings amounts for young children. Over the years, a number of banks have launched products aimed at this market, but all have suffered from problems like miserly interest rates, account keeping fees, and inconvenient access. On top of this, you can also run into taxation issues on the interest earned from these accounts.
A solution to these less-than-ideal bank products that I practice with my own daughter is for me to simply act as her personal banker and use an app on my phone to keep track of what I owe her. There are many such apps available in the App Store. I personally use one called "Fake Savings". The beauty of this approach is that deposits and withdrawals are very simple: the money just goes in and out of my wallet and becomes part of my cash flow and, therefore, does not have to be set aside somewhere.
The app then makes it easy to teach your child about spending and saving. For example, when my daughter finds herself in pressure impulse buying situations, such as visiting the shopping malls, it is possible to show her balance on the app and how it would change if we deducted the amount an item costs. The psychological impact of her seeing the figure come straight off her "bank balance" is very effective and often leads to a change of heart. As she has come to learn, she can have just about anything she wants, but she can't have everything!
I also recommend paying interest on the balance you owe them. Every month I do a 1% interest calculation and my daughter can see firsthand the magic of compound interest at work. Although, this rate is clearly too generous because it is now very difficult to convince her to ever spend!
I've found that grandparents and other family members love this method too, because they are happy to hand over cash in lieu of presents in the knowledge that the funds are often saved for an intended purpose rather than on an impulse purchase.
Overall, I believe this method is a great way to manage your children's savings without any hassle or complications from the banks and is a great educational tool to help prepare them for looking after their own finances in the future.
Please feel free to post a comment if you have similar practices, or a good app to recommend.