When my now teenage boys were younger, my wife and I created an allowance arrangement whereby they earned their age in dollars each week—provided they did their part around the house and prioritized their studies.
We always paid allowance in $1 bills so that they could literally touch and feel their money and get a better concept of the relative amount and its value. Each week, we required them to calculate and separate allowance into three parts: 70% to spend, 20% to save, 10% to share. We matched dollar-for-dollar any portion of “spend” they chose to reallocate as “save.” Our hope was to encourage thought, intention and a little charity. The end goal was financial responsibility. It worked.
The $1 bills grew cumbersome by their teens, and my regular requests for “$100 in ones” at the teller drive-thru became suspect with eyebrows raised in white-hot Bible-belt judgment.
The boys were ready for cards. We wanted to ease them in and decided prepaid was best. Fixed amounts. No way to overspend. I researched 26 prepaid offerings and eliminated most due to fees—nominal allowances are quickly consumed by fixed monthly and per-load charges.
Eventually, I found the perfect solution and set accounts up online in minutes. The prepaid cards arrived three days later. I had direct visibility into their accounts and spending, online and via mobile app. I automated allowance deposits monthly and required they calculate breakouts, initiate electronic transfers to savings and update me on when and how they distributed “share” portions for me to confirm against transaction detail later.
The prepaid card had a nice set of parental alerts, e.g., for transactions above $X or for balances falling below $X. More impressive was the emergency funding option. Via two-way actionable text alert, a “yes” reply to “Get 10” or “Get 50” made money instantly available on the card. Upon explaining this feature to my boys at the kitchen table, I received a funding request for $6.6 million...“No.”
Days later, I was with my youngest buying a few groceries. At checkout, I realized my wallet was at home. “Hurry, let’s put these things back,” I said. “No, Dad, we can use my card!” he insisted. Relieved, we bought the groceries with his prepaid card. Walking to the parking lot with bags in hand, my phone buzzed—an “emergency funding request” for the exact amount of the purchase just completed. I thumbed “yes” and his allowance-card balance was restored instantly.
My son provided me with “emergency funds.” Better still, I paid him back before we reached my car.
Cost of allowance cards? Nothing. Monthly fee? No. Load fees? No. Fees for transfers to savings? No.
The only fee is for ATM cash withdrawal, at $2. After drowning in $1 bills for years, the boys are loath to return to cash.
My boys are prepaid cardholders, savings account owners and freshly minted mobile bankers. Their prepaid allowance cards also lets them shop online and receive in-store offers and discounts using the Bluetooth LE in their smartphones.
The boys’ financial institution didn’t offer a prepaid card with this functionality—much less a free one. They enjoy prepaid cards, and their first mobile banking experience, from a non-financial institution. Their financial institution holds their savings, but is otherwise reduced to a passive funding source and effectively disenfranchised from daily money management.
The card is free because it’s an acquisition tool. Disruptors and disintermediators know the real value is not so much storing money, but shaping how money moves, is spent and with whom. Charging for the former limits the geometric potential of the latter. The best way to tap the potential of the latter is to remove the friction that has always defined payments: transaction fees, slow settlement, and standing in line to conduct physical payments at a point-of-sale terminal.
This cautionary tale comes with an easy lesson: bring conspicuous value to the specific stage of life at which the consumer is in the moment. First job, first car, first house, first child, child’s allowance, child’s college, etc. Financial institutions are better equipped than non-financial institutions to do that, but only if they recognize that something as small as an allowance can alter a parent’s loyalty in big ways and redefine the service expectations of a new generation.
Lee Wetherington is director of strategic insight for ProfitStars.