Hey everyone, it’s Finance Fridays again. Today is just kind of a fun post about “Tooth Fairy Finance and The Magic Box“.
Tooth Fairy Finance?
Things have changed a lot since I lost my first teeth back in the late 80s and early 90s. Back then it was a lot simpler. Tooth in the envelope under the pillow at night, wake up the next morning to maybe a quarter or maybe a $1, depending on whatever the going rate was at the time.
Here’s the thing… what’s the current going rate?
Well inflation also happens to the toothfairy as well, doesn’t it?
So, as with all things I did my research. My assumption, based on 25+ years of inflation, that the going rate for a tooth is probably between $3 and $5. Turns out I’m pretty close:
According to the “Tooth Fairy Index” the peak was reached in 2016 or so around $4.55. However, as of this year we’ve seen a significant tumble down to around $3.70.
Also, according to Colgate:
According to survey data, only three percent of kids receive less than one dollar, and only eight percent of kids receive more than five dollars per tooth.
So basically, the majority of kids (89%) get between $1-$5 for each tooth.
So what did you decide?
Well, I like round numbers… and more so than that, I wanted to start teaching Kylie about money. For this reason, I went on the high end of the range, which is $5.
I know… I know… That’s too much. However, give me a second to explain. I’ve taken this opportunity to teach Kylie about compound interest — although she doesn’t understand it very well.
She now has the $5 in her hands — but she doesn’t really understand its value, at least not yet. It will take a long time for her understand her own internal Value Cost Ratio — but she’ll get there eventually.
So I’ve introduced the concept of “The Magic Box“.
She has two options with what to do with her $5. She can either keep it in her room wherever she wants and have it on “on hand” to buy something with it, or she can lock it up in “The Magic Box”.
I explained to her that when she puts her money into the Magic Box, is it locked up for the month and can’t be used. However, at the beginning of every month, her money would double. Meaning her $5 will become $10. There is an artificial cap in place which is $20. So no matter how much she puts into the The Magic Box, the maximum you can get is $20.
The truth of the matter is, she doesn’t really understand the ins and outs of what The Magic Box (and its 100% interest) is. However, she does understand that if she locks up her money, she’s essentially getting “Free Money”. So when I offered her the choice of holding onto her $5 or putting it into The Magic Box — she opted for The Magic Box.
It’s pretty simplistic, but I’m trying to introduce the concept of both saving and compound interest. Yes, 100% interest is a lot, but at this young of an age, even 20% interest ($1 for $5) isn’t enough to make them excited about saving. I feel it is more important to make them want to save first. After that, the understanding of the power of compound interest will come later.
I am hopeful that at some point my daughter will figure out that is not beneficial (or efficient) to keep more than $20 in The Magic Box. At that point I hope she will opt to keep only $20 in The Magic Box and keep the rest on hand… but then the next question should be — where else can I put this money? Or put more simply… “Is there another Magic Box?”
I originally wrote up “The Magic Box” in a text document as a thinking game for my daughter to do with her friends. It’s a concept I thought up in the shower after the Tooth Fairy gave her the $5 for her tooth. However, they didn’t really get it. Basically, I overestimated what kids can handle at her age. It worked a lot better when I sat down and explained it to her with some props. I used post it notes as “money” and a little Mickey Mouse house as The Magic Box. I let her put the money in the house and I added the “earned money” in — which she then took out and counted every month. Kids of this age are very visual learners — especially when it comes to numbers and math concepts.
Like I said, she doesn’t understand just how absurd 100% interest is — but that’s not the point — the point is to get her excited about saving. The understanding of the power of saving, compound interest, and diversification all come later.
Tooth Fairy Finance has changed since I was a kid.
I’ve opted for $5 a tooth. While this may seem high…
… I’ve chosen this rate because of my introduction of “The Magic Box”.
I am hopeful that Kylie will understand the power of compound interest in due time — as well as ask about where else to put her money (instead of spending it).
Agree? Disagree? Questions, Comments and Suggestions are welcome.
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