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Though a promissory note and a mortgage work together to create a legally binding loan agreement, each has its own distinct purpose in finalizing a real estate transaction. When you sign a promissory note, you’re agreeing to pay back the loan amount under specific loan terms. When you sign a mortgage, you’re acknowledging that if you default on that loan, the lender can get its money back by foreclosing on the property.

These separate contracts have important roles in your purchase, so before you sign on the dotted line, read on for an explanation of how each one works.

Promissory Note vs Mortgage

If you’re borrowing money to buy real estate, you’ll likely be asked to sign both a promissory note and a mortgage at your closing. And in the blur of paperwork, it may seem as though they’re pretty much the same thing.

They aren’t. Here’s a look at the role each document has in finalizing a home loan agreement.

What Is a Promissory Note?

You can think of a promissory note as a formal and really specific IOU. It’s the borrower’s promise to repay the loan by a predetermined date, and it typically details the terms of the loan, including the loan amount, the interest rate, the length of the loan, and monthly payments (all the factors you would see in an online mortgage calculator).

If you sign the promissory note, sometimes referred to as a mortgage note, you are obligated to pay back the loan under these terms.

What Is a Mortgage?

A mortgage is the contract you sign with the lender that states that the property you’re purchasing serves as the security, or collateral, for the loan. It contains a legal description of the property and usually notes that you’re responsible for things like maintenance and for carrying homeowners insurance.

The mortgage doesn’t obligate you or anyone who signs it to repay the loan, but it does allow the lender to take the property as collateral if you don’t make your payments or if you otherwise fail to follow through on the terms of the loan. If you default, the lender can proceed with a mortgage foreclosure and then sell the home to recover its money.

Recommended: What Are the Different Types of Home Mortgage?

Key Similarities and Differences Between a Mortgage and Promissory Note

Because the paperwork a borrower completes and signs for a real estate loan is often referred to, in general, as the “mortgage,” it can be easy to lose sight of the different purposes of the mortgage and promissory note. So here’s a quick breakdown of some of their similarities and differences.

Similarities Between Promissory Notes and Mortgages

•   Both documents establish a legally binding contract that ensures the lender is protected if the borrower defaults on the loan.

•   Some of the terms of the promissory note may also be listed in the mortgage, including the length of the loan and the amount due. (The interest rate and monthly payment usually aren’t included on the mortgage, however, and won’t be a part of the public record.)

•   Both are important documents that you should read (and understand) before signing.

Differences Between Promissory Notes and Mortgages

•   Each document has a distinct purpose and legal implication. A signed promissory note serves as the borrower’s promise to repay the home loan. A signed mortgage secures the note to the property and says you agree the lender can foreclose on your property if you default on the terms of the loan.

•   Each document contains different pieces of information. While the promissory note lists more details about the loan terms, including the interest rate and repayment schedule, the mortgage has more details about the borrower’s obligations and the lender’s rights.

•   There’s also a difference in where each document is kept after the closing. The lender holds onto the promissory note until the loan is paid off. (After that it can serve as the borrower’s “receipt,” proving the loan is paid — so it’s important to make sure you keep it in a safe place when you receive it.) The mortgage becomes part of the county land records to provide a traceable chain of ownership.

•   Each document confers a different obligation on those who sign it. Anyone who signs the promissory note can be held personally liable for the borrowed money and could face legal consequences if they fail to make their payments. If, for example, the lender forecloses on the home and sells it, but the sale doesn’t cover the amount you owe, you may be responsible for paying the difference, depending on state laws. However, if you sign only the mortgage document and not the promissory note, the lender can’t hold you legally responsible for paying back the loan; you’re only giving the lender permission to foreclose on the property if the loan isn’t repaid.

Required Documents to Get a Mortgage

You should be prepared to provide and sign several documents during the homebuying process — first on the front end, when you’re applying for a loan, and again later, when it’s time to close on the property.

The person who’s in charge of your closing can give you a complete list of what you’ll need to bring with you and the paperwork you’ll be asked to sign, but here are a few of the documents you can expect to see:

Closing Disclosure

The Closing Disclosure lays out the final terms of the loan, including all closing costs, and provides information about who is paying and who is receiving money at closing. Lenders are required to send buyers a copy of their Closing Disclosure at least three business days before closing so there’s time to review it and clear up any potential discrepancies. You should bring it with you to your closing to be sure your costs remain the same as you expected or that any necessary changes were made.

Promissory Note

The promissory note is the document that states that you legally agree to repay your home loan. It provides important details about the loan, including the amount owed, interest rate, dates when the payments will be due, length of the loan, and where payments should be sent.

Mortgage/Deed of Trust/Security Instrument

This document gives your lender the right to foreclose on your property if you fail to live up to the repayment terms you agreed to. It also will outline your responsibilities and rights as a borrower.

(Your state may use a deed of trust vs. a mortgage as part of the home loan process. A deed of trust states that a neutral third party — usually the title company — may hold legal title to the home until the borrower pays off the loan.)

Initial Escrow Disclosure

This form explains the specific charges you may have to pay into an escrow account each month as part of your mortgage agreement, such as money to cover property taxes and insurance.

Deed

This document transfers ownership of the property from the seller to the buyer.

Right to Cancel Form

You’ll only see this form if you’re refinancing your home loan (it doesn’t apply if you’re purchasing the property). It states your right to cancel the loan within three business days and explains how that process works.

Recommended: What Is Mortgage Underwriting?

The Takeaway

Though people tend to think of the term “mortgage” as describing everything that has to do with their home loan, there are actually two separate documents that form the legal agreement between a buyer and a lender and outline their responsibilities.

It’s important to understand the differences between these two distinct pieces of paperwork — the promissory note and the mortgage — before you see them at your closing. You’ll also want to carefully review them — and all the forms you see — before you sign for your loan.

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FAQ

Do you need a promissory note and a mortgage to buy a house?

Usually, yes. But you might have a promissory note without a mortgage if you’re using an unsecured loan from a family member, a friend, or the seller.

Is a promissory note the same as a loan?

A promissory note is part of a formal loan agreement. It contains a promise from the borrower to repay a specific amount of money to the lender under designated terms.

What is the purpose of a promissory note in real estate?

The promissory note helps formalize the terms of a real estate loan, including the length of the loan, the interest rate, how and when payments should be made, and what happens if the borrower defaults.

Does a promissory note create a lien?

No. A promissory note obligates the borrower to repay the loan, but it does not “collateralize,” or secure, the loan to the property.

Photo credit: iStock/nortonrsx

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SOHL-Q224-1841383-V1

Getting a personal loan? It’s not as simple as walking into a bank and asking for a check — there’s some paperwork involved.

Your personal loan agreement is the document that contains everything you need to know about the deal you’re making with your lender, including your rights and responsibilities as well as theirs. It’s a fairly long and complex form, but breaking it down can make it easier to understand.

Here, take a closer look at personal loan agreements.

What Is a Private Personal Loan Agreement?

A personal loan agreement, as mentioned above, is a document that details exactly what is being agreed to on both sides of a personal loan — lender and borrower. At the very least, it will state how much money is being loaned and the terms and conditions of the borrower’s repayment responsibilities.

But what about a personal loan that is not with a traditional lender? Private lenders can be individuals or organizations that make loans to individuals, sometimes without the qualification requirements of traditional lending institutions. A private personal loan agreement, specifically, is drafted as part of a private personal loan — one made between a private lender and a borrower.

Any personal loan agreement is a legally binding document, so it’s important to understand it in full before you apply your signature.


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Why Is a Loan Agreement Needed?

A personal loan agreement is essentially a protective document. It protects both the lender and the borrower by laying out, in clear terms, exactly what is being agreed to. If either party fails to uphold the agreement, action can be taken — such as the lender seizing any assets offered as collateral or sending the account to collections — both of which, obviously, would be bad for the borrower.

But the document works both ways. Lenders, too, are subject to lender liability and can be taken to court if they fail to uphold their end of the loan agreement. Although these cases are far less common than borrower default, the loan agreement is a document that can be used for the borrower’s protection as well.

How to Write a Personal Loan Agreement

Here are the usual steps to writing a personal loan agreement.

Decide Whether to DIY It or Hire a Lawyer

Depending on the specifics of your loan and situation, you could write up a simple agreement by hand or draft it on your computer and then print it out for signing. Or you might download a template from a reputable site, which can be a popular option. These are often free or are sometimes available for a small fee.

However, if the loan is complicated or you don’t want to handle the agreement yourself, you could look into hiring a lawyer to draw up the paperwork. Either way, a personal loan agreement will be a legally binding arrangement. Hiring a lawyer will likely be a costlier proposition.

Gather the Necessary Personal Details

You will need the legal names and addresses of both parties. This ensures the lender can’t ask you for anything beyond the borrowed principal (plus interest, which will also be listed).

Agree to and Spell Out the Loan Terms

The loan agreement should list the payments that will be expected each month and the expected date of the conclusion of the loan term.

The interest rate for the personal loan should also be on the personal loan agreement, likely expressed as an APR, which shows what percentage of the loan principal you’ll end up paying back in the course of one year including interest and any additional fees that may be packaged into the loan.

The interest rate will vary based on your credit score and other financial factors. If you have decent credit, you’ll likely be able to qualify for a personal loan. But generally speaking, the higher your score, the lower your rate.

Recommended: APR vs. Interest Rate

List Payment and Legal Details

A personal loan agreement should also include the following:

•   The loan agreement may list which types of payment are acceptable, such as check, bank transfer, or credit card.

•   The personal loan contract should also list specific repayment conditions, including when payment is due and whether or not additional principal can be applied without penalty.

•   A complete personal loan agreement should include details on how any disputes will be handled between the parties involved.

•   Some personal loan documents may include the option to change your loan’s term (the period over which the loan is repaid).

•   Personal loan contracts in the United States should stipulate which state’s laws will be used to govern and interpret the agreement if the borrower lives in a different state than the lender is headquartered.

•   Severability is a clause that states that even if one part of a contract is found to be unenforceable or otherwise rendered null and void, the remainder of the agreement will still hold.

•   Penalties associated with the personal loan, such as any late fees that may be assessed, at what point the loan will go into arrears or default, or other scenarios, should be listed in the contract as well.

Sign the Document

Finally, the contract for loaning money must be signed by the borrower and the lender in order to be made legally binding.


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Does a Personal Loan Agreement Need to Be Notarized?

Personal loans are a type of contract, and contracts do not need to be notarized to be legally binding. All it needs is your signature. Be sure to read all the fine print in detail before you uncap that pen.

Recommended: Comparing Personal Loans vs Business Loans

Other Personal Loan Documents

Along with the signed personal loan agreement, other typical personal loan requirements include the following:

Proof of Identity

Your driver’s license or some equivalent form of photo ID will likely be necessary in order to verify your identity.

Income Verification

Lenders will consider your income when qualifying you for a loan — after all, they have good reason to be interested in whether or not you’ll be able to repay the debt. Along with asking you to list your annual income, verifying documents such as tax returns may also be required.

Proof of Address

In order to prove your residence, and therefore eligibility for any type of personal loan, you may need to provide utility statements, bank statements, or other official documents.

Getting a Personal Loan

Taking out a personal loan is a big financial responsibility, but it can also be a smart money move if you need to handle large, unexpected expenses at the last minute, or to consolidate existing debt. For someone who has bad credit, a small personal loan responsibly managed can be one way to bolster their credit score.

Just remember that all loans come at a price — interest charged — and considering the total amount you’ll pay back to the lender over time is important in order to have a full understanding of the cost of the loan.

For example, if you take out a $10,000 personal loan at a 7% interest rate to be repaid over a term of five years, you’ll pay back a total of $11,880.72, or an additional $1,880.72 in interest. That’s not including any origination fees, late fees, or prepayment penalties a lender might charge.

The Takeaway

If you’re considering a personal loan, reading the loan agreement in depth is a good way to understand for sure what you’re agreeing to. That loan agreement will contain many details about funds borrowed and how they will be repaid.

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FAQ

Does a personal loan agreement need to be notarized?

No, a personal loan agreement does not need to be notarized to be legally binding — it simply needs to be signed by each party to the agreement.

What is a private personal loan agreement?

A private personal loan agreement is the binding legal contract between a borrower and a private lender for a personal loan.

Why do you need a loan agreement?

The personal loan agreement serves to outline the specific terms of the loan and protect both parties in case either fails to uphold the agreement.

Photo credit: iStock/Chaay_Tee

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOPL-Q224-1840979-V1

Having children brings many joys. But for women, it can also have a financial dark side. Becoming a mother often results in a loss of pay and opportunities for career advancement, a phenomenon known as the motherhood penalty. In fact, women experience a 60% decrease in income compared to men in the decade after their first child is born, according to PricewaterhouseCoopers’ 2023 Women in Work Index.

Many factors contribute to the motherhood penalty, and not every woman experiences it in the same way. Understanding the motherhood penalty can help women — and their families — sidestep this financial setback.

How Does the Motherhood Penalty Work?

If you want to avoid the motherhood penalty and keep your budget on track, it pays to know your enemy. According to a 2023 article published in the scientific journal PNAS, women’s diminished earnings after the birth of a child is driven by both a reduction in employment and by lower earnings for those who remain employed. Let’s look at each of these factors.

Despite the fact that women today have achieved historic levels of education and are working at senior levels in the corporate world, they are still more likely than men to cut back on their working hours or stop working altogether after a baby is born. Some women may choose jobs that allow for more flexibility in hours even if those roles pay less.

Discrimination is a more insidious factor: Women make up nearly half of all U.S. workers and do the bulk of consumer spending, yet some hiring managers still believe that women’s earnings are not as critical as men’s for household support. (A quick look at any parent’s money tracker app would reveal just how untrue this stereotype is.) When two women are similarly qualified for a job, the one without children tends to earn more than the one who has kids. And when men and women hold similar positions, fatherhood seems to confer a salary advantage in many occupations.

Recommended: The Highest-Paying Jobs in the US

Why the Motherhood Penalty Matters

Dual-income households have been the norm among married couples for decades, and most households composed of married couples with children have two working parents, according to 2023 data from the Bureau of Labor Statistics. Families with two healthy incomes are most likely to be able to afford a home, and to be able to cover other large expenses, including the cost of kids. (A 2022 report from the Brookings Institution suggests that the average middle-income family today will spend more than $310,000 to raise a child to age 17.)

But the motherhood penalty takes an especially hard toll on families led by women. According to the 2023 Census, 21% of U.S. children are growing up in a household led by a single mother, who often has no other source of income than her own earnings. The motherhood penalty may contribute to the fact that nearly 30% of single-parent families are living below the federal poverty level.

Factors Contributing to the Motherhood Penalty

As noted above, the unspoken ideas that women belong at home caring for their children, or that women are not vital contributors to their family finances, continue to be a driver of the motherhood penalty. This is despite the fact that households where two parents work outside the home is now the norm in the U.S.

But there is another troubling scenario. Women may leave their job because childcare costs more than they earn. The cost of caring for an infant in a childcare center averages $15,417 per year per child. In big cities, the number climbs even higher: Washington, D.C. averages $24,243, for example. And even when women don’t stop working, they may scale back their hours, or take more flexible but less well-paid positions.

The motherhood penalty is unfair, and one additional factor adds to the unfairness: In households with two working parents, where each parent earns roughly the same amount, women still spend more time on caregiving responsibilities than men do — 12.2 hours per week on average, compared with 9 hours for men, according to a 2023 Pew Research Center report. Women also spend 4.6 hours doing housework to men’s 2 hours. Women’s work may be valued less, but as the old saying goes, it’s never done.

Recommended: Pros and Cons of Salary vs Hourly Pay

Tips to Avoid the Motherhood Penalty

So what can women do to safeguard their finances from the motherhood penalty?

Consider your career choice. Women can begin to protect their financial future while they are still contemplating a career path. Some research suggests that the motherhood penalty disappears for mothers who work in business and post-secondary education. And in STEM careers, and fields such as medicine and law, mothers actually appear to earn more than women who don’t have kids.

Stand up for fair earnings. Exercise your right to be fairly compensated with every step you take in the working world. Applying for a job? Do your research to learn what is a good entry-level salary. Offered a position? Learn how to ask for a signing bonus — with unemployment relatively low, employers in industries from retail to engineering may pay you to come on board.

Change jobs. Women may be less likely to change jobs after becoming mothers, as switching jobs can be stressful and time off is often allotted based on seniority. Yet changing jobs is one way to bump up your salary. When you do switch, make sure you understand what is a competitive pay rate. A growing number of states, including California, Colorado, and New York, have passed pay transparency laws that require employers to post salary ranges when they advertise job openings.

Don’t share your status. It’s unlikely that you’ll be asked during a job interview if you have caregiving responsibilities, as doing so may violate federal and state laws. But many women casually disclose that they are parents during the interview process without thinking twice about it. Avoid talking about your personal life when interviewing for a job and consider that many employers examine applicants’ social media feeds during their screening process.

Advocate for fair pay and families. Research suggests that moms in women-dominated and low-paid professions face the greatest motherhood penalty. To help promote equitable pay that can sustain families, you can support raising the minimum wage. Lifting your voice in favor of government support for affordable childcare and for mandatory paid parental/caregiver leave can also help ensure that women who want to stay in the workforce after having a child can afford to do so.

The Takeaway

Despite the fact that women are working outside the home in historic numbers, the motherhood penalty still exacts a perilous price for many women and their families. Acknowledging that women are financially penalized for becoming parents is a first step in fighting back against the stereotyping and discrimination that is often at the root of this problem.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

What is meant by the motherhood penalty?

The motherhood penalty refers to the fact that women’s earnings suffer after they have children, sometimes due to discrimination in hiring or the awarding of promotions, and sometimes because women scale back on work or stop working altogether after having a child.

How does the motherhood penalty affect a woman’s career?

The motherhood penalty results in lower earnings, and because future earnings are often based on current salary, the diminishment in income often persists as a woman progresses up the ladder.

How can I avoid the motherhood penalty?

A primary way to avoid the motherhood penalty is to know your worth. Do your research on salary before taking a job, and reevaluate your salary at least yearly by looking at comparable positions.

Photo credit: iStock/Pekic

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SORL-Q224-1860153-V1

Money management — how to save, budget, and invest — is a vital life skill that isn’t part of most school curriculums. As a result, it often falls to parents to prepare kids for this aspect of adulthood. The trouble is, talking about things like spending, saving, and taxes with your kids may not come naturally, especially if you were raised in a “don’t talk about money” household.

So when — and how — do you start talking about money with your kids?

Generally, it’s never too early to begin teaching kids about the concept of money. You might start just by normalizing conversations about money, so kids feel comfortable asking questions. Other easy strategies include offering a piggy bank to young kids, to introduce the concept of saving, and providing an allowance to older children, which helps them learn to budget and manage their own money.

Read on to learn more about some of the best ways to teach kids about money and put them on the path towards financial health and independence.

Why It’s Important To Teach Kids About Money Management

Whether it’s the importance of saving or how to open a new bank account, money lessons help ensure that kids will make smart financial decisions in the future.

Children who are introduced to basic financial concepts at an early age are likely to feel more confident about their spending habits and have less financial anxiety when they’re older. Teaching young children simple lessons about money management also makes it easier to impart more complex financial lessons as they get older. This can help set them up for success when they get that first summer job, go off to college, and enter the working world.

Money Management Explained

First, let’s look at the big picture. Helping kids understand the basics of money management is important…but what is money management anyway? Some adults can’t answer that question, let alone explain it to their children.

Simply put, money management refers to how you handle all of your finances. It involves keeping track of what’s coming in and what’s going out (and making sure that latter doesn’t exceed the former), being smart about debt, and setting money aside for both short- and long-term goals.

While adults generally understand that saving money is important, it typically takes an engaging approach to get kids psyched about hoarding their pennies rather than spending them on a video game. With the right strategies, however, teaching kids about money management can wind up being a satisfying and fun experience for the whole family. It might even give you a renewed focus on your own money skills.

Money Management for Kids in 6 Steps

Here’s a look at some of the best ways to boost money management for kids.

1. Start Early

Children as young as three years old can start to grasp the basic concept of “We need dollars to get ice cream.” Talking about money in a positive, or simply neutral, way and being transparent about your own financial life (“I got paid today,” or “I need to pay bills tonight”) begins to ground kids in the ebb and flow of finances. It helps a child learn the value of money.

Parents can use a routine trip to the grocery store to point out price tags and how some things cost more than others. Asking a salesperson or cashier, “How much is this?” can clue children in to a transactional truth: You have to have money to buy something. Paying bills in front of them helps them understand that families also have household expenses.

2. Provide an Allowance

Offering an allowance can be a great way to teach kids to manage money responsibly. The ground rules for a child’s allowance vary from family to family; some start a child off with an allowance at age five, and others at age 14. How much kids get also varies widely and is entirely up to you. One rule of thumb is to match the number of dollars per week with a child’s age, such as $10 a week for a ten year old. You might also ask around among other parents to get a sense of the “going rate.”

Here’s a look at the two common ways to structure allowance.

•   Chore-based allowance: With this set-up, a child does chores in order to get paid. This system can instill a strong work ethic that will benefit children in the future. Some say a drawback of this method is that it could send a message that household chores are optional. But for many families, it works well.

•   Fixed allowance: Here, you agree to pay your child a set amount of money every week or month no matter what. Separately, they are expected to do their chores and help around the house because they are part of the family. This arrangement allows a child to feel part of a greater whole — to be responsible for the tidiness of their room and offer to help with the dishes because that’s what family members do. Some may argue that paying children an allowance that isn’t chore-based could compromise their work ethic or promote a sense of entitlement, but it’s really up to each family to determine what works best for them.

3. Encourage Saving and Goal-Setting

Just as adults are motivated to save when they want to have enough money for, say, a vacation or new car, your child may be incentivized to save a target amount for a specific purpose. Or, you may have a child who just wants to see how high their savings can go — that’s fine too! You can encourage them to save just to find out how much they can stash.

You might also offer rewards for reaching savings milestones. For example, you could make a deal that if your child saves a certain amount, you’ll kick in a little bit more. This rewards them for exercising restraint, and it’s similar to a vesting or “company match” principle, which you could explain to an older child.

4. Give Them a Place to Stash Their Cash

For younger kids, keeping money close at hand can work well. Having their own piggy bank or child’s safe can also make saving more fun. For older kids, you might want to open a savings account in their name. Many banks offer savings accounts specifically geared toward children and teens. Typically, these are joint or custodial accounts that come with parental controls and tools that teach financial education.

5. Introduce Them to Credit

As teenagers become more independent and start driving themselves around, consider enrolling your child as an authorized user on one of your credit cards. This can not only be helpful in the event of an emergency, like a flat tire, it’s an opportunity to discuss how to be responsible with credit. You can explain how credit cards work differently than debit cards and how interest racks up quickly if you don’t pay off what you charge in full by the end of the billing cycle.

6. Explain Budgeting When They Graduate From College

Once your kids are earning money regularly and responsible for paying their own room and board, it’s a good idea to help them draw up a budget based on their salary and estimated expenses.

There are all kinds of budgeting methods, but they might start with the basic 50/30/20 approach. This involves putting 50% of their earnings toward needs, 30% toward wants, and 20% toward savings (including any money they are putting into a retirement plan offered by their employer). If their employer offers any matching contributions to their retirement contributions, encourage them to take full advantage, since this is essentially free money.

Fun Ways To Teach Kids Money Management

To make financial literacy fun and engaging, try one of these four money activities for kids.

Go Thrifting

Buying second-hand clothes can be a great way to teach kids how to be smart spenders. You might first go to a regular clothing store and look at the price tags on new clothing, then head to a local thrift store and compare prices. Consider giving your child a set amount they can spend on second-hand clothing. You can then enjoy watching them try to get as much as they can for their money.

Encourage Some Sibling Rivalry

If you’re teaching more than one child about money, consider setting up a competition to see which sibling can save more by a certain date. You might set a goal, such as saving a specific amount or towards a specific item, then offer a reward to the winner.

Set Up a Lemonade Stand

Letting kids set up and run a lemonade stand can help them learn valuable lessons about money, including earning income and entrepreneurship. It can also help them build confidence, resilience, and management skills. Plus, it’s fun. Just be aware that many states require kids to have a permit to operate a lemonade stand, so the first step is doing a bit of research.

Play Financial Board Games

Classic board games like Monopoly and Payday can also be great money activities for children. In Monopoly, for example, players buy and trade properties, develop them, and collect rent. There is even Monopoly Jr. for younger kids. Other fun money board games for your next family game night: the Game of Life, the Allowance Game, the Stock Exchange Game, and the Sub Shop Board Game.

Recommended: 52 Week Savings Challenge (2024 Edition)

The Takeaway

Teaching kids about money and how to manage it can prepare them to be financially responsible adults. By offering an allowance or payment for doing extra chores, kids can learn the value of money and rewards of saving and delayed gratification. Helping older kids learn how to budget and set up a bank account can instill a sense of confidence and independence, not to mention pride.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

When should you start teaching kids money management?

Children as young as three years old can begin to understand the concept of paying for something and saving money in a piggy bank. Some parents start giving kids an allowance between the ages of five and seven, which can help them learn basic financial literacy concepts like saving, spending, and sharing. As kids get older, you can gradually introduce more complex concepts like budgeting, investing, and “good” vs. “bad” debt.

What are the benefits of teaching kids money management?

Teaching kids about money has numerous benefits. It instills financial responsibility, fosters good habits early on, and prepares them for real-world financial challenges. It also encourages critical thinking, goal-setting, and independence in making financial decisions.

How do you teach kids the value of money?

You can teach the value of money through hands-on experiences and age-appropriate activities. Encourage earning money through chores or tasks, involve them in family budgeting discussions, and demonstrate the consequences of spending choices. Emphasize the importance of saving for goals and how to differentiate between needs and wants.

How do you organize your kids’ money?

You can organize a kid’s money by helping them establish savings goals, allocate their money into different categories (such as saving, spending, and giving), and track their progress regularly. Consider using tools like jars, envelopes, or savings accounts to physically or digitally separate their money.

What is the 3 piggy bank system?

The “three piggy bank” system involves dividing money into three categories: saving, spending, and sharing. Each piggy bank represents a different purpose, teaching kids to allocate their money wisely. They learn the importance of saving for future goals, budgeting for everyday expenses, and contributing to charitable causes or sharing with others. This system helps instill foundational money management skills in a simple and practical way.

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SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
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