Family can be frantic and frenzied during the holidays, but family can also be very generous. Each of my kids received cash from family. Some asked us to earmark the funds for specific things like college but others left it completely wide open. So what should you do?
Here are 2 insights to help inform your decisions:
1. GIVE MONEY A GOAL.
Gifted money can be treated differently than earned money, but one thing that must be consistent is money needs to have a goal. Do you want them to spend it all? Save it all? A mix of both? Based on your child's age, you may need to default them into better decisions. You and your partner need to get on the same page and then have a conversation with you kids.
2. FIND THE TEACHABLE MOMENT.
Cash gifts are an opportunity – do you see it as that? I would rather see my boys make poor decisions with $10 than to make the same mistakes with $10,000. How they start treating these small windfalls becomes the template for larger windfalls later on in life. Let them show you what they are capable of or learn what you need to focus on.
FOR SOME REAL LIFE CONTEXT, HERE'S WHAT WE DO AT HOME:
- Gifted money is different from earned money and is outside of the the spend, save, share budgeting system.
- We talk through gifts that are earmaked for something and let them know who was kind enough to help them and where it will be going (college account, bank account, etc.)
- I offer a dollar-for-dollar matching incentive to save. But they are free to choose save or spend.
- If they chose to spend all or part, we come up with a goal for those dollars and I let them spend it on what parent-approved thing they want.
- Our 6 yr. old can pick his own thing. For our 3 yr. old we give 2 or 3 options to pick from like a book or game. Giving him this choice avoids him picking pretzels every time.