What to Do When Your Child Receives a Cash Gift

Teaching your children the pleasure of saving is going to be one of your hardest tasks, since chances are you do not enjoy it either. If you force them to save, they might grow to resent it. Rather than see the value of saving, they get stuck on how they can’t spend the money that is supposedly theirs. It sends all the wrong messages.

I would first encourage parents— and grandparents— to consider noncash financial gifts such as treasury bonds or a stock certificate as a way to start this education process. As kids age, you can introduce cash gifts, but at the same time you must also help them learn how to handle money.

By the time your child is 10 or so, I want you to put your child in charge of how to handle any cash gifts. That’s right, I said your child is in charge. You are going to give them a three- option framework to work from, but you must leave the choices to them. This is an opportunity for you to learn too: How good is your child at making the “right” money choices?

You need to give them the room to make those choices, and then if you are not comfortable with how they are handling things, that’s when your teaching begins. But first you must give them power over their money. I imagine that sounds very odd to you. But think about it. If you don’t give them a true stake in the decisions, you likely won’t get their full attention, and they won’t engage in this very important learning process.

The Three- Option Approach

Sit down with your child and explain that the annual holiday and birthday money they receive is theirs to handle, but they must tell you with each gift the how and why of what they choose to do with the money. You will frame this conversation by laying out three possible options:

- They save it for a future goal

- They spend it

- They share some of it by making a charitable donation

I would refrain from telling them what you think the proper split of the money should be for all three. And, hey, if they look at you and say they want to use 100% to spend, well, you have some parenting to do on the importance of saving and giving. You really need to focus on what’s going on here. If your child wants to only spend, I encourage you to consider whether your behavior has on some level “taught” them that this is acceptable. Children, of course, pick up many cues from outside the home. They’re influenced by their friends and what they see on television, online, or at the movies. But what they experience at home is probably most influential of all.

Ultimately, I hope your child soon gets into a rhythm where she wants to use her money to save, spend, and donate. All these are important. I’d rather see a child spend some of their money than put 100% in savings or give it all away. The goal here is to teach your child how to handle money, and all three options have a place in our lives.

I want to make sure you really understand the importance of giving your child total control of a spending account: If you prevent your child from being able to use some of their money, to touch it (physically), and use it to buy things (yes, wants are OK!), then they will just end up resenting the process and probably rebel when they get older by overspending. Help them learn how to spend responsibly— in moderation— today. That will serve them well as adults.