Managing Your Kids’ Gift Money

This post is written by contributing writer, Stacy

I’m the mean mom. You know the type – I don’t buy toys with batteries, I ONLY give my child 3 gifts at Christmas, I make sure she’s covered up when she’s dressed…and I confiscate her money at birthday parties and Christmas.

A few months after Annie was born, we set up her college fund. From that point on, anytime she received a gift of money, it was set aside to be added to that account. When I would send thank-you notes, I would always say the same thing: Thank you so much for contributing to Annie’s college education! You now own one section of the diploma.

I know some of you are shocked out of your mind right now. You cannot believe that we would be so cruel as to take Annie’s money away before she even got her little hands on it. BUT, we don’t see it as being mean – we see it as being responsible and caring for her future.

When she is grown and comes to us, requesting to go to college or trade school, we want to be able to say “Okay, honey, here is how much you have saved – you need to make your decision based on that.” Too many times we’ve talked to parents who have an awakening moment when their child is a senior in high school – oh no!!! College time is here! AHHHHHHHHHHHHHHHHHHHHHH!!!

At this point, it’s a little too late to set up a college fund. You either need to be able to cash flow the education or you’re going to go into debt for that degree – you or your child…maybe both. Graduating from college with a large amount of debt is a huge burden to bear…especially when you also have the burden of finding a job.

Four Tips for Managing Your Children’s Gift Money

1. When they are young, confiscate all their cash. Until she’s about 5, I would guess that any money Annie gets for gifts will be put aside for her college savings. We try to make this fun for her. She has two small piggy banks and we let her put her money in there. She gets GREAT satisfaction when she hears that money clink on the bottom. Once per year, we empty the piggy bank and add the money to her college savings. Remember, you’re preparing for a “rainy day.”
2. When they get a bit older, confiscate most of the money but leave a bit out for “play.” We’ll likely let Annie keep about $10 from her birthday when she hits the age of 5…that might increase as she gets older. You’ve got to have a little fun in life, or saving becomes a huge burden.
3. Teach them to save. As they begin earning money on commission, as a parent, you need to teach them what to do with that money. It’s not something that’s natural – you have to be TAUGHT to manage money. Dave Ramsey recommends you set up budget envelopes for your child: SPEND, SAVE, GIVE. Make sure their “save” envelope goes toward college until they reach an age that might direct you to help them save for some other large purchase. These three categories teach them how to learn to budget for life.
4. Model good money habits for your child. Honey, you cannot expect your child to have good money habits if yours are in the toilet. A child won’t understand the concept of saving if you spend every cent that gets into your hand. If your child SEES you saving, they will understand the idea.

Set up a budget yourself and show them how it works…explain WHY they’re saving.

When they’re young (or even teenagers) your children might not understand why they can’t just spend all their cash – especially if their friends get to buy tons of toys and whatnots with their birthday money. But take it from me…since I graduated from college DEBT FREE because of my parent’s planning…they will appreciate it one day. And they’ll thank you.

How do you plan on helping your child save for college?