Each year when my children's birthdays roll around, they are given a ton of gifts. Some toys, some books, some crafts, and always some money. They have never spent a dime of that money. I'm fairly certain they don't even know it exists. And that's because each check and $20 bill goes straight to an account to help pay for the expenses that come along with college. This is what my parents did with our birthday money growing up, and it helped keep my loans significantly lower than those of my friends. I was able to pay off any outstanding student loan debt from a private school in about three years. So this is what I do with my children's birthday money. You might choose differently. Here are the options and their pros and cons.
Save it All
We have chosen to save every penny because our children are already overloaded with toys and other gifts on their birthdays. They simply have too much stuff cluttering the playroom and their bedrooms. They don't need more. What they do need is a plan for their future. College debt is strangling young adults and we don't want that to happen to our kids. There are savings plans including ones specific for college that are perfect for earning a good amount of interest with little risk. Check out this list from Forbes on the best college savings plans.
Spend, Save, Donate
You could go this route as a way to teach your children about managing their money. With three mason jars, you can help your kids keep track of their cash. Make one labeled 'save,' one labeled 'donate,' and one labeled 'spend.' Your child should divide the money up the way you see fit – such as 50% in save, and 25% in both spend and donate. Your children can watch their money add up and see how long it takes and how easy it is to blow through their spend jar, teaching them that it might be better to save after all. It will also teach them about generousity and compassion when they choose a charity to donate to.
Spend it All
It's their birthday money, right? So if you want to let them spend it all, that's your choice. However, use it as a way to teach them the value of money. They can spend it all on one big ticket item, or they could use it to get a variety of things, maybe even a gift for someone else, or a trip to the aquarium. Just letting them go crazy at the store could backfire when they grow up and get their first paycheck and immediately spend it all. So if you let them spend it, make sure you are finding a way to teach them responsibility.
Birthdays are a celebration and gifts are a reflection of that. But we are doing our children a disservice if we don't take this opportunity to teach them how to best handle their finances.
