How Should Kids Spend Their Holiday Money?

Another holiday season is upon us, and if you have children, they're likely racking up the gifts. These presents can range from toys to clothes to gift cards and even cash. The toys and clothes are easy to manage, but what are the rules when your kids receive money for the holidays?

Some parents prefer their kids to invest or save, while others give them free rein to spend it however they want.

While there's no right or wrong way to use your cash as a kid, there are best practices and recommendations. Here's what some financial pros have to say.

Make a Decision Based on Your Family Dynamic

Kara Stevens, the founder of The Frugal Feminista, is a personal finance author, speaker, consultant, and coach. She shared valuable insight on this topic.

Stevens believes it depends on how often your family discusses money.

She states, “if you haven’t discussed saving over the last year, it's unfair to expect them to save all their money now to teach a lesson. Especially because they received it as a gift during the holiday season, and realistically, holidays are about enjoyment.”

On the other hand, Stevens says, “…if you regularly have conversations about money and your kids are familiar with the concept of saving, investing and spending, it's fair to ask them what their plan is for their holiday cash.”

If your family routinely has these conversations, you can even put a plan in place before the money arrives. Allocate the money using various methods.

Stevens also points out that you don't have to take an all-or-nothing approach. Even with a small gift, they can allocate a percentage or a dollar amount to each category. Alternatively, for example, they can earmark money from grandma for spending and cash from their uncle for saving.

Teach Your Kids Something They Won't Learn at School

Rick Nott is a Senior Wealth Advisor at LourdMurray. He recommends using this as an opportunity to teach a helpful life lesson – one kids don't often learn at school.

Nott states, “this is an opportunity for parents to lay a foundation of balance and sustainable long-term habits. Show them the value of paying themselves first. Always put away 10 or 20% off the bat, and then enjoy the rest.”

This simple approach teaches several lessons at once. One, money has multiple purposes. Two, the impact of saving over time. And finally, it's okay to enjoy the money you earn or receive as gifts. If kids get into the habit of saving money they receive from childhood, it won't be foreign when they're adults, and they need to focus on preserving their wealth.

If you have older children, you can take it a step further by having them invest. This could be a new skill or one they already know and understand. Either way, Nott says, “Teach them the value of investing a portion of that savings. Incentivize them by matching a portion of whatever they save.”

Set Fun Financial Goals

When your kids receive money, it can be a great time to discuss setting savings goals.

Your 16-year-old might want to buy a video game, or perhaps your seven-year-old wants tickets to a live musical coming to town next year. This is a perfect opportunity to help them to set a fun savings goal and work toward achieving it.

Lanesha Mohip is the founder of Polished Business Solutions, an accounting firm for small business owners.

Here's her insight on this topic: “Before making decisions about their holiday money, kids should consider what they want to save for. A clear goal can help them make more informed decisions about their money.”

When your child has a savings goal, it might be easier for them to decide what to do with their holiday cash. If they really want something, they could save as much as possible to get it quickly. However, if it's lower on their priority list, they may be okay with saving a little over time until they have enough.

Either way, they're learning to set financial goals and that the path is flexible to achieving them.

Keep the Future in Mind

Patricia Roberts is CEO of Gift of College, Inc., a gift registry for college savings and student loans. It took her 20 years to pay off over $100,000 in student loans, and she didn’t want her son to have to do the same. So, when he got older and started receiving cash gifts, she encouraged him to think about his future.

Roberts says, “I strongly encouraged our son to take approximately half of the money received for the holidays and contribute it to an account earmarked for his future.” Fast forward to today, he graduated from college debt-free. Her son states, “The way they approached saving for me with small, consistent steps over many years helped me learn about the value of breaking big goals into smaller, more manageable steps.”

Whether you want your child to spend, save or invest their money, the choice is yours. Ultimately, there are many financial lessons you can teach. There’s also the opportunity for them to enjoy their gift, and that’s a lesson within itself.

This article was produced and syndicated by Wealth of Geeks.


Quiana Darden is a freelance writer specializing in parenting, finance, wellness, education and recent events. She currently lives in Virginia with her fiancé, daughter and their four-legged furry son.