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Christmas Gifts That Keep Giving

By December 10, 2009June 1st, 2021Families & Professionals, Financial Planning

When you read this, there will only be 20, or maybe its 15, no make that 5, shopping days until Christmas. The truth is that for most of us time is going by at Nascar speed and accelerates to warp speed during the holidays. In a blink, Christmas is over and many of the kids’ gifts are already broken. What’s a parent to do?

Well the good news is that you can give your kids a gift that is guaranteed not to break and which keeps on giving well after the holidays have receded into distant memory. It requires a little “assembly”, but I promise you there are no “slot As” or “peg Bs”. I’m talking about giving your kids a strong sense of financial responsibility.

Now I’m not advising you to be a scrooge. You should put some normal gifts under the tree, but save a little of your Christmas budget to help your kids develop this much-needed skill. Not everybody learns it. A recent survey showed that more than 50% of college kids own two or more credit cards with large outstanding balances.

The simple truth is that kids become responsible when they feel like they’re spending their own money. Don’t believe me, well give your kids $10 at the mall and tell them you expect some change back. A week later make a second mall trip, give them $10, but tell them that they can keep whatever change is left. 90% of kids will be much more frugal on the second trip.

So, I’d like to suggest a couple of things to put under the tree that your kids will actually like (at least at first), and for which they will thank you enthusiastically (eventually).

Open a savings account for each of your kids. Most banks will let you open one with a nominal deposit. You can wrap the savings pass book and put it under the tree if you like.

Open a checking account for each child who’s at least 13, but keep yourself on as a joint account holder. Make sure the bank provides an ATM card which is a pure debit card, not a Visa card. Ideally, I like Kids to have to physically withdraw money when they “need” it. This makes the process very real to them.

Make them buy a portion, or all, of their clothes, school supplies, entertainment, and other essentials, except groceries. You should still feed them. For younger kids, make them buy a few of these items and then slowly increase the number until they are buying all of them.

Increase their allowance to accommodate all of these purchases at each stage in your process. This means you don’t have to buy these items out of your household budget. They now become part of your kid’s budget.

Lastly, I strongly advise opening an investment account for each child. Most brokers will let you start with as little as $100 if you agree to make regular monthly deposits. But here’s an important trick. Make yourself the legal owner of each account and have your child listed on the second line. Give the monthly statements to each child. I’d suggest depositing some of your monthly college savings contributions into these individual accounts. You may give up a little in tax benefits, but the psychological benefits to your children are overwhelming.

Help them divide their extra money between the savings account and the investment account. Over time, let them withdraw from the savings account for “special” items. You want them to learn that savings don’t disappear, never to be used by them again. However, don’t let them withdraw from the investment account until college rolls around.

So, what’s going to happen when all this is done? Quite a lot actually. Your kids will probably make some mistakes at first, inevitably spending too much on those $150 sneakers, only to run out of money at month end. Do NOT bail them out! They’ll do better the next month if they realize they had to suffer the consequences of their own bad decision.

The kids will also make some great decisions. They will start bringing home more change from the mall. They may get part-time jobs so they can contribute into their accounts also. They will learn about intermediate vs. long-term goals. They’ll also watch the investment account grow and learn about investing. Your kids will be better prepared to enter the real world and inoculated against our consumer-driven, debt addicted society. Eventually, they’ll thank you for the best Christmas present ever.