Here’s an interesting question, I am pretty sure some family members will be gifting us money upon the birth of our child. Traditionally this happens. My cousins got their money and used it for a home DP and new car after college.
I apparently didn’t have any, but more likely my mom had to cash in my bonds to survive after her divorce. Not that I blame her, glad she did, but we were in poor shape with mounting medical bills and one income.
But I think I’ll be in the fortunate circumstance to not need the money gifted to my kids. And thus raises the question, what should we do with it? Should we automatically invest it in a 529 or Coverdell and earmark it for college? Or should we just put it into a savings/investment fund and allow our child to choose what she wants to do with it after college? What is the better purpose for the money and decision?
My cousins were fortunate in their parents paid for the college, so the saved money was theirs to choose to do with as they wished. But if their parents hadn’t been able to afford college, I assume it would have gone towards that.
But what if they hadn’t wanted to go to college and instead trade school or the military? Thus is it a bad idea to put gifted money into a college fund? Thus requiring them to go to college? It’s different if it’s money I save for my child. If they don’t go to college, the money is MINE.
But this is “gifted” money, to be used in the best interest of the child. Obviously if we needed it in dire circumstances it could even be used for living. But otherwise, what should I do with it?
I’m leaning towards just investing it and not tying it up in a college fund. But then when I’ve given money to nieces and nephews, I had earmarked the check “college”. So I wondered what happened?
Plus, when children get gifts, should they be allowed to spend some portion of it and not be forced to save it all?
Perhaps when children are so small they don’t know better, but say by age 5, 6, and on? Should they be taught to save some, spend some, and give?
11 responses so far ↓
1 Lynn // Dec 11, 2009 at 9:47 am
Any money we receive as gifts, whether it was for their birth or for Christmas etc, goes into a savings account or into the girls piggy banks. My girls will be 3 in January and over the summer our bank gave us piggy banks for the girls. We give them our random change and any small amount of money the grandparents give them goes in there (like the 5 $1 bills my mom gave them at halloween). Any larger amounts given at birthday, Christmas, Easter etc (my in-laws give a card with money at EVERY holiday-its crazy!) go into their savings accounts. We have previously purchased savings bonds but we stopped doing that when the interest rates dropped.
I would never put money given to the kids in their college fund unless it was designated especially for that. If they decide not to go to college, then they have just lost a percentage of that money that was given to them. Its one thing if I decide to do that with my money, but not with money someone else gave them.
As far as what to do when they are a little older – we will probably encourage the saving, spending, and giving thing. Not sure of the percentages yet but we still have some time.
2 Melissa // Dec 11, 2009 at 10:05 am
At my house, money goes into piggy banks until a savings account is opened at the bank. Savings accounts are opened when the child has a good signature and understands what is going on (usually age 7 or
and savings accounts are a BIG deal. We would beg my mother to go to the bank and let us deposit whatever money we came by. If a savings account accumulates a solid balance, it is then invested in CDs. Finally, my parents open a RothIRA and when we are responsible, it is signed into our names. This is primarily a college savings fund, though I also used some when I bought my first house, refinanced, and it is now my emergency fund.
Regardless, each of these financial milestonse’s was discussed thoroughly and the child was involved. I think it has significantly helped my siblings and I be financially savvy from a young age.
As far as save/spend/give, once we had paychecks in high school, we were encouraged to save 75% and spend/donate the remaining 25% as we wished.
3 dalalledaNarm // Dec 11, 2009 at 10:43 am
Awesome… really awesome subject. I will blog about it too.
4 Thinkingaboutit // Dec 11, 2009 at 12:22 pm
When I give a baby or young child money, I hope that the parents will use it for baby/child’s needs and wants in the here and now if needed or save for the the child’s future needs and wants if everything is already covered. That could mean for college, or trade school, or whatever plan develops. It could also mean for basketball team travel fees, summer camp at age 12, a set of Harry Potter books at 10 or whatever. If I want to think my gift is going for education— well, I know that there are many things that are educational and they do not begin suddenly at age 18 and HS graduation. My friends and family probably live closer to the edge than your family, but it is okay with me if my gift pays for the heat to be turned up to make it more comfortable for baby or perhaps buys a soft, clean rug for the living room floor for baby to happily play on. It is perfectly okay with me if parents continue for a long time to have strong input into how kids spend/save gift money once kids are old enough to understand that money buys things and that they have been given some. I don’t wish to control things through my gifts.
5 LAL // Dec 13, 2009 at 10:57 am
Lynn, I think a savings account might be a good idea. I was toying with the 529 and coverdell, but unsure as to how to allow some to be spent, saved, and given away.
Melissa, I thought a Roth could only be opened if they worked? So until age 13 or 14 at least maybe babysitting or cutting grass. But when they are young that doesn’t work right?
Thinkingaboutit, thank you very much for the thoughtful insight about using it for heat and other goods. I haven’t considered it that way. But I guess because I consider my friends and family well off enough to afford that. But if they were struggling, I’d hope they would use it for necessities.
6 Forest // Dec 14, 2009 at 12:08 am
I would have really appreciated a little cash at 20 or so…. Sadly I didn’t get any cash for college or anything, no family ever donated any and my parents never saved for me as a result (and the fact that I left home at 16) I have ended up with a large debt. I am 28 now and much more responsible and live frugally (check out my blog
). I’m killing this debt slowly, $1 at a time and when it’s gone money is going down for kids or whatever happens in the future.
If I ever have Children a savings account is starting on day one and they will not face a hard time when it comes to college or school.
Personally I would not put it into a college fund, some kids just don’t want college yet they can still succeed in their chosen path.
Thanks for the excellent post (found you through Wisebread forum). I am signing up by email so expect to see me around.
Forest.
7 Forest // Dec 14, 2009 at 12:09 am
…Ooops put my web address wrong in the Website box…. It’s corrected on this comment.
8 Abigail // Dec 14, 2009 at 1:37 am
Put it in non-college funds, just in case. You can always start a second, college account later. Be sure to create a CD ladder. My parents made me save everything but didn’t do anything with it. Drives me crazy now to think about how much I could have had. So just get an account started, worry about the college thing later. Better to pay a few unnecessary taxes through the years than to save for a college fund that may never get used.
9 LAL // Dec 14, 2009 at 9:43 am
I’m definitely going to put my $2k into a coverdell and the gifts, I’m leaning more and more into a savings account. That way maybe it could be used even before college for educational trips? Or a sports hobby that they are passionate about?
10 R.May // Dec 14, 2009 at 1:18 pm
When we were kids, always the money received as gifts was ours to do whatever we wanted with – it was a gift that’s the point. Sometimes I was saving for something, sometimes I bought food for the food bank and sometimes I blew it : ) I mean if it was toys would you make the kid donate one to charity, put one away to play with in 5 years, and keep one to play with?
When we were old enough to get jobs we had to and then yes we had to save a portion of our earnings.
I still operate that way – when I recieve money as a gift I do as I please, sometimes I pay bills or throw it in the bank, sometimes I buy something for others and sometimes I buy myself a super hot pair of shoes : )
11 LAL // Dec 14, 2009 at 8:38 pm
R.May my DH did the same thing. Used the gift money to get stuff he wanted that his parents wouldn’t buy. He said it brought more pleasure then than having it in a savings account now.
As for me, since my mom made me put the money in a stupid cat bag, well….it really didn’t bring me much pleasure to get the damn cat bag and the money wasn’t much! It didn’t even earn interest.
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