How to teach your child about financial health during the holidays

By Cat Alford, personal finance writer

The holidays are upon us and that means the season of gift giving, cookies, ugly sweater parties, and twinkle lights. This is the first year my children really understand Christmas, and it’s been so fun preparing for the big day.

As a parent, I want to make sure they enjoy the holiday season, but I also feel a responsibility to ensure they aren’t spoiled or entitled. I want them to know how lucky they are to have a warm, safe home to wake up in on Christmas day, and I want them to appreciate all they have.

Right now, my children are young at only two years old, so their main thrills are making cookies and taking all the ornaments off the bottom of the tree. However, I know that everything we teach them will sink in over time with repetition. So, I’ll set them up for future financial health from this young age. Here’s how:

Give a Financial Gift

According to holiday trend statistics, consumers will spend on average $1,121 each on gifts this year. If just a small portion of that significant figure can go to a financial gift for your children, it can set them up for financial success in the future.

For example, every year, my parents and grandparents send my children money for Christmas. When my kids were born, we opened custodial accounts in their names and invested money on their behalf. At age 18, they will have access to the money, which they can use to purchase a car or save for a downpayment on a house.

If you’re interested in the specifics, we selected a very simple, conservative index fund to buy for them, which means we didn’t pick a crazy volatile stock or anything outlandish. Because the money won’t be touched for 15+ years, the mutual funds have time to grow.

As my children get older, I want them to play an active role in understanding how investing works within their custodial accounts. I do not want to dump a lump sum of cash on them when they turn 18 and hope they know what to do with it. Rather, every time they get money for Christmas or their birthdays, I want to show them how to buy mutual funds with the money. Then, if they want to buy a stock in a company they like one day, like Disney or Apple, they can do so within the confines of their custodial account.

Of course, I could use the $50 or so they get from grandparents to buy them toys, but instead I invest it for them every year. This might not be something they can appreciate now, but it’s something they’ll be glad to have when they are starting their adult lives. If your children get money from relatives this Christmas, consider how to use it. Perhaps you can give some to your kids for them to spend but also keep some of it to put away for their education or future savings.

Guard against excess

Being financially healthy as an adult means understanding your needs before your wants. It’s common for kids to make a wish list for Santa, but one way to guard against excess is to limit the list to only three things rather than a list of everything.

It’s important for kids to know that even during the holidays, they have to make choices when it comes to what they truly want. While they might not get every single game or lego set they’ve always wanted, they learn to prioritize the few items they’ve had their eyes on for months. This helps to manage expectations, not only this year, but for every day in the future.

Many families even adopt something called the four gift rule, where each person receives something they want, something they need, something to wear, and something to read. Having fewer gifts under the tree ensures kids aren’t overwhelmed by wants. It also makes parents feel good to watch their kids enjoy the few gifts they received, rather than jump from one toy to the next.

Teach giving

One of the hallmarks of the holiday season is the spirit of giving. People are more generous during the holidays and use financial gifts to impact other people’s lives for the better.

Generosity is an important aspect of financial health and something to aspire to. As your financial health increases, so does your ability to be charitable. It’s important for kids to learn the joy of helping others, and that their goal should be to make the world a better place, even if their contributions seem small.

In order to teach this, adopt a cause every holiday season and involve your kids. For example, when they are old enough, take your kids to a children’s hospital to pass out gifts and to spend time with patients. Or take them to a nursing home or a children’s home where they play games and spend time with the people who live there.

If kids learn about giving from a young age, it will always be ingrained as a holiday tradition. This is just as important as learning to invest, save, and manage gift expectations. It’s all a part of creating financially healthy and happy well-rounded adults.

Ultimately, the holiday season provides ample opportunity to teach children about money when it comes to their Christmas gifts and how they allocate their time this holiday season. Not only can you use Christmas traditions like making a list to teach important lessons about managing needs and wants, but you can also use it as a time to show them how to invest and give their time and money to others.

If you repeat these lessons year after year and continue to teach your children about financial health through holiday gifts and traditions, you will create a legacy of financial happiness and prosperity within your family. And that is something worth celebrating.

Written on December 21, 2016

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