How to Help Your Child Handle the Holiday's Financial Windfalls

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As the holidays approach, it's time to prepare for your kids' financial windfalls. You know you've got friends or family members who will send money or gift cards instead of gifts. It's often easier to give cash and let the kid decide what they want to buy. At the same time, getting a lot of money at once can be overwhelming. And children often don't spend it in the most responsible way. So, how do you help your kids manage large amounts of holiday money?

It can be difficult for parents when kids get large amounts of money during "the most wonderful time of the year." You want your kids to enjoy their gifts, but you also have an opportunity to teach important financial lessons. In fact, the lessons your kids learn now will likely stay with them for life. You're in a position now to allow your kids to enjoy their money and help them build financial skills. The following ideas can help you pave a pathway for both.

Set the Stage: For the Kids and Your Family Members

One of the most essential steps in teaching kids anything is to have the discussion ahead of time. Then, continue to talk through the issue regularly. This step is a critical one when it comes to financial literacy for kids. You don't want to surprise them when they get money by taking it away or setting rules at that moment. Sit with your kids in advance, discuss what's likely coming, and set expectations.

Tell your kids you want to teach them to be responsible with any money they receive for the holidays. Explain the importance of learning about money now so they can be more successful in life later. Then, create a plan with percentages of how much they should save, invest, spend, and share. In the meantime, check in with friends and family members. You can even give them tips for which gift cards to buy so your kids can use them wisely.

Support Smart Spending

You've got to let your kids spend their money (at least a little), or they will resent getting it for the holidays. If they're expected to save all their gifted money, they won't feel like they're getting a gift. You agreed on a percentage your kids could spend; now teach them to do so wisely. Discuss the difference between wants and needs. If your kids need winter clothes or gear for sports, for example, use some money for those items.

At the same time, you want them to enjoy their money a bit as well. Make a pros and cons list with your kids of the "frivolous" items they want, like video games or toys. Pros could be factors like how much use they'll get from the purchase. Cons can be whether it's a dangerous or cheaply made toy. This way, even the fun items they buy can be considered wise purchases.

Teach Kids About Saving and Investing

You've already talked to your kids about what percentage they'll save. Now, you can sit with everything they've received and count how much that translates to in dollars. If they've only received gift cards, consider paying them cash for a portion of the gift cards. That way, you can use the gift cards for a later date, and your kids can learn to save.

If you haven't already opened a savings account, now is a great time to do so. When you go to open or make deposits into the account, discuss interest rates. Show them how much their account has grown or will grow over time. Then, introduce them to higher returns on their money through investments. You can start with a certificate of deposit, a bond, or a 529 college savings plan to teach them about long-term growth.

Show Them How to Share

Finally, one of the biggest lessons around the winter holidays is one of giving. A great way to help your kids learn the importance of charity is by showing them how to share. Model for your kid how you give during the holidays. When you drop off food at a food bank or donate clothes to a homeless shelter, take your kid with you. Then, let your child decide how to share a portion of the money they received.

Discuss their interests and the parts of life they're passionate about and encourage them to give in those areas. If your kids love animals, for example, have them buy supplies for the local shelter and drop them off. If you have a kid who's into sports, help them provide for an underprivileged kid in sports. They could buy equipment or pay club registration fees for someone else.

Ultimately, you want your kids to learn how to manage money, especially when they get a lot at once. One of the best ways to teach this life skill is to take a holistic approach. Cover all the bases, and make sure you're both having fun while you do it. This experience is about so much more than money; it's also a beautiful way to bond with your kid.