Allowances and Holiday Spending: Give the Gift of Financial Skills that Keep on Giving.

It’s that time of year again. Time to ‘help’ your kids buy gifts (if you do gifts) for others. And by help, I mean help them literally and financially.

There’s so many options for this ‘help’, I could write a book on the subject but let me illustrate a few of the most common approaches to helping kids buy gifts with a few pointers to help reduce the stress around kids and holiday gift buying and giving.

Scenario #1. Your kids don’t get an allowance and they aren’t earning money of their own.

Since this situation can be the most expensive situation, let’s deal with this one first.

First, have you child make a list of the people he/she wants to buy gifts for with a column of potential gifts and a column of the projected cost of that gift that he would like to give that person. This activity is great for kids so they get an idea of how expensive gift-giving can actually be!

Once your child’s list of people and gifts is finished, sit down with him and work out a budget for the purchases. Make an agreement with your child about the ‘help’ you will be providing.

• Will you simply be buying the gifts for the child to give?
• Will you be loaning the money to the child to buy the gifts and they have to pay you back somehow (extra chores, outside job, etc.)?
• Will you split the costs: you pay for half, you ‘loan’ him the rest of the money required to purchase the agreed upon gifts?

Encourage the child to consider making gifts by hand in order to save money as well as the fact that it will lend a nice personal touch to the gift. Helping the child create these gifts is often a wonderful bonding experience for you and the child and creates positive memories around family and holidays. (To this day, I remember my Mom helping me make home-made ornaments for the tree and it makes me smile!)

Once you make the gift-buying agreement, stick with it. Help your child learn to stay within their ‘budget’. Experience is the main way children learn to handle their money wisely. Do everything you can to ensure their success and praise this success.

Celebrate their success by doing something the child likes to do rather than rewarding him with a gift something as celebration. This sends the wrong message, i.e., I do a good job, I spend money on ‘stuff.’ Not a message we want them to learn and not a belief or habit that will be supportive as he grows up to handle all his financial needs.

Scenario #2: You give your child an allowance and/or they make their own money. (If you are using The Ultimate Allowance system, gift-giving will be figured into their Living Jar.)

In this situation, it’s important to establish an understanding about where gifts fit into the allowance system or both of your expectations of how and what the child’s own hard-earned money is used for.

Hard feelings usually result from misunderstandings and unspoken expectations that one person had of another person or situation. Have this conversation early in the game.

Again, there’s a couple of options, but first have your child make the person/gift list mentioned above. Before we move on, because the money being spent is primarily the child’s money, it’s important to understand the different types of money personalities a child may have and how this may affect his spending. The four classic money personalities are as follows:

Spender: this personality is happy to spend money any time. They love buying things for themselves and others, often with no thought about the future or additional spending or expenditures that are coming up.

Saver: this personality isn’t so happy spending money. They prefer to save it and watch it grow. They are actually quite reticent about money and ‘wasting’ it on others and unnecessary things. Their purchases often have to be well thought out, calculated over and over again and have enough relevance to warrant the spending.

Avoider: this personality doesn’t want to have to even think about all the gifts and the spending and the wrapping and such. They are the last minute buyers that put it off until the very last moment because they just didn’t want to deal with it, whether they have the money or not.

Monk: this personality usually is a little put off that they are expected to buy gifts for people just because it’s a holiday. They are very ho-hum about the whole thing. They would rather donate their time to a food bank or shelter than buy a bunch of piddlyjunk someone probably doesn’t need anyway and they don’t necessarily have the money to purchase.

With a child that is spending his OWN money, the personalities come into play a little more than when they are spending YOUR money for some reason. It’s just a little more painful when they are spending THEIRS. All the more reason to really stay involved, help them budget, come up with gift ideas and options and help stay present (no pun intended) during the gift giving process so they are successful, stay within their budget, are happy with their purchases and have hopefully learned a bit about money.

Again, in Scenario #2, you can make an agreement to help your child with the gift purchases, paying ½ while they pay ½ .

Each child will learn different lessons during the holiday season as they get older because they are accumulating beliefs about money, gift buying, the meaning of the holidays (does Santa exist or not?), the commercialism and more.

Bottom line, as always, the best thing to do is simply pay attention to your child to see how he is doing during the holidays in the realm of handling money and purchasing gifts for others. Ask yourself, “What powerful money habits and lessons can I help instill in my child by the things he experiences this year?” You’ll be surprised by the answers that come up.

It’s never too early or too late to learn how money works and how to make it work for you. Your children are learning all the time by what you are doing with your own money, what you are saying about money and by their own experiences with the green stuff.

Here’s some basic financial philosophies you might work on this season: only borrow money if it makes you money, pay yourself first (are they taking care of their own needs first?), helping others is helping yourself and one of the most important…money is a tool to reach your dreams and the dreams of others.

What will your children learn this holiday season? Set it up in advance and watch your children gradually grow into financially-savvy adults. Now that’s the best gift of all!