Having acquired a bit of a reputation amongst my friends as the finance one, I was recently posed this thought experiment:

Imagine that you are covering all of your child’s basic care, but they have a savings stash from grandparent gifts. Would you let your child give all their savings away to charity?

Young people are often idealistic and impulsive. When you combine those traits with the comforts of a wealthy upbringing, we Americans field a lot of strange purchase decisions from our kids.

Childhood is a time of acquiring lots of behavior that will be useful for the rest of life. Just as learning to speak would be difficult if the child was never allowed to attempt to make the sounds, so too learning to deal with money is difficult if the child is never given the opportunity to attempt to handle it. There will be missteps, but the process is important.

Buy What You Were Going to Buy Anyway

If I’m already giving to the chosen charity, I would involve the child very closely in our family’s charitable giving for the year. This way, the child can gain the generous spirit and benefit from our family giving without utilizing their specific savings stash.

This is the same principle I use when my daughter wants to spend money to purchase basic needs, like the next size up of clothes. If I would normally purchase the item, I purchase the item she wants when she wants it. However, if the item (or charity) is one I wouldn’t normally buy, I don’t buy it and the purchase would have to come from her own money.

In clothes, I only purchase the amount of clothes I would normally buy. So I would buy the first winter hat, but the next one would come from her money. Similarly, I don’t think I would increase my charitable giving budget just because my daughter was involved (an increase would be her own money), but I would involve her in the process.

Teaching Values through Money

If it is a charity that I wouldn’t support, then the next step might be a values discussion or teaching opportunity. I don’t support some charities because I don’t agree with their mission. Others sound great but waste a lot of resources or fail to achieve their mission. This might be a good opportunity to talk about your opinions on what makes a good charity.

An additional layer of this thought experiment is the fact that the savings stash came from grandparent gifts. Many grandparents give cash with the idea that it will help with the child’s college education, first car, first home, or first business. If those intentions exist, I would want my child to know those intentions, even if the child chooses not to honor them. This would be a good opportunity to talk about how expensive these milestone purchases can be and how you saved for them (if you did).

Spending Money vs. Saved Money

With those two things stated, we can now approach the question without the moral difficulties of grandparent gifts or charitable donations. At the core, the question is:
Would you let your child spend all their money on one purchase?

To which, I would answer no. I have divided my child’s money into two sections: the short-term money she can spend and the long-term money she is not allowed to touch.

Her long-term savings is an UGMA account, a Custodial Roth IRA, and 529 plans. She knows those funds exist. I do an annual meeting where we review the balance of those assets, the investment returns they’ve had, and what the intentions are for the money. Large grandparent gifts with intentions attached go in long-term savings by default, while small birthday cash gifts go into spending.

Money she can spend is recorded in an Excel spreadsheet best thought of as the bank of Mom. I keep track of her savings and expenditures, and that money is 100% at her discretion. If she wanted to spend all of that on a purchase I didn’t agree with, I would (and have) let her do it. Although, I only let her do it in the context of continued lessons on how to spend money.

Teaching How to Spend Money

I encourage waiting a week, adding it to the wishlist, and asking the necessary questions to avoid impulse purchases before spending the funds. So, in the context of charitable donations these questions are:

• How long have you wanted to donate? [Let’s wait a week and see if you still want to donate.]
• You have a birthday coming up. Would you want to forgo your birthday gifts and ask for charitable donations instead?
• What made you want to donate? Is your donation triggered from a specific advertisement, mood, or environment?
• Do you want it for the price? Are you purchasing a $50 sheet of stickers or do you want to donate to charity? What benefit do you hope the world will receive from your donation?

If the desire persists past these types of queries, then I am much more supportive of the donation. We can move into the next phase of the process: making sure we are donating to the right place and/or getting the best price for her goals.

However, there is one more important piece to consider:

My Money vs. Your Money

When parents are in control of the purse strings, children do not learn the value of money. Money is nothing valuable because a child can turn it into nothing without parental approval.

When the money is in the child’s control, they have the purchasing power to acquire anything. This power is what makes money valuable. What is more, the money is only valuable if the child does not spend it. Once spent, the power of money goes away.

Teaching a child the value of money in this way means crying on the toy aisle of Walmart because they don’t have enough money and you won’t buy it with your money. It also means watching as they spend their money on an item you’ve cautioned them against. It also means watching them take their first steps into saving for something they want. And finally, their first confident stride of having enough money to buy something and not doing it because they decided they don’t need it.

When it comes to teaching financial lessons, setting a good parental example is important, but actually giving the child some first-hand experience making wise financial decisions is essential. This includes both giving the child decision making authority with their own money and giving the child the means to earn money outside of or instead of an allowance.

Would I let my child donate all their savings to charity? No, but I would let them give all their spending money.

Photos by author.