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Should there be limitations on how children spend their holiday gift money?

Financial experts weigh in on the best way to help your kids make smart spending decisions.

Riska | E+ | Getty Images

If you're a parent, the struggle is real. There's seemingly no end to the disagreements: about what to wear , the appropriate amount of screen time, sibling rivalries and on and on.

And then there's the holidays and all those additional stressors, especially around gift-giving. Your children will likely be gifted money from friends and relatives, and there may be contention as to how this cash should be spent.

It can be a pretty sticky subject. Should children have the liberty to spend the money as they wish?  Should a parent step in and offer guidance?  Do purchases need to be discussed?  We've asked money experts to weigh in on the subject.

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Allow your child to enjoy the moment

When your child opens the envelope and discovers cash, their minds probably race to several different scenarios. They can roam their favorite stores, use the money to buy something they've seen at a friend's house, or they can apply the funds to something they've been saving for.

When they're first given the money, financial experts encourage parents to allow their kids to enjoy the excitement of receiving the cash. Don't immediately start rattling off limits or suggestions on how they should spend the gift. Instead, let them show enthusiasm, and then use the occasion to start money talks.

"The gift of money is a wonderful way to open a discussion with your children about the value of money and give them the real world experience of making choices, whether they choose to buy something they've had their eye on, save it for a rainy day or invest it for the future," says Bobbi Rebell, CFP and personal finance expert at Tally, a debt payoff app.

Understand how age plays a role in decision-making

A key thing to remember is that understanding the concept behind gift money will vary broadly depending on the child's age, maturity and interest level, Rebbell explains. 

"Before launching into a money lesson, it might make sense to ask your child questions to gauge where they are so that you can tailor the discussion," she says.

For example, with younger kids, some guidance makes more sense. "You might ask them to consider giving part to a charity for other kids, especially if they receive a large amount of money," continues Rebell.

And, it's OK to remind them of a longer-term goal if they want to go out and spend everything right away, she says. 

Even though parents want to step in right away, you should give your children some freedom to decide how to spend their money. 

"It's also important to remember that not every gift has to be a lesson, and that especially at holiday time," says Rebell, "It's also OK to let a kid enjoy the thrill of a splurge!"

For tweens and teens, it's appropriate to inquire about their intentions and then gently offer a few suggestions in a way to not attach any strings to the gift money, but also offer them recommendations and guidance on how they might spend it, Rebell says.

Recognize that mistakes are part of their growing process

Some parents might want to give their kids a chance to make their own bad decisions, which can be a learning experience, too. 

"That may mean if they spend all their gift money the first five minutes they're at the arcade, they don't get any more money from you," says Amy Morin, a psychotherapist and author of "13 Things Strong Kids Do: Think Big, Feel Good, Act Brave." "That might help them learn a little more about saving in the future."

Also keep in mind that allowing your children to spend at their discretion is an opportunity to let your kids make some mistakes in a low-stakes environment, says Rebell.

"Eventually your children should learn to make their own spending decisions, even if it means making mistakes and potentially regretting some spending decisions," she says. If they do, the best strategy is to offer support, not judgement. "Let them know that we all make money mistakes and that the most important thing is to own it so you can learn from it, and do better next time," Rebell adds.

Realize some parameters may be necessary

Guidelines are OK if they're based on family dynamics or fundamentals of your personal parenting style. So if your family rules are no violent video games or no TV in a bedroom, you can tell your kids these kinds of purchases are off-limits.

"Of course, you will still want to institute some bare minimum rules about what they buy," says Morin. "If, for example, you don't think they're ready for a phone, don't allow them to spend their gift money buying themselves one."

Morin also recommends seizing the moment and using the gift money issue as a teaching opportunity. "For example, you might make them save 30% of their money and then allow them to spend the rest. Savings might be for college, a car or simply for the future," she says.

If your kids don't yet have a savings account in their name, this is a good chance to open one. Chase offers the Chase First BankingSM account, which is exclusive to Chase customers who want to open an account for their kids, ages 6 to 17. Your kids get access to a debit card, and you don't need to worry about monthly service fees.

Older kids might be interested in the stock market, and a gift of holiday cash will give them the opportunity to try their hand at investing. Consider opening a custodial investment account; both Stockpile and Schwab offer good options.

Enjoy the front-row seat of watching child grow and learn

The past year and a half has been challenging for all, so a pivot toward some personal freedom is a welcome change. "Ultimately, the money belongs to the child, and they should be allowed to make the final choice," says Melanie Musson, mom of five and finance expert with Clearsurance.com.

Still, parents should spend some time having a conversation about money management, saving, short-term and long-term value and frivolous spending, she says.

But after offering guidance, listen to what your children say.

"A strategy that parents can use is to have their children write down what they would like to buy," suggests Musson. "Then help them estimate a realistic price for each item. If their total is higher than what they have set aside from their gifted money to spend, let them decide what to cut out."

Next, Musson recommends asking your child to spend three days thinking about it. "They may surprise themselves with how much they change their minds in three day," she continues. "That exercise will help kids learn how not to be impulsive with spending, and it's a tactic they can use throughout their lives."

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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