What Do You Do With Your Children’s Money?

Over the past 13 and a half months we have a couple events for my son that resulted in cash gifts, specifically, we had his actual birth, Christening and his First Birthday.  At each of those events we received very generous gifts from his aunts, uncles, grandparents, friends and pseudo uncles and aunts.  Every time I went to do something with the money I came up against an internal struggle of, “What Should I do with Money my child has received for a gift?

What Should I do With My Child’s Money?

Until this post I have just moved those gifts into one of my ING sub-accounts titled “Son’s Money”, but at today’s interest rates it almost seems like I am doing him a disservice.   That sentiment struggles with, what type of risk should I take considering it is not my money and his risk tolerance can’t possibly be known yet.

So I have an idea of what I should do but would love to hear from everyone else:

  • Leave it all in cash as it isn’t mine and I shouldn’t touch it
  • Put it all in an index fund tracking the broad market as this is money he isn’t using for 20 or so years
  • Put it in a low cost dividend/fixed income fund so it would be low risk but more than just bonds or cash account
  • Put it all in bonds

Please let me know what you think

51 Responses to What Do You Do With Your Children’s Money?

    • Both The Wife’s family and my family paid for our college education and we want to do the same for our children…so this really is THEIR money to do what they please (within reason of course lol)

  1. We also put the event gifts into 529 accounts for the most part. We have a small ING account for him, too, where we park money until we move it, but we haven’t “invested” any other than in a 529. Th random money he gets from family we have him put into give/save/spend banks, which he loves. He doesn’t totally understand what they’re for but if you ask him what to do with money he says “put it into my piggy banks to give, save and spend.”

    We are doing the same with our newborn, but the events haven’t happened yet other than her birth.

    We do want them to accumulate investments outside of the 529s so they learn about investing, but we reason that our relatives would appreciate it going to pay for college, so that’s why the 529 has been the main thing for now.

    Our current plan is to start a separate investment account for them soon though.

    • Give, save & Spend is a cool idea but at 13 months I think he would be more likely to “throw, eat, and drool” on the money.

      We only put our money into his 529 as we (The Wife and I) want to pay for his college education.

      • Yeah, it was mostly us saying it for a while and just him getting used to putting money into different piggy banks (we figured it would help generically show him that money had more than one use/purpose) but now he’s starting to understand.

        Throw and drool would be fine, you just probably want to avoid eat…

        I can appreciate the distinction between your money and his. If you want to completely separate it then I would invest in an index fund.

  2. You could do the index fund thing which would work well because you could get a lot of gains over 20 years or you can split between index funds and bonds to lessen your risk. Either way I think it would be smart to invest it.

  3. When our kids were very young, we used the money for things that they needed, like clothes, a new car seat, etc. But mostly, I have put the money into an ing account and will eventually transfer it to a 529. At some point, I’ll let them keep the money for their own spending when they understand more about the value. Fortunately, my kids haven’t started asking for a lot of stuff, so we haven’t had too many conversations about saving for our ‘wants’, but I’m sure that is coming.

    • Once you transfer it to their 529 you can’t let them use it for their own spending…or did you mean past dollars versus future dollars?

    • I don’t think it is that obvious. I am going to try and pay for his college so I don’t want to save *his* money in a 529 that must be used for education.

      • Now that I know your parents paid for your college, your lack of understanding about my devastation at being buried in student loans makes a lot more sense now.

        Yours, Crazy Bitch.

        • I paid for law school myself (or rather paying for it until I am 50 lol). Don’t assume I can’t understand debt considering I have PLENTY of it myself.

            • Why would anyone not of wealthy means (or smart enough to get a scholarship) become a doctor or lawyer?

              They were only interviewing attorneys for the job that I have today…Does it always work out? NO WAY, but generally those with law degrees make more than those that don’t so I was willing to take risk (i.e. debt at low interest rates) to see if I fell in the average.

              There is study after study that shows that someone with a BA or BS earns more over their lifetime than someone without one. Then there are those that use that stat to go get a degree in ancient Sanskrit (reference anyone?)…and then are shocked they can’t get a job.

              • So in other words, it’s fine to get a BA or BS, but only in something that’s going to make money. So the statistic should say “You make more…if you have the correct degree.” Sounds really encouraging to people who are interesting in writing, music and art. The world needs those things too, and as hard as it may be to believe, there IS a place for people who aren’t good at science and math.

  4. I’d suggest the index fund. Anything money I got growing up went into a savings account per my parents insistence. Only to be used for spending money once college started. With an 18 year timeline I wish index funds had been around to invest in instead of a savings account.

  5. If I were you i’d invest it in something – if you put it in just cash it will inflate away (at least partially) and that’s not very nice. I’d try to think of it as you being a steward of his money – so make the best decisions you can, and i’d try to limit the risk – maybe 15% in something risky, the rest pretty safe.
    that being said, i’d probably put most in an index fun. perhaps the non-index fund portion can be used as a teaching tool later.

  6. I would invest it in a separate account. When the child is old enough share the information. Since there is a long tme til it will be used, I would put it in a diversified stock fund. My son and I invested in Amgen when it was relatively new and did very well.

  7. Since you’re intent on paying for your kid’s college education, I’d strongly consider investing money in a portfolio designed to keep track with inflation. You could go riskier than that, but it’s not your money. You’d probably feel pretty bad if you had to explain to your son you lost 25% of his money due to aggressive risk taking. When he gets older, maybe he can tell you what his risk tolerance is and you can go from there.

    • I think it should just go in a savings account. Evan, if you wouldn’t put the money toward your child’s education, since it belongs to him, you shouldn’t invest it in …a portfolio.

      I don’t know crap about portfolios, stocks, or any of that, but I know that your son’s entire savings could disappear that way. See, I do know something.

      • What about a portfolio of Treasury Inflation Protection Securities purchased directly from the US government (TreasuryDirect.gov)? If his son’s savings disappeared as a result of investing in those, we’re all in trouble.

  8. I actually created stock holders in one of my companies holding realestate and have all of my kids money going into that, plus a little extra for fun. So now my kids money is making them more money. It is a little complicated to set up and you need an accounting to make sure it is done correctly

  9. Hey Evan,

    I honestly think you should keep it in a savings account, even if it’s earning the most pitiful of interest. I understand your argument of not using it towards his education (it’s his money), but the same thought should go into investing. It’s his money. So even if it’s just getting 0.02% in interest, it’s much more easily accessible when your child does have the ability to make a decision of what he wants to do with the money. By you investing it, yes it has the possibility of increasing, but it also has the chance of decreasing and reducing to just about nothing. I don’t know much about investing, but I do believe if a parent is responsible for their child’s cash, if they’re not going to put it towards their education, the child should make a decision when they’re able to.

    • EXCELLENT POINT – you put it a lot better than I could…this is the exact reason I haven’t been able to pull the trigger yet.

  10. RESP (or 529 for the US readers) for our kids. Yes it is their money but Mrs. SPF and I both paid our own way through university and while we plan to help lil’ SPF out, and invest for his education, we’ll squirrel away these gifts to that end. I think he’ll prefer a free ride in university versus having to skimp and live on flavoured noodles while working 25-30 hrs a week in addition to going to school and still ending up with massive debt.

    • I guess the assumption here is that the blog author and his wife are comfortable enough financially to eventually send their child to school, and don’t need to use their son’s gifts in that way.

  11. As for what you should do with your son’s money. Being that you mentioned your son is a year or two old; in my opinion you should put the money in a 529 plan. By doing this when you son heads off to college he will be able to use the money with a tax free growth from the last 18 years. With you being the father you could add money as well for additional tax free growth ultimately saving you money in the future.

    • Hmmm didn’t even consider that shame on me! It still locks up the money sort of, but it allows for tax free growth. Wow, Sunil, you really put a spin on it for me. I will have to really think about that.

  12. C,

    Since I thread the comments only so much I’ll bring the convo down here. You said:

    “o in other words, it’s fine to get a BA or BS, but only in something that’s going to make money. So the statistic should say “You make more…if you have the correct degree.” Sounds really encouraging to people who are interesting in writing, music and art. The world needs those things too, and as hard as it may be to believe, there IS a place for people who aren’t good at science and math.”

    There absolutely is a place for them but no one lied to you and said art history majors will make a lot of money, and if they did say that to you and you believed them at face value shame on you.

    I think my main mantra is that everyone is responsible for their own actions. You chose to go to college, you chose that major, your life will be determined by the next choice you make

  13. Sounds like you have college taken care of. If it were me, I would love to have money invested when I was growing up. Invest that money in an index fund! Don’t even think about it any more. A pathetic .8% in an online saving account will leave you with regret late.

  14. We’ve had the same discussion with gifts of money for our daughter.
    Right now it’s in high interest (ha!)savings. As our daughter gets older we’ll sit down and see what goals she has and decide from there.

    As far as investing some of them money, we’ll probably hold off (for now) on using gift money and instead fund that ourselves at some point.

  15. Came across this and curious to know what the outcome of this came to be? I’m in a similar predicament. I have 3 little ones who are all earning income (children model/actors) whose money (besides the small portion of funds locked in a requisite Coogan account) are just sitting in savings accounts. I’m getting pressure from the hubby “to do something” with the money but have no idea. We’d ideally like to avoid locking it up in a 529 since we’ll be taking care of their education costs further down the road as well. My concern in this case is that these are funds that they’ve earned themselves, paid taxes themselves so wherever they go, I’d like to ensure they are acknowledged as such and not treated as a gift from us (not sure how it works with setting up accounts for minors for investment purposes). Hoping to hear some feedback!

    • Well congrats on having good looking kids!

      I ended up putting 20% or so of his money in a low cost broad index fund offered by my broker. The remaining 80% went into a munibond fund which provides income triple tax free. This way I am not paying taxes for the next 20 or 25 years on the money that is eventually going to go over to him.

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