Turn holiday spending into a financial lesson for your kids


John Schmoll

John Schmoll

Blog author John Schmoll

John Schmoll, MBA, is a former stockbroker, mutual fund administrator and veteran of the financial services industry who launched personal finance site Frugal Rules in 2012. John’s work has been featured in Forbes, Fortune, U.S. News & World Report, Yahoo!Finance, CNBC, Daily Finance and more.

Published November 29, 2016 | 4 min read

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Featured Image Turn holiday spending into a financial lesson for your kids

As much as we hate to admit it, the Christmas shopping season is upon us. That means a few things; first, you must fight the in-person or digital crowds to get the best deal.Then, you have to decide what to do with that one less-than-desirable gift from an extended family member.

Last but certainly not least, Christmas also means buying presents for young children. There’s nothing quite like seeing a child’s eyes light up on Christmas morning when they see what Santa has brought them. But that joy fades fast when we remember who pays Santa’s bills. As you’re deciding whether or not you can afford to buy that "must-have" toy or game for your child, consider how you can give them an even greater gift – financial literacy.

How much do we spend on Christmas?

There’s no denying that the Christmas shopping season is expensive. The National Retail Federation (NRF) reports that the average family plans to spend just short of $940 this holiday season.That’s a big hit for most family budgets. It’s easy to see how Christmas shopping can spiral out of control. The NRF notes that "87 percent of consumers could be convinced to spend an extra $25 this holiday season if tempted by a good sale or promotion, the perfect gift for themselves or others or free shipping," showing just how prone we are to overspending when it comes to the holidays.How often are your children with you when you make Christmas purchases? If you’re like many young parents, it’s likely quite common. This presents a perfect opportunity to bring your children in, as their age and understanding level permits, to not only your purchasing decision but also how you determine how much you budget for the holiday season.

Include kids in your budgeting process

We often think children can't handle or understand how money works. Sure, your six-year-old may not be able to teach Modern Portfolio Theory to her three-year-old brother, and your toddler can’t perform long division yet, but managing a Christmas budget isn’t an advanced financial topic. In fact, discussing a Christmas budget with your children can be done quite simply.

It might feel scary, it may seem difficult, but it’s actually quite simple. Explaining Christmas shopping on a budget to a child begins with finding the right moments to discuss it. Take, for example, a trip to the mall with your children during the shopping season. Here are some ways you can begin to include them in your budgeting process:

  • Shop only with cash. This allows your child to see the cash change hands, and thus disappear as opposed to using a credit card, which may make it more difficult for them to understand the "cost" of the purchase decision.

  • Explain who you must buy for. Remember to total the number of people for them, so they see it’s beyond your immediate family.

  • Explain why you can’t splurge. Help them see that while it might be fun to get a particular family member a more expensive gift, it will leave less money to spend on everyone else.

  • Communicate the danger of overspending. Explain to your child that if you overspend on gift buying as a whole, it means you have less money as a family to go on vacation, do something else fun or cover basic needs, like food and shelter.

These are all things you'd be doing internally while shopping anyway, so it really isn't that difficult to verbalize your purchasing rationale to your children as you shop. Don’t just stop with your shopping trip experience in explaining your Christmas budget; explain why you save money throughout the year or for the few months leading up to Christmas.When done right, you can use these discussions as a foundation for developing financial literacy in your children. Use it as a springboard to discuss your holistic budget to them so they can not only see how you manage one-time events like Christmas, but also day-to-day expenses.

Ask kids what they want

It may seem counterintuitive, but simply ask your child what he or she wants for Christmas. This helps you do two things:

  • You trick them into telling you what they want – if you’re a seasoned (or even not-so-seasoned parent), you may have already picked up their cues in the first place.

  • You can think through how what they want fits within your overall Christmas gift-giving budget.

It's important to be honest with your children as they share their requests. You don't want them to feel like setting a budget means you love less or that you don't want them to have something they like. Rather, you want to use this as an opportunity to again explain your thought process.

That being said, their gift list provides a wealth of information you can use to discuss your holiday budget with them. For example:

  • You can explain that one "big" gift may mean fewer gifts as whole.

  • You can explain that buying everyone that $500 gift means you can’t do something else as a family.

  • You can use it as a means to help them see it isn’t always about sheer consumption, but learning to be responsible.

There may be other things you can derive from their list, but the point is that it should be used to help establish expectations for them and get a look into your budgeting process – not to mention that the holidays are more than just receiving gifts.

Children are concrete thinkers

You’ve likely noticed as your children grow and develop that they’re incredibly concrete thinkers. It also goes without saying that we don’t come out of the womb with expert money skills. The Christmas season presents a tangible way to gain basic financial literacy skills.Those ways span from the quick shopping trip to the mall to buy a gift for your Aunt Jane to explaining to them why you’ve set aside a specific amount for the Christmas season. As your children become a little older, you’ll be able to add meat to the bones you’re giving them now.Help them think through buying a gift for a friend or family member using the skills you’ve taught them; you’ll be surprised how much they’ve learned and how thoughtful they are. Little do they realize the financial literacy gift you’ve begun to give them is a gift that will reap rewards for them long after that special toy they have their heart set on breaks down.