Birthday Money Is a Last Resort

Jun 28, 2012, 8:01 PM | Updated: 8:21 pm

Question: Ron on Facebook asks what the best way is to save or use money for a baby who receives money for a birthday. Dave explains.

Answer: I don’t keep savings bonds because they’re a lousy rate of return. I cash them in. I do something else with them.

If you cannot feed your child and you cannot buy their diapers, then certainly I would use any money that’s in the house to make sure that a child is able to eat. I would use birthday money or whatever else, but otherwise, unless you’re unable to feed your child, you should not use their birthday money to buy their diapers. Come on. Really.

Then you’re left with a couple of questions. What are you saving this money for? In our case, we saved money for our kids’ college and we paid for their college. That’s what the Ramseys did. Our children were then taught to save for other things. For instance, we did not buy their cars. We refused to buy their first car. We did agree to match whatever they saved. So we would take stuff like birthday money and throw it into the kid’s savings account, which later—as they got older—became their car savings account. From a few birthday money here or there, they might have a little bit of money in that. That’s how we did it at our place.

You’ve got to decide how you’re get at this at your place. If you’re saving for college and you want to use the money for college, that’s fine. Then you set it aside for that. If you’re just letting them have a miscellaneous savings account that they’re saving up for something vague, then that’s fine too, but let’s identify what the game plan is with this money, and then it tells you what to do. In our case, we used that to jump start their car fund. As they got older, we said, “Hey, every time you put $10 in your car fund, we’re matching it, so it’s kind of like putting $20 in there. That’s something for you to think about.”

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Birthday Money Is a Last Resort