My family regularly receive small cash gifts from relatives in lieu of actual gift items. These gifts are especially nice when the pinch of the holiday season is being felt, but it leaves us wondering what an appropriate use of these gifts actually is.
On one hand, the relatives expect you to spend it on something you’ll purely enjoy. They won’t be impressed if you use their $50 to buy toiletries. On the other hand, putting that $50 towards retirement will allow your retirement to be just a little bit nicer, particularly if you invest aggressively when you’re young.
A similar dichotomy exists for children. On the one hand, the kids want to use the money to buy a new video game or some such trinket. On the other hand, you’d like to see them save it for college.
Here’s how we handle these difficult issues.
For gifts to adults, we save it with the caveat that it’s going towards a greater cause. Right now, we are using any money we are gifted for Christmas as part of our savings for furniture, as we are moving next year and, well, pretty much any home will have more space than we have now.
This can be handled with a clear and thoughtful thank you note that not only cements the family bond, but lets the giver know that your gift is important to you and you do plan on spending it on something nice.
For gifts to children, it depends on the child’s age. For children too young to understand money (such as ours), we invest all of their money. For older children who understand that money can be exchanged for goods but who don’t yet understand the value of saving, we’ll merely require that they save at least half of it. For teenagers who can comprehend why one should save, we’ll let them make the choice, but if they choose to spend it, we’ll want to know what they bought.
In short, it’s okay to save it if the goal is specific and tangible. Just be sure to write a thank you note!