Updated on 09.19.14

Avoiding Overspending on Children

Trent Hamm

My wife and I both have the philosophy that you shouldn’t have to spend a lot of money to give your child an idyllic childhood. We take our son to the park for recreation and most of his toys are either gifts from aunts and grandparents or are items from around the house (like an old cell phone). For his birthday last year, we had a small party for him with his family and a homemade cake, but the only gift we got for him was a contribution to his college fund. This year will likely be a repeat, though we may invite the families of a few children close to his age over for a small barbecue.

By doing this, though, we seem to be the outliers. For example, our son received an invite to another child’s second birthday party that will apparently feature a clown and a pony ride. A clown and a pony ride for a child’s second birthday party? To my sensibilities, that seems like overkill.

Then I read this tale in an article on money and parenting at MSN Money:

For their daughter’s first and second birthdays, the couple threw bashes that set them back at least $600. Christmas gifts, planned to not exceed $50, somehow hit at least $300. That may not seem like a lot of money, but it’s a fortune for the Dillons, who last year moved back in with family so they could make payments on their $30,000 credit card debt, accumulated after a failed business start-up. (They have since paid the credit card balances down to $13,000 and rented an apartment on their own.)

“We’ve done a lot of things (for her) we know we can’t afford,” Dillon says. “It’s an emotional thing.”

The article goes on to offer up four common mistakes parents make:

Ignoring their retirements. “Every new parent seems to jump into 529 plans before their babies are sleeping through the night,” Allvine says. “They don’t look at the trade-offs in their own financial lives — specifically getting themselves out of debt or funding their retirement — as higher priorities than college education.” Borrowing for school, after all, is easy and relatively cheap compared with other kinds of debt. Remember, the kids can always get student loans, while no one will give you a loan for retirement.

A bedroom for everyone. “Somewhere in time, good parents decided every child needed a bedroom,” Allvine says. “Bigger houses, bigger mortgages, bigger real-estate taxes. They all lead to longer commutes, the need for two incomes and, often, the AMT (alternative minimum tax). Along the way, they’re convinced the house was a ‘good investment,’ not an expense, but they’re trapped in these higher fixed costs, lowering both quality of life now and financial options — retirement, debt payoff, the chance to quit or change a job — down the line.”

Keeping up with the Joneses’ kids. “Throughout the suburbs of America, there is a fierce competition for who can throw the most lavish birthday parties for their children,” says Scoggins. “Renting ponies, carnival rides, etc., is a common scene. Setting the bar so high can destroy a child’s appreciation of the fact that some of the best things in life are free and set him up for a lifetime of needing a high-cost lifestyle in order to be happy.”

Not teaching them about money. “Parents who are struggling themselves to get the most out of their money become terrible role models and teachers for their children,” Allvine says. “Instead of preparing their children to be financially independent by the time they get to college, I see parents either overprotect or educate inappropriately. Tracking Disney’s stock is not going to teach a child how to balance a checkbook, learn to be charitable or communicate some day with a spouse or partner.”

When I read through that list, I see how easy it is to make those mistakes. If I were to entirely focus on making my child’s life an idyllic paradise, then I likely would do many of these things.

But that’s not parenting.

My job as a parent is to love my child, yes. But another big part of my job as a parent – and perhaps even more important – is to teach my child how to be a successful, functional person. Buying my son a pony ride for his second birthday shows love and it will make him happy, but the values it teaches him are actually bad ones. If you spend more than you can reasonably afford on a frivolous treat for your child, you’re teaching your child to expect things that exceed your financial boundaries.

My Five Basic Financial Principles as a Parent

1. If I can’t explain the reasoning behind a purchase to my child, then I won’t make the purchase

Basically, this means that unplanned frivolous spending goes out the door. If I want to buy something unnecessary, then I save up for it and make this saving process clear.

2. I look strongly at how financial moves will affect my family now and later

Putting less into retirement now might put more cash in my pocket, but it puts me in a very precarious situation later. What benefit does that cash have now? It allows us to live a bit more extravagantly, perhaps – maybe I can buy my son a pony! – but is that pony worth the worry on both of our faces when he hits middle age and I’m in retirement on a shoestring budget?

3. I involve my children in all financial choices as early as possible

My son is twenty months old and he’s already involved in some of the decision making. How? I let him help decide what fruits we’re going to buy by showing him options that have the same exact price – three apples versus a banana bunch, for example. When I make tiny purchases at the local grocery store, I literally pay in cash, show him the money, hand it to the cashier as he watches, then explain to him that now we can take this stuff home.

4. I don’t spend money on him without a clear purpose

He may want a book at the book store, so instead of getting him that book, we go to the library and look at books there. He might want a toy, but I remind him of his favorite toys at home and he’s content.

5. I use the smile factor to judge if his childhood is in fact a happy one

He smiles just as big at the park on the swings as he does riding a horse at the petting zoo. Why get him a toy phone when he has a lot more fun playing with my old one? There are so many free or inexpensive things for him to play with and explore that there’s no need to buy things. His smile tells me that he’s happy.

What about keeping up with the Joneses? Whenever I look at what another child has and wonder idly if my own child should have that, I just ask myself whether it’s actually going to benefit him or it’s just jealousy and competition. If I’m honest, it’s the latter, and that does nothing at all to help my child in any way.

Children are expensive, there’s no question about that. But if you’re reasonable with it, the costs don’t have to spiral out of control and you can instill some basic financial sense in your children, even at a very early age.

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  1. Amanda B. says:

    I really enjoyed this artice and the original. We have found that allowing our kids to earn starts towards rewards has really helped them grasp the idea of earning what they want. We assign a “one star” value to small things (i.e. candy bars) but when they realize that a new video game is only 15 stars (clearly worth more than 15 candy bars), they actually want to save.

  2. Sue says:

    It is funny that you put this subject up. I have 2 children under the age of 4 and with living here on the east coast, we are told all the time you have to do this you have to do that… It is a constant idea of ‘Keeping up with the Jones”. When my eldest was 2, another mom that I know told me she took her daughter to Sea World for the weekend. “Sea World, at 2? Why not just take her to the local Zoo”? ” Oh we have done that so much already”
    Our rule of thumb with birthday parties in our house is cake, and you are only invited if you live in a 5 mile radious of our house…
    Yea I get told all the time I am ruining my child.. LOL

  3. Caren says:

    I love this article and as a mother, as a grandmother, and as a child therapist would agree completely with a few exceptions (possibly supplied by aunts or grandparents) such as a good set of wooden blocks and a good set of mini people to put into the houses she builds, a riding toy, and a wagon. My toddler granddaughter’s favorite activities are going to the park, throwing rocks in the creek, hauling dirt from one part of the yard to another, etc. Your suggestions are right on.

  4. Farley says:

    Interesting read as usual. I am not sure I agree with you on the buying books and toys thing. You said “Fourth, I don’t spend money on him without a clear purpose. He may want a book at the book store, so instead of getting him that book, we go to the library and look at books there. He might want a toy, but I remind him of his favorite toys at home and he’s content.”

    Sometimes the clear purpose is for him to have a new toy. For a child I think that can be a purpose in itself – sometimes. I think it should be special but I don’t see that much harm. Some of my most prized possessions are books I was bought as a child. They have memories and attachments to them. Sure I could look at those same books at the library but owning them is special to me. I want my child to have those kind of memories.

  5. Sharon says:

    What, you pay for a purchase before eating it? Around some stores THAT makes you an outlier. Child gets fussy, then the parent just picks up the nearest thing off the shelf and lets them eat/drink that and pays for the empty package as they go through checkout. The concept that you don’t OWN something and have no right to it until it is paid for is radical nowadays.
    Wait, what does that say about my credit cards…hmmmmm….

  6. Adam says:

    GREAT article! We have a girl (almost 2) and a boy (3 months) and the comment about the 529 vs. retirement is so correct. We need to make sure we are taking care of retirement first.

    Also, with the toy buying, many children (and I know you’ve written about this before) prefer objects (jars and lids, dish towels, etc.) to toys. Our daughter most definately does, and she likes our books (because she sees us reading them) to her “baby” books.

    Keep up the good work.

  7. Lana says:

    I just attended a first birthday party this past weekend and it was indeed a little silly. Pirate theme, complete with store-bought decorations, hats, “booty”, etc. For a child who can’t even speak yet.

    As a woman in her twenties who is currently righting her financial wrongs, I also didn’t want to spend a lot of money on a gift for a one year old, and knew that my friend (the child’s father) would understand, being in a tight financial situation himself. So I bought bubbles – nice ones – at around $3 for a snazzy container and great, multi-hole wand. I still love them, after all, and while the baby can’t blow them yet, his dad sure can, and then I’ve not only given them the gift of entertainment, but another way for them to interact and share the experience together. Everyone wins.

  8. Rachel says:

    My husband and I were having a similar discussion about money this week. I completely agree that “fun” does not have to be cost prohibitive. My children are 4 and 2. They do not understand the difference between a $2000 vacation and a $200 vacation. This weekend we camped at a state park for 4 nights at $18 per day. Given the added expense of food (We cooked every meal) and misc. items (bubbles and sidewalk chalk), we spent roughly $185 for 4 days of fun.

  9. Debora says:

    Trent’s advice could apply to older kids, too. As the third child in a large family, my mother had given up organizing elaborate birthday parties by the time I reached an age I could remember them.

    As a result, I have fond memories of birthday parties which pretty much consisted of a group of kids doing whatever WE wanted, without pesky adults interfering. Except when we were called in for cake.

    Great article (and parenting), Trent.

  10. DJ says:

    Good post, but question:

    Do you buy toys for your nieces/nephews and friends children? It seems a bit selfish to rely on others to purchase toys for your child unless you are buying the toys for your relatives children in exchange…

  11. Rick says:

    Well, it seems as though you’re preaching to the choir here, since everyone seems to agree with you, even though most people in society seem to just spend at will. I agree with the comments people have made that kids do not know the difference between the expensive item and the cheap item. Kids are amused easily. They will have just as much fun with a $5 toy as they would with a $100 toy.

    The MSN article reminded me of your earlier article about finding a home in NYC and wants vs. needs. So many people think they *need* to shower their kids with lavish gifts, or else they’ll turn out badly. These same people *need* their cell phones, couldn’t live without their cable TV, would die without their twice-daily Starbucks, etc.

    Learn to live simply. I’d bet money that you’ll actually find more enjoyment out of life if you live more simply and less extravagantly.

  12. MossySF says:

    The example in the MSN article is pretty conservative. Check on the extreme overboard behavior here:


    10M birthday party featuring Aerosmith and 10K gift bags.

  13. !wanda says:

    Kids do get expensive at some point. I’m really glad my parents sent me to sleep-away summer academic camp when I was in middle school, even though I’m sure it cost a lot. (I got enough out of it to skip a year of high school, and it benefited me socially and life-wise as well.) I think you have to ask whether an expense is for the kid or for yourself.

  14. Erika says:

    I generally agree, although I would make one point relating to the original articles snark against one bed room for everyone. Studies that I cannot remember the source of have found that homes do need to have one room for everyone for healthy psychological development. This does not necessarily mean one bedroom for everyone, but it does mean that at any given time, everyone needs to be able to go to a place where they feel like they have privacy.

  15. Back when we had our second child (two years ago) my husband and I had a discussion regarding presents. With Christmas coming, we decided not to buy gifts for our two children, knowing that both sets of grandparents, plus various aunts and uncles would buy gifts for them. Even though we didn’t buy presents for them, it took 90 minutes for us to open gifts. And they were younger than 2! We still don’t buy many gifts. I would rather buy an occasional bottle of bubbles or a new book then to buy a flash toy that they forget about in favour of the box.

  16. Paul Freeman says:

    This is my(our) no 1 failing. We do still spend too much on our children; from presents to what I call “extra school activities” in the budget. ballet, music etc. With 3 kids this can’t continue.

    Whilst we strive to cut back in other areas, we still fail here, so thanks for some of the tips here. It reminds me that in London all the museums are free to enter (and if you go on Sunday early enough you can get a parking space for free).

  17. GrantParish says:

    How many people consider the financial implications of having children in the first place?

    “At the individual family level, a child, financially speaking, looks more like a high-priced consumer item with no warranty…For economic man in the late 20th century, child-rearing has become a crummy financial bargain. It is hardly surprising that the “smartest” people in our society end up being those least likely to have children. Middle-aged women with graduate degrees are more than three times more likely to be childless than those who dropped out of high school. Similarly, two-income married-couple families earning over $75,000 are 70 percent more likely to be childless than those earning between $10,000 and $19,999. You don’t have to be an economic materialist to see the financial reality behind these numbers. Highly educated, high-income people have a higher opportunity cost, in the form of lost income, if they decide to have children.” – U.S. News and World Report 3/30/98

  18. martha in mobile says:

    We set a dollar limit on birthday celebrations. Our daughter tells us where she would like to spend her birthday and we tell her how many children we can invite, based on the cost of the venue. She invariably chooses a backyard party so she can have more friends over. This year, it’s a backyard sleepover, complete with byot (bring your own tent).

    Re: having your own space. When we upgraded our housing, one of our requirements was to have more than one living space so that we and our daughter/her friends, can be in the house but still have some separation. We ended up with more rooms that were smaller — against the current trend of open, large rooms.

  19. Rachel says:

    I have three children, ages 26, 22 and 13. The rule at my house: if you talk on it or drive it, you pay for it yourself. Birthday parties have usually been at home, with some friends and cake, sometimes hom baked, some times from the bakery. I admit that our daughter did push us over the limit on what we felt comfortable spending at times. We live in a small town where there are many wealthy people, and she ran with the country club crowd. with a sickly toddler, it was sometimes easier to give in than to try to teach the wisdom of frugality. My biggest regret though it not teaching them from the bible on how to handle money and the obedience of tithing.

  20. martha in mobile says:

    GrantParish, of couse, as the right of it. Based solely on economics, children are a poor choice, indeed. And really, wouldn’t it be better to choose a child with a compatible personality and known health history rather than take the physical risk of childbearing with the possible outcome of having a physically disabled or tempermentally disadvantaged child? I finally decided to have a child when I acknowledged that there is nothing rational about the decision. I never even liked children. But my daughter is the sun in my sky and I love her more than I thought I could love anyone. I am a better person for having her in my life. What price can I put on these thing?

  21. Mary says:

    When your children see you being thrifty they will learn this lesson as well. We shop from a list, if an item is not budgeted for we don’t get it. My sons (3 & 5) are yet to ask me for a toy or anything and throw a fit on our shopping trips. We can look at things and play with them, but we may have something similar at home or it’s not in the budget works(but it has to work for Mom and Dad too)! Also, my oldest son decided two years ago that he would rather “do something” with our immediate family for his birthday than have a party. After going to some of his friend’s parties, thank goodness! We have gone to a dinner show, his request! We have done some touristy things in the area that we normally wouldn’t do, and this year he wants to go fishing and swimming. Simple pleasures of life!

  22. Trina says:

    When our children (now age 19, 17, 14) were young, thriftiness in toys and activities was fairly easy – they enjoyed the simple pleasures of life. As they grew older, their desires became more expensive, but we’ve been able to find used sports equipment, yard sale items, or let the kids save and buy their own things (like mp3 players). We’ve never owned a game system, don’t have cable tv or eat out. We do rent movies, eat by candlelight and spend lots of time together. Our kids see us pondering over financial decisions, weighing our options and explaining our choices. We’ve had many conversations about how people spend their time and money, choices, priorities and freedom – in fact some of the advantages our kids now have (like the college option) are a result of our thriftiness and they understand this.

    Raising frugal children in a spendthrift world is challenging, but absolutely worthwhile. Our children will have more choices in their lives because they know how to live well for less.

  23. Jack Sprat says:

    Kids SHOULD have their own rooms, at least by a certain age. The cost effective solution? Don’t have so many friggin kids.

  24. Kylie says:

    I’m a single mother on minimum wage. I do everything I can to give my son a wonderful, happy life without spending a lot of money, taking him to the beach, park, talking to him, reading to him, taking him to the movies, just basically spending time with him. His father has a lot of money. He just left from one of his 4-yearly visits yesterday, and my son now has an xbox360, fancy CD player shaped like a car, new bike, tons of super cool clothes, and piles of other toys that he didn’t have last week. Last visit it was a portable DVD player and $500 ride-on electric quad bike. My son loves me very much, but always tells me, “My Daddy can buy me anything in the world.” Do you think this is damaging to him in any way?

  25. Rachelle says:

    Great article. Just a small comment on the bedrooms for each child, though. Here in Michigan, it’s against the law to put 2 kids of opposite genders in the same room. So, legally, I must put my daughter and son in their own bedrooms. Personally, I think it’s a stupid law.

  26. Trest, great post! It’s a bit extreme to show a 20-month-old every payment, but following the contribution of value to your child’s life and considering the learning with every purchase are brilliant ideas.

    I always resented my dad for having a “Don’t worry about money, I’ll take care of it” attitude. I wanted to be involved to learn, and for years, I’ve had to figure things out I could have learned from him. That’s why I teach my kids as much as they seem to care for.

  27. Ali says:

    Very nice and wonderful post. Thanks for taking the time to share this with us.

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