Avoiding Overspending on Children

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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