Sunday, November 6, 2016

Help Your Kid Handle A Money Windfall

Kid Holding Lottery Ticket

Have you ever received a nice little financial windfall? A bonus? A tax refund? A rebate? A surprise raise?

Have you ever blown one?

Most of us have. You remember. That ill-conceived purchase while basking in the giddy afterglow of an unexpected cash infusion. Whoopsie!

Kids get windfalls too. Birthday money. Holiday money. The blockbuster babysitting payout from the absurdly generous neighbor. My youngest son received $25 for a 10 second photo shoot when he was 5. To a kindergartner, that’s like winning the Powerball jackpot!

So you might want to sit down with your kid and discuss some thoughtful strategies for dealing with the inevitable windfalls.

Here are a few options:

  1. Define a separate windfall split. Lots of parents encourage kids to split allowance, chore, or odd job payments between buckets. For example, the average split allocations defined for spending, saving, and giving on our family finance site right now are 62%, 27%, and 11%. For windfalls, you might choose a different split. Maybe it’s more heavily tilted toward spending (90%, 5%, 5%), or maybe it doesn’t include all the normal buckets. Let your kids help decide.
  2. Use the 48 hour rule. Mandate a healthy waiting period before letting your child spend a windfall. Make your kid sleep on it, at least twice.
  3. Fill a strategic money bucket. If you’ve started a net worth spread sheet with your teen like the one here, maybe there’s a column that needs special attention. The emergency fund? The Roth IRA? A Bank of Mom/Dad loan repayment? Convince your teen to use some or all of a windfall to shore up any significant gaps.
  4. Offer a parent match for non-spending choices. There’s nothing like a little incentive to nudge behavior in the right direction. Maybe you could offer a parent match for windfall uses unrelated to spending — like a 100% parent match for any contributions to a Roth IRA.

Discussing how to handle small windfalls with your youngsters now might prevent them from blowing big windfalls as an adult. You know, like you did.


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