Invest your children’s money, let them spend it, or use it for family expenses?

<span>Photograph: Peter Dazeley/Getty Images</span>
Photograph: Peter Dazeley/Getty Images

A few weeks ago, over family lunch, my parents made a joke about a kitchen appliance they’d bought 20 years prior with some of the money my brother was given for his holy communion in the 90s.

“You bought a $300 microwave with my communion money?” my brother asked, feigning insult. “Imagine how much richer I would have been if you had just left that $300 sitting in my bank account.”

He was being sarcastic of course. Days earlier, my brother and I had had a conversation about cash and how its value fluctuates over time. We compared stories we’d heard, including one of two siblings who made two very different decisions about their inheritance – one left the cash sitting in a bank account for years and the other invested it with some risk. We debated what we would have done in their place.

Like other Australians, my brother and I were observing rising interest rates in horror and battling the repercussions of soaring inflation. We knew families who were forced to cut back on discretionary spending and eventually some essentials, and others who had to consider selling the family home in order to survive.

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And over those conversations, we began to understand the value of thinking more critically about the money that was sitting in our respective children’s bank accounts. In this economic climate, we wondered, could we be a bit more thoughtful about our children’s money?

“Professionally, I have seen parents putting themselves in tight or stressful situations for their children’s benefit,” says financial planner and money mindset coach Canna Campbell. “But it’s essential to prioritise the family’s overall wellbeing and the whole family’s future. You don’t have to take [their money] away from them, but if they have some in savings, considering offsetting some of it against interest in your home loan is possible. If you’re in a situation where you can’t manage the repayments on your loan and you’re in danger of losing the family home, it’s OK to say ‘while I had the best intentions, keeping a roof over my child’s head right now is the real priority .”

Making the choice of how to use that money, says financial planner and ANZ financial wellbeing expert Jade Khao, comes down to personal preference and the aspirations that parents have for their children.

“Start with identifying your values,” she advises parents. “Be clear on what you are willing to provide for your children. [For] example, ‘I want my children to have the best in life’ might translate to I want them to attend a private school because I didn’t get to go to a private school, or I want to pay for their university fees so they do not have a Hecs-Help loan when they graduate.”

She adds that it might entail wanting to buy them a car when they turn 16, or taking them on an overseas holiday occasionally because that’s what your parents did for you, and as parents “we tend to overcompensate for things we didn’t get to have growing up, or try to replicate what we had growing up.”

Making this decision early, and then itemising the specific costs associated with those things, paints a clearer picture of what is realistically achievable.

She then advises parents to “map out a road” to get to those financial goals.

“This usually involves putting money aside and, depending on the timeframe, finding the appropriate investment vehicle,” she says. This step requires reflection around existing money habits, and whether you’d be disciplined enough to stick to your savings plan.

Taking these steps, Khao says, better prepares you for the decision-making process around the cash itself.

She says that parents can choose from high-interest earning bank account with little or no fees, term deposits, offset accounts, managed funds, shares, ETFs, bonds and superannuation, depending on the vehicle that is right for their goals, and on the pros and cons of each; and suggests getting advice from a qualified financial adviser if it all becomes too overwhelming.

Of course, it all depends on the amount of money involved. Khao says: “If it is $500, then is it really worth the effort? But if there is $50,000 then the benefit is more substantial.”

Khao also recommends parents consider what money lesson is involved for the child in the process. She raises the question: What money habit will this build in the kids?

“Kids pick up money habits from their parents by watching their parents’ behaviour to money,” Khao says. “If there are bits of money in separate accounts for each child because you deposit $5 into their account every time they [do] a chore or get an A in school, and the kids get to see their bank balance grow [towards] a saving goal to buy a Nintendo Switch – what money lesson do you think the kids will learn from this scenario?”

Campbell agrees, adding that you don’t need to be a perfectionist to model the right behaviours.

“Showing children that you are responsible with money goes a long way,” she says. “Showing good behaviours like delayed gratification, [or saying] ‘before we buy this, let’s do some research together to see if it’s the best quality version of a product’, or ‘perhaps we can research to save money or get a better deal’ is really valuable. The fact that your children see you trying, having goals, doing budgets, managing debt responsibly, that in itself is good.”

And although there’s merit in planning around the long-term benefit of the current dollar amount sitting in their bank accounts, there’s also no shame in this not yielding the result you might envision for their future.

“Remember, not being able to give all that you can materially to your children doesn’t mean as parents you love your children any less,” Khao says. “So don’t fall into the trap of ‘I couldn’t give my kids all that I wanted to give them, therefore I failed as parent’. When you set the bar too high for yourself, you are setting yourself up for failure.”

• Sarah Ayoub is a journalist, academic and author of books for young adults and children