What to Do With Birthday and Holiday Money
Gift cash is the easiest money a kid ever invests. A split that keeps the joy and plants a seed.
The cash that shows up in birthday cards and holiday envelopes is the easiest money a kid will ever invest — because it's found money. It wasn't in anyone's budget, so setting some of it aside doesn't feel like a sacrifice the way giving up an allowance does. A little structure turns that $50 from grandma into a lesson that pays off for decades.
Rule one: don't kill the joy
The fastest way to make a kid hate investing is to swoop in and announce that their birthday money is going "straight into the account." A gift they can't touch isn't really a gift to them. Let them spend a real, satisfying chunk on something they actually want. The investing lesson lands far better when it doesn't feel like a punishment.
The spend-some, invest-some split
The whole strategy fits in one sentence: spend some now, set some aside to invest.A simple 50/50 is easy for a kid to understand, but the ratio is yours to set. If you already run a Save, Spend, Give system, gift money just flows through the same buckets — which means it's automatic, not a fresh negotiation every single birthday.
Over time, the invest-some slice is where the magic shows up. Fifty dollars invested and left alone for a decade or two can grow into several times the original gift, thanks to compounding. And a kid who watches that happen on a dashboard understands compounding in a way no lecture ever delivers.
Get grandparents on board
Grandparents, aunts, and uncles are natural allies here — many would genuinely prefer to give something lasting instead of another plastic toy that's forgotten by spring. The catch is they usually won't bring it up. Make it easy and tell them it's welcome:
- Let relatives know a contribution to the child's investing account is a gift you'd love.
- Suggest a "spend a little, invest a little" combo so the kid still gets something to unwrap.
- Share the dashboard so gift-givers can actually see the seed they planted grow.
If you haven't set up an account for this yet, see How to Open a Custodial Account and the Newborn Money Checklist for where to start.
Supercharge it with a match
Want to make the invest-some slice even more motivating? Run a parent match on it. Matching a portion of the money your kid chooses to invest turns a birthday into an instant, visible win — and an even bigger head start.
Frequently asked questions
Should kids invest their birthday money?
Gift money is the easiest money a kid will ever invest, because it's found money — it wasn't in anyone's budget, so setting some of it aside doesn't feel like a sacrifice the way giving up an allowance does. The strategy fits in one sentence: spend some now, set some aside to invest.
How much of a child's birthday money should go to investing versus spending?
A simple 50/50 split is easy for a kid to understand, but the ratio is yours to set. The key is to agree on the split before the money arrives so it isn't a fight in the moment, and to let your kid spend a real, satisfying chunk on something they actually want — a gift they can't touch isn't really a gift to them.
How much can a $50 birthday gift grow if it's invested?
Fifty dollars invested and left alone for a decade or two can grow into several times the original gift, thanks to compounding. A kid who watches that happen on a dashboard understands compounding in a way no lecture ever delivers.
How do I ask grandparents to give investment contributions instead of toys?
Many grandparents, aunts, and uncles would genuinely prefer to give something lasting, but they usually won't bring it up — so make it easy and tell them it's welcome. Let relatives know a contribution to the child's investing account is a gift you'd love, suggest a spend-a-little, invest-a-little combo so the kid still gets something to unwrap, and share the dashboard so gift-givers can see the seed they planted grow.
What's a good way to make investing birthday money more motivating for a kid?
Run a parent match on the invest-some slice. Matching a portion of the money your kid chooses to invest turns a birthday into an instant, visible win — and an even bigger head start.
What to do this birthday
- Agree on a split before the money arrives, so it isn't a fight in the moment.
- Let your kid spend their share on something they genuinely want.
- Move the invest share into their account and look at it together.
- Text the grandparents: contributions welcome, here's how.
- Revisit it next birthday and show how last year's gift has grown.
Written by Johanna Ackerman
Mom of the original MemoryBank family — Harrison, Everly, and Emma — and founder of Three Little Tots, an online retail business for moms she has run since 2011. Johanna writes the parenting side of Learn: turning everyday money moments into lessons kids keep. Visit Three Little Tots →
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MemoryBank is a display and education tool, not a financial advisor. Nothing here is investment, tax, or legal advice. Verify program details with the IRS, your tax advisor, or a licensed financial professional before making decisions.