Gift Money & the Three-Part Rule

When you take a look around at folks who have or have had financial difficulties, oftentimes, the source of the problem is a lack of understanding of how money should be allocated when initially acquired. Maybe a person has just been hired into a position that pays much more or has just launched what he expects to be a successful business venture. With stars in his eyes, he goes out and purchases all the new toys he ever wanted. Six months later, he can't pay his bills because the income he predicted never came in, or his assets are tied up in material goods. (Now granted, this is not always the reason for money issues, because sometimes people simply fall into hard times, whether it's due to the economy or serious illness or a myriad of other reasons.)

So, what happened? Chances are, this person was never taught proper money allocation from the get-go. I remember back in 1973, I made my First Communion and received a whopping total of $88 in gift money. Yikes! That was a lot of money back then, and I feel it's still a lot of money, especially for a seven-year-old. After the guests had all left, but before the cake plates were even put in the sink, my father was talking to me about how that money should be handled. I still remember his words; "Take care of the pennies, and the dollars will take care of themselves." (He also said, "Money should be respected but not worshipped." But I'll save that lesson for another column!")

He was quite serious, and he made me feel quite grown up when we discussed the importance of taking care of the money I received as gifts. First and foremost, I would write "thank you" notes the very next day, of course. Then, we would break up the money into three (not necessarily equal) parts and distribute it thusly:

The first part would go to charity. Being as blessed as we were to have a strong roof over our heads and good food to eat, it is our duty to give back and share our wealth where we can. I gave that portion of my gift money to the collection plate on Sunday.

The second part would go into savings; in fact, it would be the lion's share of the money. It later put a down payment on my college education. I still remember handing my passbook and cash over to the bank teller, reaching as high as I could over the black granite counter (my eyes not missing the bowl of lollipops to my right!)

The third part could be spent on something that I'd like to have. Interestingly enough, I don't remember how I spent that money, which tells me a thing or two about the lack of substance in material goods. Another interesting point about this third part is that this is the area in which we, as parents, can have the largest impact on our children in teaching fiscal responsibility. What makes a good purchase? Does the product or service have lasting value? Will the product be obsolete in a short amount of time? Is this the best way to spend this money? Can I substitute what I want with something I already have, and in fixing it or sprucing it up, make it be just as useful?

To sum it up, take some time with your children to talk about the disbursement of recently acquired money. And be sure to review this before and or after every birthday or holiday in which money gifts are received. Those chats will be with them for a lifetime and, hopefully, prevent a lack of understanding about having respect for our bountiful resources.