I think it depends on your financial situation along with your plans and goals. If you’re at a place where you can’t afford necessities, then there’s absolutely nothing wrong with using birthday money for food, diapers or clothes. That’s not a fun answer, but sometimes you have to do whatever it takes to properly care for your family.
If money isn’t a big issue though, you’re left with figuring out a plan. In our case, we invested lots of it toward their college funds. Then we taught them to save for other things themselves. For instance, we didn’t buy any of our kids their first cars. But we did agree to match whatever they saved when it came to this purchase.
There’s also nothing wrong with just setting up a simple savings account and watching it grow. As they get older, you can involve them in the process and begin to teach them about the three uses for money: spending, saving and giving. And if you start something like this when they’re really little, chances are they’ll already have a nice pile of money already stashed away when they become old enough for those teachable moments.
The point is to have a plan. Once you have a definite idea in mind, it’s a lot easier to achieve the goal!
Dave Ramsey is America’s trusted voice on money and business. He’s authored four New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover, and EntreLeadership. The Dave Ramsey Show is heard by more than 5 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.