Should You “Borrow” Your Child’s Life Savings?

Household bills and expenses are rising, and parents under pressure to make ends meet are dipping into their children’s savings. Here’s why that’s not a good idea, and how to go about it if you must.

With global inflation pushing up the cost of living, parents struggling to meet household bills may contemplate taking money from their children’s savings accounts to help meet pressing expenses.

Indeed, this has already been happening in the UK. A survey found that over £55 million were taken by parents last year, with an average borrowing of £50 (approx. S$80.15) per month. Furthermore, four-fifth of parents said they struggled to get through at least one month in 2021.

Here in Singapore, children receive around S$2 to S$5 per day in school allowance. However, the bulk of their savings probably come from cash gifts given during birthdays, festivals and special occasions, which can all add up to a tidy pile.

Reasons parents dip into their children’s savings

Parents in the UK cited several reasons why they had to borrow from their children. Survey respondents stated the following:

Needed a little money for everyday essentials - 75 per cent
To avoid going into an overdraft and facing charges - 46 per cent
To help cover an unexpected bill - 30 per cent
To ensure there was money available if needed - 28 per cent
To help pay for treats for the children - 12 per cent

The last one may raise an ironic eyebrow or two but let’s not judge.

Afterall, as costs here continue to rise, you, too, may find yourself eyeing the contents of your kid’s piggy bank with increasing frequency.

How dipping into your children’s savings could negatively impact them

You may think, “What’s the big deal? I’m taking the money to pay for household expenses, and they probably don’t need the money anyway.”

That reasoning may be true on the surface, but researchers have found that children as young as 5 form distinct emotional reactions to spending and saving money, and these reactions translated to real-life money behaviours.

What’s more, these reactions and behaviours did not seem to be modelled after their parents, which means your kids could form unhealthy money attitudes even if you do not demonstrate such traits yourself.

Dipping into your children’s bank accounts may impact your child in the following ways.

Loss of trust

Children are taught that money given to them belongs to them. But they are also meant to “lock up” their money in a special place, lest someone comes and takes it away. Unlike toys or books or clothes, money must not be shown, shared or played with.

This helps them to understand that money is precious and should be safeguarded, and that a bank account or piggy bank is a safe and secure way to store their savings.

When a parent – which are the central authority figures in their life – takes their money from what is supposed a safe and secure space, this can shake their sense of trust.

Depending on how money was taken (from the child’s perspective, which, remember, is different from an adult’s context), this could sow the seeds for undesirable or harmful beliefs and behaviours that could manifest later in life.

Cavalier attitude towards money

Taking money from your children’s savings may also cause them to form a cavalier attitude towards saving money (why save only for the money to be taken away?) – and that’s not great because saving money is a core habit in being financially successful.

Your kids may also come to believe that it’s ok not to be financially responsible as you can always borrow more money when you run out. This could lead them towards responsible use of unsecured credit like credit cards and personal loans (been there, done that!)

Additionally, having to use their savings to help meet household expenses may pose mental health impacts similar to those experienced by children living in debt-saddled households.

High opportunity cost

Psychological well-being isn’t the only thing at stake here. There’s also the opportunity cost to consider.

To wit: With S$100 invested each month for 15 years, growing at a modest 3% annually, the final tally is nearly S$23,000.

Yes, it may seem surreal to think about investing for the future when you’re not even sure you can pay this month’s bills. But, not planning for the future is what keeps families trapped living paycheck-to-paycheck.

Of course, your children are too young to legally invest, but you or your spouse can (and should) invest their savings on their behalf.

One suitable option would be robo-advisers, which offer fuss-free passive investing, and don't hold you to lengthy investment periods. Some platforms don’t even require minimum investment sums to start.

Plus, by investing your children’s savings, a particularly good year could furnish some additional funds for the family!

What to do if you must dip into your kid’s piggy bank

As the saying goes, needs must when the Devil drives, and you may find yourself having little choice but to tap into your child’s savings to tide over a bad period.

Here’s how you can help lessen the negative impact of the experience on your child.

Make it clear it is a loan

Explain clearly to your child that you are not taking the money away – you are borrowing it, and will pay the money back in time.

Provide reassurance that the money still belongs to them, to help them restore their sense of trust.

Help them understand why

Be honest and truthful about why you need to borrow the money from their piggy banks.

But be careful not to guilt, threaten or frighten them into agreeing, which can make them feel burdened and stressed. They may also develop shame or fear around money.

Also, explain clearly that the family’s money problems are not their responsibility, but they can choose to help by offering their savings.

This will help turn the experience into an empowering one, instead of leaving them feeling helpless and afraid.

Pay the money back on time

And finally, pay the money back, preferably on time.

Instead of quietly putting the money back, inform them in person you have done so (or hand the cash back to them for a more concrete experience).

If you’re unable to pay the money back on time, do not react defensively when asked about it. Instead, explain that paying back the loan will take a little longer, or make a partial repayment.

It may sound a little extreme to deal with your children’s savings so formally. But understand that there is a lot more at stake here beyond just putting back a few hundred dollars (or whatever the sum may be).

You need to be careful about the subtle psychological impact that can arise when taking money from your children’s savings.

Modelling a suitably respectful approach towards the whole experience – especially if it is a regular occurrence – will go a long way in helping your child avoid forming negative money habits and unhelpful beliefs as they grow up.

Read these next:
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Parents: Here’s Why You Shouldn’t Dip Into Your Child’s Savings

Alevin K Chan

Reasons parents dip into their children’s savings