Teach Your Children How To Handle Their Aguinaldo

It’s Christmas time again! A lot of us are getting stressed once more completing our long gift list that rivals that of Santa Claus. In that list, what’s usually challenging is what to give your inaanaks or godchildren. Unless they are very close to you, chances are, you don’t even know what their interests are, how old they are now, what grade/year they’re in now.

“Aguinaldo” comes from the Spanish word that means gift. In the Philippine context, we associate this with children visiting their godparents and other older relatives to greet them Merry Christmas together with the Pinoy gesture of “Mano po!” In return the godparents and other older relatives are expected to hand to the children their aguinaldo, usually in the form or cash.

Cash has become the popular aguinaldo because of its practicality - no need to figure out what the kid wants, no need to wrap, and it’s relevant to kids of all ages! Because of this, you have to order your crisp bills from your bank early on as they easily run out during the season. 

Now here’s the challenge. During Christmas, chances are, your children will also receive cash gifts from their godparents, relatives, and friends. Who should handle the money? Should you? Or your child? How should the money be spent? Should you just let your child use it the way he wants to? It’s his money anyway? 

Here are some of the things that I remember teaching my three sons about their aguinaldo. 

1. Right from the start, we have separated our children’s money from ours (their parents). We opened their own bank accounts as soon as they were born, and that’s where we deposited the cash gifts they received from their baptism, birthdays, Christmas, etc. 
2. When they were old enough to receive the cash gifts themselves, it somehow became the most natural thing for them to do as well. They would deposit the cash gifts.
   
3. As they got older and became more interested in buying stuff, they would still ask us, “Is it okay to spend a bit of my aguinaldo to buy this thing?” But they would still set aside a significant percentage that goes to their savings and investments. 
   
4. When I asked them why, they said because that’s what they’ve gotten used to already, plus they’re also aware that setting aside something helps increase their net asset value reflected in their Balance Sheet.
   
5. A lot of times our Christmas gifts to them is also cash. This is what they use as their shopping budget when we have our year-ender, usually in a place we have not been to as a family. The most frugal of the three usually ends up not spending everything.

Aguinaldo and Mental Accounting:

There’s a Behavioral Economics principle that’s happening in the way people spend their aguinaldo or for employees, their Christmas bonus. Cashflow that comes in once in a blue moon (or not regularly) is considered a windfall and they somehow tend to spend it more freely, less prudently. 

We tend to use categories in the way we treat money. We spend windfall or unexpected income less carefully than we do our hard earned or regular income. We usually act as if that money was not supposed to be with us anyway so it easily finds its way out – i.e. we spend it.

This is called Mental Accounting or the House Money Effect. This was first described by the Father of Behavioral Economics and 2017 Nobel laureate Richard Thaler, and Eric Johnson in a paper written in 1990 entitled Gambling with the House Money and Trying to Break-even. In casinos, it is observed that when one wins while playing, the profits are made separate from the original capital. Then the gambler is more willing to bet all his profits because he feels that the money is “house money.”

This is also observable in people investing in the stock market. They view their profits as disposable and take greater risks, which usually brings them back to zero profits, if not negative. Mental accounting makes us spend windfall income more freely.

In teaching your children (and yourself) how to handle aguinaldo and Christmas bonus, be aware of this principle, and remember: The money that you earn on a regular basis, or what you may consider as your hard-earned money, has the same monetary value as the ones you receive once in a blue moon. It’s great to enjoy this unexpected income by treating yourself, but it’s also great to use it as an opportunity to accelerate your saving and investing. So it’s a matter of dividing what goes to “happiness today” and “happiness tomorrow!” (Of course, don’t forget to discuss the true meaning of Christmas with your children, but that belongs to another article.)

To help you figure out how much you should allocate to your “happiness tomorrow,” take the FQ Test to know your FQ Score. 

Merry Christmas! Cheers to your high FQ in handling your aguinaldo and Christmas bonus!

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Rose Fres Fausto is FQ Mom (FQ stands for Financial Intelligence Quotient). She was an investment banker turned full-time homemaker and now a writer and speaker on money and family. She’s a Gallup Certified Strengths Coach and Behavioral Economist, having trained under Dan Ariely, the Father of B.E. Richard Thaler, and recently completed a B.E. course at the Harvard Business School. She wrote bestsellers Raising Pinoy Boys, The Retelling of The Richest Man in Babylon (English and Filipino versions), FQ: The nth Intelligence. She has a weekly column in PhilStar.com and regularly contributes to other magazines. 

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