Good thread. We have a policy of number of invitees equal to child's age at birthday. Keeps the numbers low.
For dd's 4th birthday, we had a grab bag gift exchange for party with friends at our home. This way I did not feel like I had to go overboard on party favors (I sewed a headband for each girl). Daughter wasn't super keen on the gift exchange at first ($10 or less), but that was a non-negotiable for the party. I don't want her to have a strong association that party means presents. The other girls who attended really liked getting to go home with a gift and other parents were also supportive of the idea.
In addition, when DD attends friends birthdays, we have recently been giving "science experiments" as gifts. Most recently we have given the baking soda/vinegar volcano experiment. It was a hit! My daughter helps my husband prepare the gift (check the ratios and the appropriateness of the container for making the volcano) and it gets her more involved in the gift. We'll probably give a different experiment every year; so 2012 will be volcanos, 2013 something else, etc.






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