They already contribute to their college funds every year and insist that this is money for them to go buy toys. Herin lies the very desperate problem. We are literally drowing in plastic presents from them. Last Christmas we had two car loads of gifts to bring home! My husband finally begged them to please not give gifts around year constantly,etc, and MIL got very angry about it. So instead, they give 10 times more gifts several times per year and give cash for our 5yo to buy his own toys to fill our house. Can you tell we are in the process of purging our garage/house/basement? The crazy thing is we are in the midst of moving to a 2bdrm and getting rid of everything. 80 percent of it is plastic TOYS!
I feel like I am put in the position of upsetting my child and MIL by having to say he can't buy more toys with the money. Sigh.
Your children, your rules. I would simply intercept the money and say loudly and cheerfully, "Oh LOOK Archibald Junior! Grammy has added to your college account! Say 'thank, you, Grammy!' Archibald! Go on!"
Be as enthusiastic and obnoxious as you can muster. Repeat as necessary
Ah, just accept the money for them (say something about how you'll keep it for them so it doesn't get lost), and give the kids $5 or whatever (usually more than enough for a toy that would amuse them but not be so big to be a huge problem), then put it in the acct. If they ask what the kids bought, just say you can't remember or whatever. I'm sure the kids probably won't remember (I never could). Or, do what Joanna suggested, that way they get the point!
Either take the $ from the 5 year old to put in your purse so it doesn't get lost. If that will result in a temper tantrum, make it a house rule that when you receive $, you take x% and buy whatever you want for it, and the rest goes to savings. It may result in an unhappy child, but when they're of college age I'm sure they'd rather have the savings than plastic toys.
College savings account. We also have family who are quite generous with our children on birthdays and holidays. But there has never been any question about what to do with the money- it is always deposited into the kids' college savings account. And when we write thank you notes, we always mention what was done with the money.
I also have some older kids, and I simply don't give them a choice about what to do with the money. I guess it's not a struggle because they've never had control over the money. My kids do get an allowance from us, and are given an opportunity to learn how to spend wisely. But I don't think it's smart to give a small child a large amount of money to spend however he/she chooses.
Some thoughts - explain to them that when you put cash away its not just for their college fund. It's for anything they may want to do later - summer camp, a trip to europe after college, a first car, a first house, etc.
If you really feel like MIL will get offended if you try to save the money, consider looking for a single high-quality (and maybe high-price) toy to buy DS with the money, so you have less physical toys, but maybe nicer ones?
Another option would be to spend the money on experiences - use the money to take him to the museum or the aquarium - those things add up super quick, especially if you get snacks and all the fixings, etc. Take him to a ballgame, etc. Then you don't have stuff cluttering your house, but in my neck of the woods a day at the major league ball park for two can set you back $200 without even trying. Or use it to pay for lessons or classes or whatever he might be interested in.
As for all the toys, just purge with impunity - every time you have a carload of toys to bring home, explain that you don't have enough room for all these toys and pick out some to donate or sell (and put htat money in the savings account, etc)
I would also consider suggesting they use the money they would spend all year to buy one big thing - like a backyard playset for example.
If it were me I would let them keep the money, at least the 5 yr old, and take the opportunity to teach about math and budgeting. "You have $x, what do you want to do with it. You want a and b, but the price of a plus the price of b is more than $x, so you can't do that" etc. Point out that he can save the money and put it together with other money until he can use it for something really big. Everyone is different of course, but in my experience most kids when given a choice are more fiscally conservative than most adults and are less likely to blow it all on toys than you might think.
I love the idea of taking classes, doing things, etc instead of buying things with the money. Maybe a gymbo class, dance, whatever. You could take them to a book store or craft store so there's not so many light up toys, etc.
Your mil sounds very pushy...these are your children, not hers. If you don't want your dc to have plastic toys, she shouldn't get them. I think it's rude for her to be giving them the money anyway. The membership idea is great, maybe your dc could donate some $$, I bet it would make them feel great
We've used big chunks of cash given to dd for dinner theater tickets, too. She loved it!
In general, when dd gets too much "spending cash" from family, I take her to an expensive toy store, or direct her to an expensive catalog (like Magic Cabin, for instance). $50 doesn't buy much there...maybe half a quality doll, lol. $30 will buy one Breyer horse at our neighborhood, independently owned toy store. Pricey for me, but perfect when dd has money to burn.
We made it very clear to both grandparents and child that every time he buys something, he needs to get rid of something of equal size. This dampened some of the enthusiasm. We also, with my son's permission, set up an "18-year-old account" for him where he stashes almost all of the money from Nana. (It wasn't usually an enormous quanitity given to him all at once, but he was getting almost $10 a week, which is waaay more than I think a 5-year-old should have control over.) It's not necessarily for college- he'll get to do with it whatever he wants when the time comes.
With the spending money he keeps, we encourage him to buy consumables- and he often chooses food. We don't really keep too much junk food in the house, and rarely expensive junk food (like crackers). He spends a decent amount on bunny crackers, yogurt-covered raisins, dried apricots, and cookies from the coffee shop.
The membership/ classes ideas are awesome- I'll remember them!
Seriously, if it's that bad, then you're going to have to be the bad guy, and the sooner the better so that he gets the message now. If your MIL gives him that much money, then your ds needs to know that some of that money will go into an account. I'd have a serious issue with my 5yo becoming so materialistic at the hands of my MIL (not that that would happen - but that's a whole other story
I really want to teach my children about money, and even though a 5yo won't understand immediately, he can start now before the "gimme" habit forms too strongly. I saw a guy once a long time ago say that he taxed all of his kids money as family tax so that kids would start to understand the value of a dollar. That money would go into a pool for family extras, like vacations, lessons etc. It may seem harsh, but in this case where a lot of money is involved, pretty reasonable. That's why I really like the idea from pp of using some of it for stuff he can do now, like camps and lessons and sports, which all add up. He also sees something for that money now rather than 13years from now, which he can't understan. The focus moves off of things and onto experiences.
This is your ds, and even though it's your MIL's money, she's teaching him how to be greedy and excessive and imho, it's way more important to stop that than worrying about her feelings. Let her pout, and then give her $50 of her own money and tell her to take ds to the amusement park