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Every parent seems to face a dilemma in situations like this. On one hand, providing data for KYC verification might give the impression that we condone our children gambling, as if money can change our principles. On the other hand, since the children may have spent a lot of money gambling, it would be a shame not to cash out those funds. I think many people would take a middle ground, so am I, we still cash out the money to save it, and then advise and forbid their children from gambling in the future. I wouldn't use that money. I'd tell them I'd return it to them once they reached 18 years old. This would demonstrate my authority as a parent, emphasizing disapproval of their gambling activities all this time.
Yes, in the end each parent's approach will definitely be different in this case.
I agree with your approach, but also not saying the approach of others who refuse to provide KYC is bad. They have reasons to refuse, as do others who are willing to provide KYC documents but with certain rules. The reasoning may be that it is free money, but some others think this is a mistake that should be dealt with strictly regardless of the winnings.
I don't know what I would do if something like that happened to me. Of course, on the one hand I'd want to withdraw the money, but on the other, it shows how weak we are just because of money. I absolutely don't want to be in that situation in the future, and hopefully I never have to be as a parent.