Spending child’s birthday money on nappies?

[Bunnycounter]

Child turned 2 on Sunday and had friends and family attend a huge soft play party. Everyone brought gifts for the child except one person who put money in a card. Perfect for the child to choose a toy they’d like, or so you’d think. The child’s mum told their relative she’ll spend it on nappies. The relative is unhappy and thinks it should be spent on the child for a gift.
Would you spend your child’s money on essentials?
(To be clear I'm neither party in this situation, I’m the sister of one of them and want to see what you guys think as it’s become a big source of gossip)

Ideally it goes on a gift but if things are tight financially it goes on essentials and will get put back at a later date when affordable.

I am really appalled! Nappies are NOT gifts for the child, which is what it was clearly intended for. If parents were broke enough to need nappies, perhaps they could have limited the party spend. I consider it stealing.
If child does not need anything immediately, then it should be put to one side. Development from 2 to 3 years is rapid as is growth, especially if child's birthday is near Christmas, so for example a child turning 2 in January, may want something more for a 3 year old by October.
I would feel upset if my gift to the child was going into household expenses, and be less inclined to gift again at all.
If child had more than enough, then it could be banked for child's future.

(I was delighted to receive a beautiful dress from my cousin for DDs christening, that was clearly for a 2-3 year old - she told me that she thought I would get too many baby clothes, and she was right).