Whether it’s the upcoming holidays or for a kid’s birthday, often it’s easier and smarter to give money or gift cards to children and young adults, rather than try to guess which toy or gadget they will appreciate now, and cherish for longer than it takes to throw away the present’s packaging.
But there are some ways to offer monetary gifts that could make a big difference over a younger person’s lifetime, both financially and philosophically.
Here are few that might inspire immediate and eternal gratitude from the beloved youngsters in your life.
Save for college
A 529 college savings plan can be opened up with as little as $25, and future contributions can be made in the same relatively-low amount. Wisconsin’s Edvest plan (www.edvest.com) allows the owner to keep control over the account, only doling out the money if and when the kid needs the money for college.
Qualified donors can get a small state income tax break on the deposits. The future earnings are sheltered from taxation, and the distributions are tax-free if used for qualified higher education expenses.
Match their savings
You can foster a savings habit in a child by offering to contribute a percentage of whatever she has accumulated in her piggy bank or savings account.
For instance, you tell her that each year around this time, the two of you will add up her accumulated savings. Then you will give her an extra bonus of that amount (say, five or ten percent) that she can then add to her cash, or spend appropriately.
Sooner or later she’ll figure out that the more she saves, the more she gets from you. At some point, hopefully the dollars in question will be enough that you’ll be glad you didn’t put this arrangement in a legally-binding contract.
Buy some stock
Another way to develop an interest in investing is to give your favorite kids a share or two of ownership in the kids’ favorite companies.
Sure, your friendly financial advisor may be willing to endure the upfront and ongoing paperwork necessary for you to put a smaller amount of money towards the stock purchase in a child’s account.
But an easier way to give the gift of stocks might be through a company called Stockpile (www.stockpile.com).
Stockpile sells gift cards that can be purchased at several major retailers, or online at the company’s website. Once the recipient activates the card, the balance can be used to purchase full or fractional shares in hundreds of different companies (minus a small fee, of course).
Fund a Roth IRA
If the gift recipient in question has a job, you could offer to match contributions to the kid’s Roth IRA, or make the whole contribution yourself.
The total contributions to the account can be the lesser of the kid’s earnings, or $5,500. Keep in mind that once you make the contribution, it is his money to do as he pleases (but most recipients are smart enough to let that money sit, just in case there may be future additions to the account).
There will be no tax deduction on the Roth IRA deposit. But if he needs the money for college or other expenditures, he can withdraw the contributions at any time for any reason with no taxes or penalties whatsoever.
Make a loan payment
Many twenty-(and thirty- and forty-) somethings with student, car, or home loans are struggling to keep current on their monthly payments, and still cover all of the costs of adulthood.
A few hundred dollars might not seem like much to you, but it could provide thirty days’ worth of relief before the next payment comes due.
And as part of the gift, you can offer to have a non-judgemental conversation with the young adult about the importance (and difficulties) of responsible money management.
You may want to start the talk out with, “This is what I wish someone had told me when I was your age.”