Kids, Gifts, and Your Financial Future, Oh My!Tweet
With the holiday season right around the corner, now is the perfect time to sit down with your spouse or partner to have a conversation about budgets and gift giving limits. A recent National Retail Federation survey shows that consumers say they will spend roughly $589 on gifts for others and $207 for items such as food, decorations, flowers, and greeting cards this year. Consider how you’re spending that money, and how to maximize your gift giving. If you have children, consider including an investment gift of some kind.
When you were a kid, you may have lovingly perused the JC Penney catalog to pick out your most favorite toys and games in hopes that your wishes would be granted. Dolls, bicycles, and model cars might have topped your list. If someone would have given you a savings deposit slip, you might have looked at them sideways.
And yet, kids get a lot of things throughout the year. What if you balanced out some of those material things with a head start on their adult life in the form of a financial gift? Not paper cash or a gift card – although that’s a generous gift, too – but something that will grow with them and teach them how to save money and build habits for a lifetime of security.
Need some ideas? Start here.
529 College Savings
As defined by the US Securities and Exchange Commission, a 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions.
There are two types of 529 plans: state-sponsored pre-paid tuition plans and college savings plans, and they are available in all 50 states. The prepaid plan gives you the benefit of locking in tuition prices at eligible public and private colleges and universities; the college savings plan, on the other hand, gives you a little more flexibility.
A gift invested in a 529 plan is an excellent idea for grandparents, aunts, uncles, and godparents to give. Giving the gift of a college education and freeing future generations from college debt is both loving and goal-oriented, and it can be contributed to every year.
To make the gift more tangible, grab a hat, banner, or pen from your state school and wrap it up with a note explaining the gift.
The gift of financial wisdom
Take a few moments at the holiday dinner table to tell stories about your childhood and how you saved up for something you wanted. Discuss, in a light-hearted way, the importance of saving, avoiding debt, and living within your means and why that works for your family. Don’t forget to tell them that you’re thankful for what you have.
Do you work with a financial adviser you trust? Giving your children an opportunity to sit down with that person and review savings options is something that will benefit your whole family in the long run. A young adult getting ready to graduate from college may listen more openly than to his or her parents and take the advice to heart. Often, advisers will meet with their clients’ children for a small fee, or perhaps for free.
Investments to reflect their interests
Do your children love Pixar movies? X-box games? Disneyworld? Consider gifting them with shares in those companies and help them understand how the stock market works and how a portfolio grows. They will feel grown-up and responsible having a share of a company they love in their name. And when they consume products from that company, it’s a chance for you to talk to them about how they are supporting “their” company.
Surprisingly enough, you could offer your older children the opportunity to choose the company they want to invest in with a spending cap. You never know what they’ll choose, and it’s kind of like March Madness: anything could happen.
By purchasing stock in their name, you are teaching your children about patience and longevity in the market.
Roth IRA for teens and young adults
If your child is 14-30 and has a job, you can contribute the amount of his or her earned income – up to $5,000 – to a Roth IRA. Contributions are made with after-tax earnings, which means the account will grow tax free. At the ripe young age of 59½, he or she will be eligible to take tax-free withdrawals.
It can make an impact on your teen by offering a solid example: there are plenty of charts online that show what a consistent annual investment would be worth at retirement age. And by gifting your child every year toward his or her Roth IRA, you’re putting your money where your mouth is and helping them learn how to save and invest with a boost from you.
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You can always start with a simple piggy bank. Working your way toward longer-term contributions will benefit your loved ones more than anything in their stocking.