Holiday Financial Gifts Keep On Giving
Posted By Donna Fuscaldo on December 12, 2016 at 9:52 am
For grandparents and parents, holidays are the time to spoil the kids with toys, designer jeans and the latest electronic gadgets. The problem: The giftsoften get used a few times and then collect dust. Better options – ones that keeps on giving – are financial gifts.
From contributing to a 529 college savings plan to buying individual stocks, there are lots of ways to give without throwing away money. “There is a balance – it shouldn’t be all toys and no value for their future,” says Alexander Joyce, president and CEO of ReJoyce Financial. “You shouldn’t strip a child of their toys but you can teach them that a toy can ruin and devalue over time.”
With the economy humming along and unemployment hitting a nine-year low of 4.6 percent, many consumers had more money to spend on the holidays. According to a recent American Express report, Americans are gearing up to spend 8 percent more this holiday season compared with last year. That extra cash can go to more impactful gifts, ensuring money is well spent. And it doesn’t have to be for tweens, teenagers and young adults only. Younger children can benefit from financial gifts, too.
Financial gifts that keeps giving: 529 College Savings Plans
Take college. There’s no question it costs a lot, and if it’s in the cards, an investment toward that goal is more impactful than overpaying for the toy of the moment. One way to meet that end is to gift a contribution to a 529 College Savings Plan.
“A lot of people forget kids typically get stuff outside their immediate family members,” says Barbara Taibi, partner in accounting firm EisnerAmper. Let them give most of the toys and invest the money in a tax-advantaged college savings plan. “To be able to put some money aside through one these plans is a great way to start growing,” Taibi says.
For grandparents who balk at the idea of making a 529 contribution or selecting other financial gifts instead of buying a toy, Taibi suggests purchasing a small gift and spending the lion’s share of the money on the child’s future. The cost of a four year degree is only going to more expensive when the child is college aged. An extra bonus: 529 plans make it easy for family members to contribute during the holidays. Many have forms you can print so family members only have to write a check.
Stocks can teach Investing 101
For older children the gift of an individual stock can teach them about the stock market and the discipline needed to invest. To make it interesting, experts say to choose stocks they can relate to such as Apple, Facebook or Google. “If you have a child who is interested in outdoorsy stuff or a boy scout, he may like a stock in Home Depot. Or if you have a child who likes princesses, have the stock be in Disney,” Joyce says. “It’s important to mimic the personality of the child in the stocks you choose, rather than your own.”
He says a trust is another option, noting it can be a powerful way to demonstrate risk tolerance. Parents or grandparents can open a custodial account to invest through. With custodial accounts, children can research companies and select stocks to trade, giving them practice planning for important events such as college.
Charity trumps bonds
An old reliable when it comes to financial gifts is the bond. After all, go with a government-backed one, and gift givers can rest assured the investment is safe and sound. Gifting bonds is more passé today, especially in the current low interest rate environment where yield is hard to come by.
Still, Taibi says it’s a better alternative than a short-lived gift. “It’s still a way to buy something of value for less than it is worth,” Taibi says. “For a young kid, you spend $250 and get something with a $500 value fifteen years down the road when they might need the money.”
Of course, the holiday season also is a time to give back to the less fortunate, and the gift of charity can go a long way in teaching the importance of giving. Many children of all ages have something they care about and making a contribution on their behalf can have real meaning. “Charity is a good learning point for a kid if you give something on their behalf,” Taibi says. “If you are making a contribution to an animal shelter in their name, it might be important.”