If you're like the average American, then you're expecting to spend around $752 on Christmas gifts this year, according to Gallup. And there's a good chance some of that will be spent on toys and trinkets for the kids in your life. But as you're going through your list and getting ready to wrap everything up, think: Is this something that’s going to be tossed out in a year or two when the toy trends change, a new version comes out, or the child grows up and loses interest?
If so, then consider the gift that never goes out of style: planning for a child's financial future. It's one of the most thoughtful presents you can offer this holiday season, and even if they don’t appreciate it now, they certainly will down the road. Here, some ideas as we head into the homestretch.
Give the Gift of Investing
Roughly 52 percent of Americans report not owning any stocks or stock-based investments, according to a Bankrate survey. Get a child interested early by gifting stock in companies they admire, like Disney, Facebook or Apple.
Try sites like Stockpile.com or GiveAShare.com, which make it easy to gift individual stocks. “If you have a child who’s really interested in Spiderman, like the Marvel universe, you can introduce investing by saying, ‘Hey, this company makes the movies of the toys you love,’” says ReKeithen Miller, portfolio manager with Palisades Hudson Financial Group.
Give the Gift of Future Cash
For newborns and toddlers, consider purchasing savings bonds. They won't enjoy them now, but you can think about it this way: “You’re not giving it to your infant grandbaby — you’re giving it to your 21-year-old high-school graduate,” says Susan Beacham, co-author of OMG: Official Money Guide for College Students.
It’ll be appreciated even more when it matures, when your teenager or twentysomething needs more pocket money for a two-month backpacking trip or to kickstart a retirement fund. You pay face value (e.g. $250 for a $250 savings bond), and you can buy them from the U.S. Treasury here.
The recipient will earn interest, currently at 0.10 percent through April 30, 2017. For a $250 bond, that would mean 25 cents a month, and if the rate stayed the same for 15 years, that would mean a profit of $45 in interest (minus taxes). It’s not a shocking amount, but it's a profit — and you can always think of this like a more secure, target-date check. Make sure the child’s parent or legal guardian has a TreasuryDirect account on the site and sets up a “minor linked account” within theirs for the child.
Give the Gift of Education
If you’d like to contribute to a child’s future education, you have two options. If they’re young enough that they don’t have any sort of income, a 529 is your best bet. The money grows tax-deferred, and anyone can contribute. You (or the child’s parent or guardian) can open the account, and it’s important to remember that you’re not bound by your state’s plan (although some states provide a tax deduction to encourage you to stick to your state’s 529).
You can compare plans state by state (and see if yours has a tax incentive) here. After the account is open, you can write a check or send a contribution directly from a linked account.
If the child does have some sort of income, whether it’s babysitting, a summer job, or a full-time internship, you can contribute up to his or her current income in a Roth IRA and set it aside. If the child doesn't already have an account, he or she can set it up with your (or a parent's or guardian's) guidance, and you can fund it.
This money can be withdrawn for higher education without paying a penalty, says Miller. Unlike a 529’s balance, this money isn’t taken into account in FAFSA calculations of what the student would be required to contribute towards his or her own education.
Bonus: If the money ends up not being needed for higher education, you’ve kickstarted their retirement savings.
With Hayden Field