‘Tis the season to throw away money on useless gifts that will ultimately end up in the trash or be re-gifted. A better and smarter alternative is giving a financial gift.
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Most people think of a treasury bond or a contribution to a 529 college savings plan when it comes to gift giving. While those are two smart ideas, they aren’t the only ways to spread the wealth this holiday season.
“Financial gifts can be extremely smart,” says Odysseas Papadimtriou, chief executive of credit card website CardHub.com. “The problem with our culture is the holidays is a time of giving but its turned into a time of spending.”
Give a piggy bank or contribute to a college savings plan
When it comes to grandchildren it’s understandable that you want to spoil them with toys but a better idea is to leave that up to Santa Claus and give them something that will help in the future. If you don’t want to make a contribution to a college savings plan, Michelle Dosher, managing editor at the Credit Union National Association, says to start with something as simple as a piggy bank with money in it. They will love unwrapping it and it’s a gift they can continue to add to throughout the year. It’s also a great way to teach young kids about saving.
If you want to help with their future, setting up or contributing to a college savings plan like a 529 is a great way to make sure a portion of their college education is covered. “Its way more fun to give a toy but for grandparents it’s a good idea to give a smaller tangible gift and then make a contribution to a college savings account,” she says. “It’s worth so much more than a toy when the child turns 18.”
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Set up a Roth IRA for your young entrepreneurs
For people who don’t want to give cash to their grandchildren or young adults they can also set up a Roth IRA, granted the child or children are earning some sort of income, says Andrew Schiff, managing director at United Capital. Schiff says you can contribute 100% of their adjustable gross income up to a maximum of $5,500 a year. “By their mid 20’s it will have appreciated,” says Schiff. “It’s an incredible gift that is much easier to implement than starting a trust fund.”
Buy some financial planning sessions
For young adults who are graduating college Dosher says a unique gift, and one that will come in handy as they head out into the real world, is to purchase one or two sessions with a financial advisor. They can get the basics on investing and savings which will undoubtedly come in handy. She says you can even consider helping your adult child start an emergency savings fund or pay a month or two of their rent. “There’s many things you can do that really doesn’t seem like a big deal but it can help get them on the right foot,” says Dosher.
Pay a bill for a struggling friend/family member
While much of the gift giving during the holidays goes to children, adults aren’t excluded. Instead of giving them yet another scarf or sweater, Papadimtriou of CardHub.com says you can give them cash to pay a bill or make a payment for them. You have to be tactful when going this route. After all you don’t want to insult or offend anyone with your gift. “Writing a check for $100 for someone who is struggling is much more powerful than giving a $100 Amazon gift card,” says Papadimtriou. “You can tailor it to the need of the person but you have to be sensitive in how you deliver it.”
Start a direct stock purchase plan
In the old days you could give stock as a gift by purchasing some shares and putting the certificate in an envelope. Nowadays everything is digital so instead of giving a certificate, you can set up a direct stock purchase plan for somebody, says Schiff. Put the shares you purchase on a dividend reinvestment program and the investment will not only grow because the receiver is holding it over the long term but because the dividends are going back into the investment. A direct stock purchase plan also provides an option to add more money whenever the person it is set up for likes. “All large trees have small seeds,” says Schiff. “The sooner you get your child or grandchild started with a savings plan the better off they will be over the long term.”