Gifting Money: 5 Smart Ways to Give Money to a Child

Gifting Money - © ottoroom - Fotolia.com Gifting money to children can be tricky.  It all depends on the age of the child, your relationship to that child and, if not your own, how the parents might interpret your gift.  But nothing could brighten a young person’s financial future more than a gift of money, in some non-cash form.

We might have grown up receiving U.S. Savings Bonds from our grandmothers.  If so, they probably seemed like a ‘yucky’ present when we were kids, but I can assure you they were much appreciated when we went to buy our first car, or looked at the cost of our college tuition, books, room and board.

So if you’re looking for something longer-lasting than the latest Little People Disney toy—or if another video game will just get lost in the pile—think about gifting money in a form other than a gift card to their favorite store, if they’re already old enough to have a favorite.

Here are five ways of gifting money (in one of its alternative forms):

Savings Bonds

If you remember getting certificates for savings bonds, that is no longer an option.  Savings bonds have gone electronic.  They can still be purchased, but you (as the giver) and the child’s parent (as the adult recipient) both have to register online.

It’s not a long process.  And when you’re done, you can download a “gift card” to have something to give to the child.  (Or to the parent, if the child’s too young to understand.)

Instead of being bought at banks, they’re bought through the government’s Treasury Direct site.  For more information, Kiplinger (always a reliable resource) tells you how in an article called “How to Give Savings Bonds as Gifts.”

Stocks

It was a lot more fun to receive stocks when companies still gave actual printed stock certificates, especially when they were for Disney and other brands we knew and loved.  (Disney’s was particularly beautiful and actually became a collectible.)  But very few companies haven’t already gone to electronic certificates; Disney did so this October.

However, a low-cost online trading account that a parent opens exclusively for the child could be used over the years to accumulate different ETFs (Exchange Traded Funds that represent an index or industry) and safe Blue Chip stocks.  To set this up right, ask the online trading firm about custodial accounts under the Uniform Gift to Minors Act.

While stocks might carry more risk than some of the other options, if picked carefully they’d have more growth potential and might even prove to be a valuable learning tool about investing as the child becomes a teen.

Savings Accounts

With the ease of online banking today, it wouldn’t be difficult to start funding a savings account that could be added to over the years.  However, this would have to be in a parent’s name, at least as a co-signer.  Ideally it would be a separate account just for that child.

While this gift could provide an early lesson in the power of savings, its greatest downside is the artificially low interest rate being paid these days, not even keeping up with inflation.  (Hopefully that won’t last forever.)

529 College Savings Plans

Especially if a child’s parents have already started a college savings plan, a regular contribution to it would be greatly appreciated … by the parents early on and later by the child when college costs become an issue.  If the parents haven’t started one yet, your gift could be the valuable first step.

These plans need to be researched.  For example, how can the funds be used?  Only at in-state universities?  At all universities?  And what are the penalties (besides having to pay the taxes that the plan saved) if funds are withdrawn for other uses.

The New York Times published this excellent article called “Giving to a Newborn’s College Savings Plan.”

Coins

Everyone likes shiny things.  Even little ones!  So a 1/10 ounce Gold American Eagle or the one ounce Silver Eagle might be a perfect gift, especially if one is given for each birthday and/or holiday.  As the child gets a little older, the pretty coins can be taken out of the safe (or wherever they’re held for safekeeping), touched and counted.

This is one of the easier gifts because it doesn’t require putting anything in an adult’s name, like stocks or savings accounts would.

Some Thoughts about Gifting Money

These gifts might not make you too popular with the child who receives them.  (At least not in the early years.)  You might want to soften the blow with an inexpensive throw-away toy, which most of them eventually become anyway.

And you do need to consider that there could be tax implications to the parents for such gifts:  The IRS wants its share of any taxable income, which includes the interest, dividends and capital gains produced by your child’s investments, above a certain limit.  Just check.

Whatever you decide, nothing could show more love than gifting money in one of its non-cash forms:  you are actually gifting a brighter financial future.  And what parent wouldn’t want that?

Let us know in the Comments section below if you’ve ever given (or considered giving) some form of non-cash money as a gift.

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Bio: Sharon O’Day fixes financial lives. She is a tell-it-like-it-is money expert with a successful career in global finance, plus an MBA from the Wharton School. Today she specializes in getting entrepreneurial women over 50 back on their game so they can have more money, less stress and more joy. With her “Over Fifty and Financially Free” strategies, they take actions that lead to their ultimate goal: financial  peace of mind.

  • Excellent advice Sharon. I wondered what happened to Savings Bonds. We’ve opened a savings account for all of our grandkids. When the budget allows we put what we can in all of those accounts. It’s sad that they don’t earn interest for now, but one day we’ll transfer the regular savings over to mutual funds and then watch them grow steadily.

  • Thanks so much for writing this post Sharon! We started gifting savings bonds to our nieces and nephews since they were babies. Once they realized they had monetary value they always looked forward to them at Christmas, birthdays, etc. It was always so much fun seeing the excitement on their faces when they would open the envelope. We knew that would go toward their future and it wouldn’t be a toy that would be broken or forgotten in a matter of a few weeks.

    I also like the idea of giving coins. That’s a great idea for a last minute gift. You can’t give a savings bond without a social security number, but the coins are great!

  • Thanks for another brilliant article… Very helpful on how to gift to children… and very needed indeed…

  • Scott Glaze

    These are some great alternatives to cash. And, I truly appreciate the heads up on things to watch out for when purchasing each. I had not thought of these things too much and will be considering them now, especially since it is time to start preparing for college.

  • My mother always gifts in $2 bills. The kids, thankfully, recognize these as slightly unusual, so they are more willing to save them instead of quickly spending. No, there is no build up of interest, but I do have to say it’s an alternative to them quickly spending cash or gift certificates! Thanks for some helpful tips, Sharon – I’ll be sharing this with my friends and family!

  • Eileen M Bresnahan

    I have a favorite Uncle who always gifted Coins & $2 bills, some of the coins are collectors now! He would bring back gold & silver coins from his travels, great idea & appreciated.

  • Wingate Wyndham Sulphur

    This reminds me, my grandmother gave each of the grandkids (us) a book of quarters each year until we had them all. I need to keep up with it and maybe I can give it to my child one day. It is very sentimental and worth so much more to me now that she is gone. Great ideas!

  • Carmen

    I have always used bonds a gifts for graduation and the like. Never thought of it for the holidays. Thanks for the idea Sharon.

  • Susan Schiller

    For birthdays, as a child, we kids each received a plastic case with five silver Canadian coins from our grandfather (who was Canadian). The coins were stored in a safe, which several years later was robbed. The thief took every single coin.

    I remember being semi-impressed with the predictable gifts. I’m also sorry that they are still missing! They were nice gifts. Your suggestion gives me an idea, Sharon – thanks!

  • Kung Phoo

    I remember when we were kids we would get bonds, and after a certain amount of time they would mature and then become more then they were.. Its hard to figure out where to gift the money to today with all the ups and downs..

    • Rob, I can understand your concern: maybe the money won’t earn enough interest … or silver might go down. But a physical gift will rarely last a season and then it’s completely gone. So which is better? 😉 In short, that uncertainty is not a reason NOT to gift money in a non-cash form …

  • Terri Lind Davis

    My grandparents routinely gifted their grandkids stocks when we were growing up. You are right, it is not something you understand and appreciate when you are young but is highly valued and remembered as you are older. I have contributed to a fund a few times for my own kids, something they later came to apppreciate.

    • Non-cash gifts are particularly valuable when given to little ones who are already overwhelmed at what shows up under the tree, Terri, especially if they appreciate in value by the time the recipient becomes aware of the gift!

  • My kids have received savings bonds over the years. Now that they are older they have cashed them out and invested them in other tools. It was so much better than just giving them cash to blow.

    • That’s great, Don. Whatever form of non-cash money kids receive, it’s a door-opener for many into the world of investing … a hidden benefit!

  • Sandy K Hardy

    Thanks for the tips. My grandchildren don’t really need anything and I want to give them something that will help them.

    • Sandy, what confuses most people growing up, and then as adults, is not knowing the difference between “need” and “want.” So if you gave your grandchildren something that will be there later on when they want to invest in something valuable, you will have given them the ultimate gift!

  • Ana Maria Verrusio

    I always give Savings Bonds when the children are too young to know… Like at birth and christenings. They are a great idea. The Savings Bonds that my children received when they were little helped quite a bit. We gave them the bonds when they went to college. Those bonds paid for their books, and some of those books were really expensive. Before there were online books or books for rent(back in 2002), you could only buy a new or a used book. My oldest once had to buy a book that cost $600.00…for a used book! Lucky she had Savings Bonds.

    • Having someone in our childhood who gave us those silly pieces of colored paper called Savings Bonds “pulled more chestnuts out of the fire” for more people than we realize! Whether it was books, adding to a home down-payment or whatever, no one was ever angry that they had them. 😉

  • Online BoutiqueSourc

    Great ideas Sharon, things are so immediate gratification now we give ghat I send gift cards for shopping now rather than savings that will help children in life. I have 4 nieces and nephews that I send gifts to all of the time, I think I’m going to look into a 529 instead

    • Starting their parents on the 529 path would be the ultimate gift … because that overcomes the resistance to actually open the accounts. Good for you!

  • Gillian ~ Gilly

    These are great ideas Sharon! My father set us up with savings bonds when we were younger and would give coins for Christmas. They are definitely well appreciated now! Thank you for such a great post!

    • We’ve all been grateful if someone had the forethought to give us “gifts that last,” Gilly! We don’t remember 95% of the rest of the stuff we got …

  • Lorii Abela

    Interesting ideas! Gift money is indeed a practical gift. How much on average do you think would be a good start to give as a gift money?

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