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.