6 Financial Gift Ideas for Kids and Grandkids
The holidays are upon us, and that means gift buying is in full force. Instead of gifting toys or the hottest tech gadget that might make you everyone’s favorite Grandma or Uncle, consider these financial gift ideas for kids and grandkids.
While the latest doll or iPhone might make you popular come the holidays, these gifts are fleeting.
Below are 6 financial gift ideas for kids and grandkids that will help them in the future and teach them the importance of saving and finances.
Financial Gift Idea #1: Saving for College
While giving the gift of future education might not make sense to the kids in your family right now, we promise that one day they will thank you when they aren’t buried in student loans.
A 529 plan is a tax-advantaged investment that’s used to save for college, graduate school, and most recently K-12 tuition.
Once you open a 529, you contribute money after you’ve paid taxes on it, and then it grows tax-free.
As long as you use the money for qualified education expenses, you won’t have to pay additional taxes on the money saved.
There are two types of 529 plans:
- 529 Savings Plans: These state-sponsored investment plans work a lot like 401(k)s and IRAs. These are state-sponsored, and your contributions are invested in investment products or mutual funds. The person who sets up the account is the owner and your child, niece, nephew, or grandchild is the beneficiary. The state works with an asset management company, and you as the owner deal with the company, not the state.
- 529 Prepaid Tuition Plans: These plans are managed by higher education institutions and states. They allow you to lock in today’s tuition rate and pay for college tuition at any of the state’s eligible schools. If the student decides to attend a private college or school out of state, an equal amount of money is distributed.
529 plans are typically state-sponsored and differ in requirements and benefits, so it’s important to speak with a third-party expert about your options.
Financial Gift Idea #2: Individual Retirement Accounts (Roth IRAs)
Forgo gifting the hottest video game console and give the gift of future financial stability with a Roth IRA.
This is an ideal gift for a teenager who has a part-time job because to open and contribute to a Roth IRA, there are specific rules. These include…
- Your kid or grandkid must be working and bring home earned income.
- You can contribute the amount of their earned income, up to the $6,000 contribution limit.
- No money can be withdrawn until the individual is 59 ½ years old.
Before opening a Roth IRA for your kid or grandkid, we recommend seeking third-party advice.
Financial Gift Idea #3: Savings Bonds
While they don’t offer huge returns, savings bonds do appreciate over time and are a great financial gift idea for kids and grandkids.
Savings bonds are exempt from state income tax and, if used to pay for college, can be exempt from federal income taxes.
Series EE or Series I bonds are available for purchase. While both accrue interest monthly and compound interest semiannually, the only difference is the interest rates.
You can purchase and print a gift certificate from the US Department of Treasury.
Financial Gift Idea #4: Savings Accounts
Opening a savings account is a great financial gift idea for kids or grandkids because it helps teach them the value of saving early and often.
Make sure you find a high-yield savings account that has no fees and is free.
More than likely, you will have to sign as a co-owner of the account until the child is old enough to take ownership.
Financial Gift Idea #5: Stocks
Gifting stocks can be risky because there is no guarantee the company will be around long enough to see monetary gain.
But it provides you an opportunity to teach your kids or grandkids the value of investing and how to manage their investments.
There are online brokerage firms that allow for gifting stocks, or you can transfer stocks you already own.
Financial Gift Idea #6: Cash
Cash is a welcomed financial gift idea for kids and grandkids if it’s given for a specific purpose–otherwise, your kids or grandkids are going to spend it on clothes, technology, or blow it with their friends.
If you gift cash, make sure it’s designated to help pay for a school trip, a car, sports equipment, etc.
For older kids, you could gift cash to help them pay off more of their student loans.
Another thing you can do if you gift cash is to use it as a teaching moment. Challenge your kids or grandkids to take the cash gift and turn it into more money, and then report back the results.
The type of advice you receive about your finances and gifting to your kids and grandkids may be impacted by the type of advisor you resource for advice.
Download our no-cost guide on how to understand The Different Types of Licenses Financial Advisors Have and What They Mean to You .