How to Give Your Grown Kid the Holiday Gift of Money Smarts
5 suggestions for presents with staying power
I’m shopping for holiday gifts this week, as I suspect many of you are. Some of my favorite names on my list are my nieces and nephews, age 17 to 28.
Since I frequently speak to audiences and write about the importance of financial security, I’ve realized that one of the best holiday gifts I can give them — and you can give your grown child or niece or nephew — is the gift of investing knowledge. It’s a gift with a far-reaching impact (and if you don’t get a huge “thank you” for it this year, you will one day.)
5 Money-Smart Gift Ideas
Here are Santa Kerry’s five money-smart suggestions to consider:
1. Cash alternatives No one ever complains about receiving cash. This year, earmark it toward a savings plan. Three options I discussed in this Next Avenue column: buying U.S. savings bonds, funding a 529 college-plan account and putting money into a child’s Roth IRA.
2. A good book (or online booklets) on money basics Two solid books written for young adults are Generation Earn: The Young Professional's Guide to Spending, Investing and Giving Back by U.S. News & World Report senior editor Kimberly Palmer and the bestselling Get a Financial Life: Personal Finance In Your 20s and 30s by Beth Kobliner, a noted personal finance commentator and former colleague of mine at Money magazine.
An excellent new book for people of all ages (buy two – one for your gift recipient, one for you) is the Jonathan Clements Money Guide 2016. And you can’t go wrong with Eric Tyson's bible, Investing for Dummies.
Online, visit the Investor Protection Institute’s Iinvest.org site, and print out free booklets that explain stocks, bonds and mutual funds. Bundle them together in a nice package, adorned with a festive bow.
3. A subscription A digital or, old-school hard copy, subscription to a financial publication such as The Wall Street Journal, Money or Kiplinger’s Personal Finance is a smart way for a young adult to learn about investing, saving and spending and keep up with the latest financial news, too.
4. Personal financial planning help I would have prized getting this in my 20s, so I could have learned how to live within my means, avoid painful credit card debt and dive into my first 401(k). Look for a fee-only planner with the Certified Financial Planner designation.
Although most financial advisers prefer clients of substantial means, some charge nominal hourly fees and are happy to take on younger customers (who, ideally, will turn into clients of substantial means). These include XY Planning Network, which specializes in assisting GenX’ers and GenY’ers, and Garrett Planning Network, whose advisers have no income or investment account minimums.
5. An actual investment Unlike fashion-forward duds, shares of an index fund or ETF (exchange-traded fund) won’t wear out and, if properly selected, can grow in value. When it comes to learning about investing, the very best way is actually doing it. Your child will have some skin in the game, making him or her very interested in paying attention to the details for future prosperity.
I’m not keen on buying a child shares of a single stock — no diversification — and neither is Kobliner. “I’ve never been a fan of having kids invest in individual stocks,” she says. “If the stock your kid owns doesn’t do well, he or she could come away from the experience thinking that investing is a bad idea. On the flip side, if that stock performs really well, your kid could wind up thinking he or she is a stock-picking genius. Both of these takeaways are detrimental, since kids will definitely need to invest later in life, and should choose diverse investments when they do.”
Kobliner’s solution? “Help your kid purchase an individual ETF” that essentially owns a basket of stocks. One of her favorites, as well as mine, is the Vanguard Total Stock Market ETF, a mix of small, mid-size and small company stocks. Current price: just over $100 a share.
A technicality if you will buy fund or ETF shares for someone under 18 other than your own kid: his or her parent or guardian must first set up a custodial account. Several brokerages offer custodial accounts with low minimums, waive set-up fees and typically have low or no commissions for buying and selling shares. The Schwab One Custodial Account, for instance, requires only $100 minimum to open an account and has no initial fees.
A new service, called SparkGift, lets you choose among index funds (stocks, too, if you insist) and spend $20 to $2,000 to give one as a gift, for a fee of $2.95 plus 3 percent of the gift value; you pay by credit or debit card. From now through the end of 2015, SparkGift’s charging only the $2.95 for all gifts up to $100.
You provide the name and email address of the gift recipient (the parent’s name and email address if the child is under 18) and SparkGift sends the email when you tell it to.
“The best way to teach kids about investing is to get them investing,” says Peggy Mangot, SparkGift's CEO. “If you give kids the experience of investing in a fun, hands-on way with their own money, they'll remember and apply those lessons for a lifetime.”
The fun part of giving investments as gifts is having the chance to talk with your son, daughter, niece or nephew about them and track the fund or ETF together over time. That’ll give you both a chance to talk about the nuts and bolts of investing in a way that takes the mystery out of it and gives you something to bond over. Ho ho ho, ha ha ha, fa la la.