Financial confidence: The gift that keeps on giving
Gift-giving is an important and cherished part of the holiday season for people around the world. However, even the jolliest can sometimes find themselves wishing that holiday consumerism was replaced by something a little less — let’s face it — frivolous and wasteful. Instead of splurging on unnecessary gadgets, why not give friends or family a gift that will pay dividends (perhaps literally!) for years to come: financial confidence. With a little creativity, you can help set your loved ones on a path to prosperity with a “ho, ho, ho,” or a “habari gani?”
Fun stocks for young investors
If you’re looking for a financial gift for a young person, consider stock in a company they know and patronize.1 You can provide funds to start a portfolio and discuss what companies or brands they feel might grow. Tweens and teens, after all, are at the forefront of the tech world. Gifting them a piece of a gaming company or app developer they know can get them interested in investing. They’ll learn to follow their favorite brands not only as consumers, but as shareholders as well.
With the soaring cost of college, contributions to a 529 plan make an attractive gift for a child or parent.2 529 plans are tax-advantaged savings plans specifically designated for education costs. With the rising costs of college and increasing awareness of the burden of student debt, having some money in a 529 (whether a savings or prepaid plan) reassures kids and parents alike that there is a foundation for college. Annual contribution limits for 529 plans are quite generous but note that the IRS counts a contribution to a child’s plan as a gift for tax purposes. This means they will count toward your annual $15,000 gift tax exclusion. You can also “superfund” a 529 by contributing up to $75,000 in a single year and treating the contribution as if it were spread over a five-year period. Talk to a tax professional for details.3
Roth IRA contributions
Roth IRA contributions are a tax-advantaged way to encourage financial responsibility for high schoolers, college students or recent grads. Or course, the earlier they start saving, the better. If you’re considering a Roth IRA contribution, note that the account holder must have received some compensation to be able to contribute, even if just from a part time job like babysitting. In 2019, a person filing as single or head of household has a maximum contribution of $6,000 or the amount of their total annual income, whichever is lower.4
Savings bonds can provide a guaranteed payout over the long haul and are a traditional holiday gift in many families.5 Buying and holding savings bonds is one way to teach young savers patience and how deferring spending today can create a larger payout in the future. The U.S. Treasury website makes it easy to give a bond as a gift.
Learning how to manage the money you earn and understanding how to plan for the future can be very valuable skills. Thankfully you can pass on this knowledge as a gift. The traditional approach is to gift a book covering basic financial literacy, investment or retirement planning, and this remains a tried and true option. There are even free courses of instruction, from schools like Brigham Young University and Purdue, although it’s hard to pull off giving free stuff as a gift. Of course, the onus is on the student to study and apply the knowledge.
Giving the gift of financial confidence —freedom in the near future, and a potentially greater payoff down the road — is a move you’ll never regret. If you’d like more ideas for how to spread the holiday magic of saving and planning, set up a meeting with a financial professional for yourself or a loved one, and make the happiest time of year even happier.
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2021-130349 Exp. 11/2023