Do you want to contribute to a child’s financial future? Start with one of these financial gifts for kids!
Forget the cheesy toy gifts that kids will break and forget about in a year (a few days!) and help kids start down a secure financial path with one of these financial gifts for kids.
What is a financial gift?
I would define a financial gift as something that is given to help another party learn about money or acquire money.
Financial gifts are a wonderful way for family members and friends to contribute to a child’s future and long-term goals (even if the recipient is still just a baby!).
Even though financial gifts aren’t the most exciting to open, parents will be most grateful for these things that will help their children in the long-run (and kids will be appreciative when they become young adults!).
Financial gifts can benefit children in many different ways, by:
- helping them achieve their educational goals
- providing opportunities to travel and learn more about the world
- giving assistance during hard times or unexpected situations
- teaching them about setting financial goals
- offering a way to learn the basics about investing
Before opening or contributing to a financial account for kids be sure to talk to a qualified tax consultant or financial planner, as tax laws and rules can change.
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Financial Gifts That Help Contribute to a Child’s Financial Future
1. Savings Bond
Savings bonds make wonderful gifts. Some basic facts about savings bonds:
- The money you use to buy a savings bond is a loan to the US government.
- This loan will earn interest over time (for up to 30 years).
- You can gift them to minors.
- They can be redeemed after 12 months; however, if you cash them too soon, you can lost interest money or even have penalities.
- They can be purchased directly through www.treasurydirect.gov. The recipient (or in the case of a minor, the recipient’s parents) will need a TreasuryDirect account.
2. College Savings – 529 Contributions
College can be very expensive. With rising college costs, the gift of money towards a college education will be very appreciated. Even if the child is too young to understand now, he or she will be very grateful when they are months away from planning on going to college.
A popular option, the 529 College Savings Plan, is a tax-advantaged plan for families to save for college expenses. You can invest money toward a child’s college expenses or prepay for tuition.
Actually, you don’t need to use the money strictly for a traditional 4-year college.
While the rules are different in each state, the basic benefits of putting money in a 529 plan are numerous:
- The money will grow tax-deferred.
- Qualified distributions are federally tax-free.
- If the beneficiary does not use the money, the 529 can be transferred to another relative (usually a sibling).
- Relatives can easily gift money to a 529.
- Money in a 529 can be used for tuition for children under 18 to attend private schools.
- Funds can be used for “qualifed educational expenses” which can include:
- elementary to post-secondary education, for example, covering tuition at a private school from K – grade 12 (up to $10,000 per year)
- books and supplies in college
- tuition and fees in college
- room and board in college
- a computer
- community college, trade schools, certificate programs (like cosmetology, trade school, IT certificates)
What if the child doesn’t go to college?
- There are other options besides attending a traditional 4-year college (trade school, certificates, etc.).
- You can transfer the account to a family member.
- The money can be used to pay for an apprenticeship
If you make a withdrawal for expenses that are not eligible, you will be subject to a 10% penalty.
Related: How to Avoid College Debt
3. IRA Contributions
If you know a teen who is working and has earned income from a job, you can contribute to a Roth IRA for them (up to the current allowed amount and you can’t exceed the child’s earned income for that year).
4. Savings Account
Start out with a simple, fun piggy bank or spend, save, give envelopes when kids are younger, but then help them graduate to an actual savings account at a local bank (upper elementary school is a great time to start).
Having a savings account will be a great way for kids to learn how banks work. Be sure to talk about interest and discuss the basics of a bank statement with them.
5. Debit cards for kids
When kids get a big older, consider using Greenlight, a debit card made specifically for children. Parents can control the card through an app, set up an automatic allowance, offer interest rates, and allocate chores.
Stocks are another great financial gift idea for kids.
You can gift stock, transfer one you already own, or buy shares through a company that offers stock gifts.
While it can be exciting for a kid to say that they own a piece of Disney or Lego, it will also be helpful to explain to them the long-term benefits of waiting patiently for money to grow in investments. Be sure to talk to them about the basics of investing.
Along with a gift of stocks, consider offering financial advice.
7. Financial Advice
Many people wait too long to have the financial talk with their kids (if they even talk about finances and money at all).
Help your child understand the value of money, savings, and investing, by gifting them a book about money or offering to take them to speak with a financial advisor.
Related: Financial Lessons for Teens
8. Certificate of Deposit
A Certificate of Deposit (CD) are a wonderful option to saving money. You open a CD for a term (from a few months to years), with longer-term CDs typically having higher interest rates. If you want to withdraw money prior to the end of the term, there will be a penalty.
Cash is always a welcome gift (at least for me!). If you give cash, you can make it a lesson. Give bills and coins in different denominations and chat about what they can do with it (spend or save, how to budget it). You can give the cash along with spend, save, give envelopes or jars to help solidify the lesson.
Fun coins are always a neat option too – $1 gold coins, silver dollars, $2 bills, etc. Foreign coins can be fun for comparison too.
Financial gifts that teach kids about money
Games are a great, fun way to learn about money. Try one of these:
When you play money games with kids, this gives a great opportunity for you to explain the basics about budgeting and investing (better than a boring lecture on finance from you!).
Use the game scenarios to make connections to real-life situations that they can relate to.
A wallet and pretend money for them to practice with and learn about coins.
3. Books about money
Or books like Financial Basics: A Money-Management Guide for Students and Get a Financial Life for older kids and teens.
The Simple Path to Wealth is my favorite book and would be great for teens and college students, or parents of young children. The book is based on a series of blog posts by the author about simple investing for his daughter (who wasn’t interested in complicated explanations!). It’s simple, straightforward, and really helped me understand what to do with my money.
Investment or money books can teach kids:
- the importance of saving
- understanding the value of long-term patient investing
- the terror of debt
Related: Money Books for Kids and Teens
Give a child you love a thoughtful gift that will last a lifetime with one of these financial gifts for kids. Help prepare them to be financially successful adults. What is one financial gift that you appreciated receiving or that you have given to a child?