Terry Savage: Give the gift of financial security
Every year around this time, I try to make helpful holiday gift suggestions for the younger people in your family. Toys, clothes, and digital games rate highest with young people. But the holiday season is a great time to spark new interest in money matters — or, at the very least, create a gift that will last longer than just one season.
Now is the time to get started, since many of these require advance planning or ordering.
Every year, this easy gift tops the list. Open a 529 college savings plan for your child or grandchild, starting when he or she is an infant. The money you contribute grows tax-free for college and can be used for school in any state. Most plans offer simple age-based investment options, more aggressive for young children and growing more conservative as college nears.
You can invest in any state’s plan, but some states (including Illinois) offer a deduction against state income taxes for your contribution. To learn more and get direct links to top-rated plans, go to SavingforCollege.com. Once the account is opened, you can continue to contribute on birthdays, holidays and special occasions. You can gift up to $16,000 per year for each child — or combine five years of the allowable gift all at one time! This is not just a tool for the wealthy. Most plans let you start with as little as $100.
Introducing a child or grandchild to sensible investing is a gift that should start early, for example by pointing out that favorite sneakers or toys or clothing brands are likely created by a publicly traded company whose shares you can buy.
Stockpile.com is still my favorite way to play this game, although it recently changed to a subscription model. For $4.95 per month you can open one adult account and five kids' accounts, where you can buy fractional shares of almost any stock or ETF, or even cryptocurrencies if you’re still so inclined! Stockpile makes it easy to give an emailed “e-gift card” that allows you — or the child — choose a stock to buy.
The account itself is easily opened as a custodial account for a minor when the gift card is redeemed. But one warning: When it comes time to apply for financial aid for college, money in custodial accounts for the child weighs far more heavily against the family in the financial aid formula. So this should be viewed as an investment teaching tool instead of a college savings plan.
You can also open a custodial brokerage account at Schwab, Fidelity or most major brokerages at a very low cost. The benefit of Stockpile is the online teaching tools that help you create knowledge as well as money!
My favorite gift for your youngest children or grandchildren is the Money Savvy Piggy bank, a translucent plastic piggy bank that has four chambers: Savings, Spending, Donate and Invest. It teaches the child the value of accumulating money — and making plans for how to use it. It’s available in five colors, so each grandchild can have one. Get it at MoneySavvy.com for $21.99. Order now for holiday delivery.
Series I savings bonds have been making headlines lately with their eye-popping rates. If you purchase now, you will receive 6.89% for six months. After that, the rate will be readjusted based on new rates set May 1 and November 1, reflecting inflation adjustments. These are a long-term holding, since penalties apply if you take the money out before five years. Buy them through your TreasuryDirect.gov account and hold them in your “gift box.” You’ll need the recipient’s Social Security number. At TreasuryDirect.gov, search “gifting bonds” for a video explaining the process.
Here’s a gift for your adult children — the gift that makes it easier for them to help you in case of emergency. Download my free Personal Financial Organizer form using the link in the top right corner at TerrySavage.com. You don’t have to tell your adult children who gets what — but you should give them a guidepost to finding your financial accounts, passwords and advisers if you’re unable to act for yourself. Let your trusted adult child know where you have stashed your completed form — and print out blank forms for each family member to do the same.
Here's wishing you a financially sensible holiday season. And that’s The Savage Truth.
(Terry Savage is a registered investment adviser and the author of four best-selling books, including “The Savage Truth on Money.” Terry responds to questions on her blog at TerrySavage.com.)
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