At birthdays, weddings, graduations, retirements and gift-giving holidays like Christmas, the ideal gift is often money. After all, giving someone a financial gift ensures that they can use the cash for what they want and need. No more worrying if Aunt Edith will like her holiday sweater! Give her a nice card with $25 enclosed instead.
You might wonder about the etiquette of giving financial gifts. Some people think that a gift of money indicates a lack of thought and care toward the recipient. Other people feel that money is too plain to be a gift.
There are also situations where you might want to give cash equivalents as gifts to family members. You’d like to contribute to your nephew’s college fund, for example, but you’re unclear on the procedure.
Here’s a primer on how to give financial gifts in many situations.
Remember the Gift Card
Gift cards are virtually a cottage industry. Department stores like Target offer many different types of gift cards in a variety of denominations. The beauty of gift cards is that they look festive for the holidays and they can be enclosed in holiday or celebration cards. They also allow the recipient to purchase something they like.
You can choose a gift card for a specific retailer, such as Amazon, or a more general one. American Express, for example, offers a gift card that can be redeemed in any store that accepts American Express cards.
Give Cash in a Celebratory Card
You can also give plain old cash. One nice idea is to give cash in a celebratory card to young children who are learning the ways of currency, savings and spending. A birthday cash gift can be an occasion for $50, which they can either put in a piggy bank or spend. You can also discuss allocation. Should they save $25 and spend $25? This is good for birthdays and elementary school graduations.
If the recipient is old enough, it can also serve as a nice introduction to bank accounts and money. You can go with the recipient to the bank or discuss the pros and cons of banking at a branch versus banking online.
Purchase CDs or Stocks
Financial gift-giving doesn’t have to center around cash itself. You can also give investments that are cash equivalents, such as certificates of deposit (CDs) or shares of stock.
You can give $14,000 per year to any person without a penalty. Anything higher than $14,000 triggers the lifetime Federal gift tax exclusion. If you’re married, a couple can give $28,000.
The gift of CDs and stocks can be combined with lessons on money and finance. You can buy a CD where the recipient has a bank account. If it’s a young person or teenager, you can go with him or her to open a savings account and place the gift in it.
You can teach young people about stocks by gifting them with stocks from companies they like. McDonald’s or Facebook are good examples. You can retitle stock you own to give a gift, or simply buy stock with the intention of gifting it.
An online site, Stockpile, allows young people to purchase their own shares with an adult. Stockpile offers stocks of familiar brand names to young people, such as Hershey’s. Consider giving one or two shares as a gift. The recipient can add to the stocks over time. Stockpile allows purchase of fractional shares, which makes purchase easier and more convenient.
Open an IRA
Your options for cash gifts that aren’t physical money don’t have to end with cash, CDs or stock. You can also open an IRA as a gift. A gift of $2,000 placed in a newly opened IRA for a baby has the potential of appreciating to $1 million by the time the baby retires. It will also work for young children and teenagers, to teach them about retirement savings.
An IRA as a gift will also work for working adults and people who will soon retire. Many older Americans have not saved sufficiently for retirement, so contributions could be a thoughtful and appreciated gift.
Contribute to a 529 Plan
A 529 plan is a college savings program. It’s called a 529 after the relevant section of the Internal Revenue Code. Parents need to set up a 529 account, but anyone can contribute to it.
There are many fun and rewarding ways to give financial gifts. They make excellent presents because they provide pathways to financial education and long-term financial planning.