This time of year, many parents and grandparents are considering giving their children and/or grandchildren a financial gift. Whether it’s cash or a 529 plan or a security in a brokerage account, finance-related gifts provide a unique opportunity to engage and educate the recipient about money and the role it plays in his or her life.
Thoughtful planning can go a long way to fully leverage the experience. Before you write the check or transfer the stock, consider your goal in making the gift(s).
- Is it to help the recipient build awareness about saving and investing?
- Is it perhaps to build a bridge to a financial advisor who may serve as their money mentor for the near term?
- Is it to help the recipient learn lessons related to deferred gratification by saving for a meaningful life goal, like continuing their education?
- Or is it to instill important family values related to gratitude and generosity by researching local community issues/challenges that are important to them and then allocate money and time to specific charities that are working to address such issues?
Perhaps it’s all of the above.
Whatever your goal, it’s important to view these opportunities for what they are–experiments to build curiosity and knowledge about money and the role it plays in individuals’ lives. If you frame the experience through this lens, you likely will have a more significant impact on that person’s longer-term money narrative than a once-and-done approach.
A few tips
- Explain to the recipient why you are giving the gift along with any expectations for said experiment. Broad goals are better. Absent direct conversation and guidance about the process, you may miss the opportunity to fully leverage the experience.
- Whatever the recipient decides, don’t judge them for their choices. Rather, get curious about why they did, what they did.
- It may be helpful to collaborate with a third-party advisor (i.e. financial advisor) to help craft the experiment and “administer” the process, particularly if they are going to be one of the resources for the young person.
- Make sure the financial gift is age appropriate. Too much money, too soon can be overwhelming and confusing. My council to families: Think big, start small.
- Consult your tax professional to determine what, if any, tax implications there may be prior to making the gift.
- And don’t forget, if you are a grandparent and want to do something for your grandkids, talk with their parents first.
Learning about money is a multilayered experience and the more opportunities young people have to experiment and make mistakes, the higher the probability they will yield significant learning from the experience.
Here are a few ideas to actualize this experiment:
- Open a small brokerage account for a child with the instruction to work with an advisor (likely pre-arranged) who will help them learn about investing and building their financial vocabulary.
- For older children who may have part-time jobs you may offer to match some of the money they earn that is directed to a specific, longer-term saving goal, like college or a car (think deferred gratification).
- Consider Kiva gift certificates for elementary- and middle school-age-children to help build their knowledge and curiosity about philanthropy.