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 contribution to a 529 plan or a security in a brokerage account, financial 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 help you fully leverage the experience. Before you write a check or transfer stock, consider your goals in making the gift(s).
- Is it to help the recipient learn lessons related to deferred gratification by saving for a meaningful life goal, like continuing their education?
- Is it to help the recipient build awareness about saving and investing?
- Is it to build a bridge to a financial advisor who may serve as their money mentor for the near-term?
- 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 allocating money and time to specific charities?
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 their lives. If you frame the experience through this lens, you likely will have a more significant impact on that person’s long-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. Broad goals are better. Absent direct conversation and guidance about the process, you may miss the opportunity to fully leverage the experience.
- When giving cash, don’t judge them for their choices. Rather, get curious about why they did, what they did.
- 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 valueable insight.
Here are a few ideas to actualize this experiment:
• Consider Kiva gift certificates for elementary and middle school-age children to help build their knowledge and curiosity about philanthropy.
• For older children who 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).
• 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.
Gotta Have It Now! Wow!
Projected spending this holiday season = $678 billion, up 4% from 2016—National Retail Federation