Smart Financial Gifts for Kids: Building Future Wealth

No matter how old you are, getting a gift is always an enjoyable time. That is of course if it’s a good gift.

When buying for kids, you usually go down one of two routes. The first route is buying toys, which will make you the favorite uncle, brother, father or pretty much favorite anything.

The second route is buying clothes, which makes you the most hated person this kid has ever seen. From my own personal experience, there is no greater reason to cry in your entire life, then to open a sweater on your ninth birthday. Family and friends that do that should be quarantined together on an island, or something comparable.

Financial Gifts for Children

But there’s a third option that a lot of people don’t explore. What if on Johnny’s 10th birthday, you decided to give him something that begins to teach him the importance of finances in his life?

Granted, the younger the child, the less likely he or she will understand what you are trying to do here, but there are an ample amount of gift giving ideas that fall into the financial category, and they all have good value.

Cash

The first and most obvious gift that you can give would be cold hard cash. When I had cash as a kid, the world looked different. Possibilities were endless and I was pretty sure I could have purchased any country I wanted for only $20.

The problem with giving cash as a gift is that it really doesn’t do anything to teach children about being responsible with their money. The cash wasn’t really earned so the value it holds isn’t much. While you are certain to be hugged and praised for quite sometime, you can do better.

Savings Bonds

A step up from cash, savings bonds can be absolute torture to a young kid. Having something so close to cash, yet being years away from being able to spend it is a great way to teach patience. (And a great way to be hated as well!)

Currently, you have two main choices for bonds, the EE and I. Double E-Bonds mature to the value printed on the certificate, whereas the I-Bonds mature to a value greater than that on the certificate.

I mistakenly assumed that I was given twice as much money because I always received EE-Bonds. Savings bonds are a good way to teach kids patience, which is a valuable financial lesson.

Coins – as Cash or Collectibles

Having a family of numismatists, coins were a large part of growing up for me. Each year my family would travel to a coin show or two and teach me about collecting. I learned how to spot forgeries, how to grade a coin’s condition and a lot about American history in the process.

To this day, my brother and mother are still avid collectors of domestic gold pieces and have even added paper money to their pursuit. Coins, and hobbies in general, are an excellent way to drive kids to work for what they want. Giving the gift of a rare coin could begin a quest for vast coin collection like no one has ever seen.

Just make sure you explain that your gift is worth more than it’s face value, as giving someone a penny for their birthday could be a big letdown.

Stocks & Other Equities

Getting a little more complicated now, stocks are a risky pick for a kid’s gift. There’s no guarantee that the stock will be around long enough for the child to take advantage of the monetary gain, so giving a stock needs to be more about handing over a certificate (Although stock certificates are pretty cool if you ask me).

Sit down and explain exactly what a stock is, how it works and how if they want to, they can add to the value of the stock over time. Try and get them to follow the company they are now invested in and hopefully you will find them, one day, watching CNN on their own time.

A cool way to do this is through Stockpile. Stockpile is unique in that it allows users to 1) buy stocks for themselves, and, 2) purchase stock “gift-cards” for others.

College Savings Account

A Coverdell Account is, in essence, a college fund for students to use for anything relating to the expenses of school. Anyone can contribute to a students account and as long as the child is under 17 years of age, they can be signed up for a Coverdell Account.

The immediate benefit is that the withdrawals are tax free, again as long as they are used for educational purposes. The contributions however, are not tax deductible. In the instance that the student does not pursue a college education, the funds are assumed as income and are subject to regular income taxes.

A 529 College Savings Plan is another way you can help a child save for college. You can compare the two accounts here: Coverdell ESAs compared to 529 Savings Plans.

IRA

Continuing to venture farther and farther away from the conventional, opening up an IRA that friends and family can contribute to is an off-the-wall idea that might just work, provided the child has earned income.

There are a few rules to note if you choose this option as (1) the kid must be working and earning a salary because the amount you can contribute is either $5,500 or his entire salary (whichever is smaller) and (2) it can’t be touched until the age of 59.5.

It’s a somewhat strange gift to give a teenager but if you’re looking to teach true patience, making someone wait over 40 years to see your gift is probably the best way to do it!

Related post: Estate Planning Basics

This guest post comes from Michael, a contributing editor of the Dough Roller, a personal finance and investing blog, and Credit Card Offers IQ, a credit card review site.