As we enter the holiday season, you're probably starting to brainstorm gift ideas for your friends and loved ones. Putting cash in a card can be an easy, generous way to show someone you appreciate them, but there are other money gift ideas that may come across as more personalized and meaningful.
Whether you're shopping for a baby or an adult, here are some ways to give money as a gift.
Financial Gifts for Kids & Babies
Some financial gifts can be valuable for babies and young kids because they'll have more time to potentially benefit from compound interest and the tax advantages offered by certain investment accounts. Here are some financial gifts to consider for this age range.
Helping a child save for college can help reduce the amount they may one day have to borrow in student loans. 529 plan contributions grow tax-deferred and can be withdrawn tax-free as long as the money is used to pay for qualified higher education expenses.
Shares of Stock
Some kids may be excited to be a shareholder in one of their favorite companies. Purchasing a single share of stock for a child can help them learn about the stock market and potentially earn some money. Of course, this investment type can't guarantee growth, and may instead lose value over time. But even then it could still provide a learning opportunity.
A custodial account is a financial account that's set up by and administered by an adult for a minor. Money that's deposited into a custodial account immediately and irrevocably becomes the property of the minor. When the child reaches the age of majority, they can take over control of the account. You could open a custodial savings account at a bank to give to a child as a gift.
Certificate of Deposit
A certificate of deposit (CD) is a federally insured investment that offers a fixed interest rate for a set period of time. Generally, CDs with longer term lengths earn higher rates of interest.
Savings bonds offer fixed or variable rates of interest, depending on which type of bond you have. Bonds can be a great gift for a baby or a young child because they are structured to reward long-term borrowers. Savings bonds can earn interest for up to 30 years.
Donation to a Charitable Organization
For kids who have everything, consider donating to a charity in their name. You may want to consider a children's hospital, a wildlife sanctuary or an organization that aligns with something the child is passionate about.
Financial Gifts for Teens & Adults
For teens and adults, you may want to consider financial gifts that can help them establish good money habits and build their personal finance skills. Here are a few suggestions to consider.
Prepaid Debit Cards
Prepaid debit cards are similar to gift cards, except that they can be used to withdraw cash, pay bills and shop at almost any retail store. The cards are also reloadable, so if you're shopping for a teen, this gift could help them develop good money habits. Prepaid debit cards often come with fees.
Do you want to help a teen get a head start on saving for retirement? You can open and manage an individual retirement account (IRA) for someone of any age, as long as they earn income from a job or self-employment, such as babysitting, mowing lawns or other service. You can contribute up to $6,000 per child, or the amount of the child's annual earnings, whichever is smaller.
Personal Finance Books
Sometimes, the best financial gift is a gift of education. There are many personal finance books geared toward teens, covering topics like saving and investing, credit cards, budgeting and entrepreneurship.
Gift Tax Considerations
You can give fairly large financial gifts to a child without owing taxes on them. Grandparents who are in the estate planning process may consider giving large gifts to reduce their taxable estate.
The annual gift tax exclusion amount is $15,000 ($30,000 for married couples) per child in 2019. Taxes can be complicated, so if you're planning on giving a large financial gift, you may want to consult with a tax professional.
Financial gifts can have a lasting impact on a person's life. Whether you're helping a child save for college or teaching a teen a valuable personal finance lesson, your gift can be an investment in their future.