We all have different gifting styles. Some of us are DIYers, some are risk-takers and many of us just ask our giftees for their wish lists. You might be someone who always gives money during the holidays or, more likely, someone who likes to receive money. Cash is convenient and easy for the gift-giver, and it lets the recipient save or spend it on what they want.
What about gifts for children? While it’s hard to figure out the coolest toys and tech for tots, you might also hesitate to hand over cash to children.
In fact, giving kids money for the holidays can be a great to teach them about personal finances. There are a couple of different approaches to helping teach the children in your life about managing money.
1. Giving kids physical money
Remember what it felt like to receive money as a child? A little bit of cash can go a long way in making a young giftee excited. Plus, familiarizing children with money can help them learn how to spend and save responsibly. Even if the child might want to spend it all in one place, that could lead to valuable lessons early on. You can also take the opportunity to help them open a custodial savings account to teach them about saving money. Parents.com suggests that between the ages of 6 and 8 is the perfect time to introduce kids to bank accounts and saving.
2. Giving money toward college tuition (529 contribution)
A 529 plan may not spark the same excitement as unboxing a PlayStation 5, but it does offer a tax-advantaged way to save and invest for qualifying education expenses, like paying for college tuition. While your giftee may not fully appreciate it right now, it’ll be plenty important down the road. Such a gift can be used to teach a kid about the importance of self-investment via education.
Contributions toward a 529 plan can be invested in the market to later be withdrawn without capital gains taxes, much like a Roth IRA. There are several ways to approach making a 529 gift contribution for a minor. For example, you can contribute to an existing account using the gifting platform that most 529 accounts offer.
You can also open a new custodial 529 account on behalf of a child, even if you’re not their parent or legal guardian. You’ll need to have the child’s Social Security number (or Individual Tax Identification number) and date of birth. If for whatever reason you don’t have that information, you can open an account in your own name and then change the beneficiary of the plan at a later date. You can open 529 accounts with most financial institutions, including Fidelity, Schwab and Vanguard.
What’s better, 529 accounts are generally sponsored by the state you live in, and more than half of states offer tax benefits for contributions. Check out this 529 contribution tax break calculator from Vanguard to see how much you could save in taxes when gifting to a 529 account.
3. Giving kids stock
Gifting stocks can be a great way for kids aged 13 and older to get interested in investing and understand exponential growth. It also offers opportunities for kids to learn about business finances, accounting and taxes, and to potentially affect their future net worth.
You have a few options to give stocks to kids. If a child doesn’t already have a custodial account with a brokerage (generally under the ownership of parents or grandparents), you can open one for them with you as the custodian. When the child turns 18, they then gain control of the account. When presenting your gift, you can discuss the basics, such as how to buy stocks, market versus limit orders and dollar-cost-averaging.
Alternatively, you can transfer stock purchased in your brokerage account to theirs if you have their information, or you can use a stock-gifting app, like those featured in our guide on how to gift stocks. While most brokerages offer app access for custodial accounts, you may choose to go with a kid-specific investing app, such as BusyKid, which aims to teach children about managing money and investing.
If you have a tech-oriented youngster on your holiday shopping list, cryptocurrency may be an interesting gift. The cryptocurrency world is more complicated than that of brokerage accounts, but there are many services and products with a wide range of options for gifting crypto.
You can go the simple route and use a service like Cash App to send crypto to people aged 13 to 17 who sign up for an account with a parent or guardian sponsor. You can send bitcoin easily to their Cash App account, where they can then choose to store it in the app or move it to a different storage vehicle, or wallet. While Coinbase also has a gifting feature, it no longer allows users under the age of 18. Another option is to gift a hardware wallet, perhaps with some crypto already stored on it. This is a more secure way to store cryptocurrency, but may require a little extra instruction.
5. Giving kids gift cards
Some folks prefer to give gift cards over cash for multiple reasons. Sometimes cash isn’t appropriate, or it’s too impersonal. Gift cards can be bought for specific retailers and offer a more structured approach to spending.
Gift cards can also come in the form of general “debit” cards, like Visa or Amex gift cards, which give kids more freedom to choose what they want to buy. These could give kids experience using debit and credit cards to make purchases and help them learn about managing an online account.
As the gift-giver, you may even be able to save some money by buying gift cards at a discount. Check out our guide on buying and selling gift cards to learn where you can safely save.