Think back to when you were a kid and someone gave you cash.
Now, try to remember one thing you bought with that cash gift that truly impacted your life.
Bet you can’t.
Kids are hardly financial gurus and dishing out wads of cash certainly won’t help them understand the value of hard-earned dollars. It also won’t create a lasting memory they’ll cherish for years to come.
If you want to give the gift of money, it’s much smarter to direct that money toward a valuable investment that teaches children financial lessons and grows with them over the years.
But with so many ways to give a monetary gift, it can be tough to decide the most sensible method.
Luckily, this article dives head-first into the best and most educational ways to give financial gifts that matter to children without handing over cold-hard cash.
You’re looking to gift money to a child you love, but you don’t want them to fritter it away. Because realistically, how much will they love that latest fad toy next year, or even next month?
In the same breath, you don’t want to dictate how they should spend the money you give them. After all, it’s their gift.
Contributing to an UGMA (Uniform Gifts to Minors Act) account sounds like your ideal solution.
Traditionally, you can’t contribute to conventional UGMA accounts.
However, when parents or guardians set up an UGMA with EarlyBird, you can.
Known as a custodial investment account, the money in an UGMA belongs to the child but an adult manages it until that child comes of age (18 years or older, depending on the state).
Unlike a 529 plan (described below), which is only for education, children can choose where to spend the gift funds in an UGMA once they become an adult.
But, here’s the best bit.
An EarlyBird UGMA account teaches children about investing, so they can make solid financial decisions once the money is in their hands.
By watching their money grow in an expertly crafted ETF-based portfolio, kids with EarlyBird accounts have a far clearer idea of the benefits of securities, bonds, and compound interest.
When you consider that the average grandparent gifts $14,490 to their grandkids over an 18-year period, doesn’t it make more sense to gift them both a nest-egg and a financial education?
We know what you’re thinking — this all seems a bit complicated just to give a child a little cash.
Luckily, with EarlyBird, you don’t need to worry about starting an UGMA to contribute to one.
Unlike every other UGMA account, EarlyBird lets multiple people contribute to an already-established account.
Once a child has an EarlyBird custodial account, anyone can quickly and easily contribute to it, without needing to set up a new account for that child.
In just a few clicks, you’re investing in a child’s future without reams of paperwork and armies of gatekeepers.
EarlyBird is committed to aiding financial literacy in children.
Working with top financial advisors, every portfolio is expertly-crafted and tailored to the child’s lifestyle.
By doing this, EarlyBird helps you to teach the kids you love about investing in their own future.
Forget boring, unrelatable finance lectures over the dinner table. EarlyBird is the first and most logical investment vehicle that teaches a child about the value of compound interest, with a fund that actually belongs to them.
Kids can watch their money grow, benefiting from and learning about making smart financial decisions first-hand.
Like EarlyBird’s UGMA accounts, 529 plans are also custodial accounts. An adult holds the reins on the savings until the child comes of age.
But, while UGMA account-holders can spend the money on anything they dream of, savings in a 529 plan are for educational expenses only.
For kids heading to college or a vocational training school, this is great news. That 529 money can cover tuition expenses, school supplies, and accommodations in some cases.
But, if that child doesn't end up pursuing further education, they’re in muddy water. Yes, they can take the cash out, but they’ll suffer a hefty 10% penalty and the income becomes taxable.
Let’s just picture that for a moment.
On average, grandparents who contribute to their grandchildren’s college funds give an average of $4,025. If the child chooses to take an alternative career path that doesn’t require further education, they’ll lose $800+ of that money.
This is an extremely high possibility in this digital day-and-age where free online training is abundant for jobs that don’t need degrees. Think coders, digital marketers, web developers, graphic designers, online entrepreneurs; the list goes on.
And that’s before you even start to consider high-paying careers with extensive on-the-job training, such as paralegals, insurance brokers, real estate agents, etc.
In short, 529 plans are a stellar idea if you’re sure that kid is off to college. But can you really be sure when the world has become so unpredictable?
If you were to invest that money in an EarlyBird account instead, the child can use it for college if they want, but can also redirect it without penalty if they choose not to study later.
529 plans aren’t really designed for teaching financial lessons for kids — they’re just about saving for college.
If you’re looking for a secure, self-contained way to gift money, think about a Certificate of Deposit (CD) or savings bonds.
In both cases, you’re locking up funds for a certain time frame in return for a set amount of interest. For example, with a 20-year savings bond, the money doubles.
Banks issue CDs and US government issues savings bonds — and both are protected against losses.
Both options require you to set up custodial accounts for the recipients, which can be a little tricky if the child isn’t yours.
To get around this, you can buy paper savings bonds as gifts — but only if you use your federal income tax return refund to make the purchase.
That’s why it’s simply easier to gift money straight into an EarlyBird account that allows multiple contributors.
CDs and savings bonds are a great way to teach kids about investment risk management.
Take CDs, for example. Since there are 12 different types of CDs, it’s a prime chance to teach about the trade-offs between risk, returns, and investment durations. You could even let the child choose how to reinvest the money once their CD matures.
Gift stocks are a great way to teach kids about investing in the stock market.
They can also be a pretty fair investment if you’ve got a good eye for stock picks.
Imagine all those grandparents who bought their grandkids 11 cents share in Apple back in 1981. Those kids (now grown-ups) are laughing since Apple stocks today are worth $115 apiece (Oct 20th, 2020) — that’s more than a 1,000% increase!
The problem is that giving stocks has become far more difficult than it used to be.
Previously, you’d simply buy a stock certificate and hand it over to the gift recipient.
Nowadays, you must give stocks through a custodial account. This makes the gift giving process an arduous task if you’re trying to give a financial gift to your godchild, niece, nephew, best friend’s kid, or anyone else who's not your child.
If you want to give stocks in this day-and-age, it’s far easier to do this via an UGMA account.
However, as we’ve mentioned above, conventional UGMA accounts don’t let multiple people contribute, so you only have two options.
Go through the whole rigmarole of setting one up. Or send the money for the stock to the sole custodian and ask them to purchase the stock for you (and hope the price doesn’t suddenly jump up in the time it takes to go through the whole process).
Stocks are a prime opportunity to teach children about how the stock market works and the factors that affect it.
Start by picking stocks from companies that the child would be interested in, such as Disney or Pixar. Children are far more likely to engage with financial lessons that feel relevant.
Teach the child about financial decision-making, distinguishing between good and bad investments within their areas of interest.
You can also use this opportunity to teach the importance of investing in companies whose values you believe in as well as those seeking to create a better future.
Gift cards are a flexible way to give money so a child can pick the gift they’d like themselves.
Since you can send gift cards electronically nowadays, you don’t have the worry of sending a cash gift through the post.
However, while you’re giving the child a choice on where to spend the money, you’re stuck in the ‘spend spend spend’ cycle.
Like handing over cash, gift cards don’t teach financial responsibility and do little to increase a child’s financial literacy. Instead, the only lesson learned is that money given is money to spend.
Unfortunately, gift cards teach children the wrong financial lessons. As they can’t invest or save money on gift cards, the only lesson children learn is that monetary gifts are there to spend.
As you can see, you don’t have to dole out wads of cash to give a monetary gift to a child you love. Instead, it’s far wiser to choose an alternative financial gift that helps teach the value of money.
If you really want to help children learn about money so they can make smart financial decisions for their own lives, why not contribute to their EarlyBird UGMA account? That way they can watch their money grow over the years and have a choice on where to spend it later.
EarlyBird makes it easy for you to invest in a loved child’s future and help them grow into financial literacy. Download the app today to give your loved one a lasting gift for their future.