Thinking about giving someone a monetary gift? That’s a great idea — one much more likely to be appreciated than your best guess at an object the recipient might want or need.
That’s especially true for those ages 19 to 35. A 2015 study by the Harris Group found 72 percent of millennials prefer to spend money on experiences than material things, and a recent New York Times article discussed how young couples increasingly ask for money instead of more traditional wedding gifts.
"Gift givers want to prove how well they know a person by choosing a thoughtful gift, but people aren’t very good at anticipating what others want,” says University of Cincinnati Professor Mary Steffel, pointing to research showing most people prefer money over gift cards. "Gift givers tend to focus on what people are like instead of what people actually would like.”
Many find handing over a wad of cash to be somewhat impersonal, but several other options allow gift givers to offer money in ways that reflect thoughtfulness, stability and perhaps a bit more dignity. Consider this: Savings and investment vehicles are harder to part with than cash in hand, and as such they encourage the bearer to give more thought to future purchases.
One more note: if you’re a power shopper who considers finding gifts your creative outlet, consider turning that power toward the presentation of your monetary gift. Rather than just adding the document to a greeting card, you might get inspired by one of the fun ideas on Buzzfeed or Pinterest, using a copy of the actual certificate or some cash that represents that purchase.
Some of the best vehicles for gift giving:
CDs & Share Certificates
Issued respectively through banks or credit unions, these allow for a set APY over the lifetime of the certificate so you know exactly what they will earn, risk free. The recipient has the option of withdrawing or renewing upon maturity, making these an excellent choice for those wanting flexibility combined with ROI. Savvy parents and grandparents add to these every year and then gift them to a child at high school or college graduation.
A Money Market Account
These work like savings accounts; they earn money at variable interest rates, are typically subject to maintenance fees and minimum balance requirements and allow the recipient access at any time. Happily, they usually generate more interest than savings accounts. Consider this option if your intended recipient will need the money periodically; it could be a huge blessing, for example, to new parents, new college students or those trying to plan weddings or funerals.
A CESA Account
Basically an IRA a parent can open for his child’s education, the Coverdell Education Savings Account allows for the $2,000-per-child tax-free stashing of funds (and the earning of tax-deferred dividends) for education expenses starting in elementary school and ending when the bearer turns 18. A CESA can be started with as little as $50, automatic deposits can be arranged if you wish, and qualifying expenses include tuition, room and board, uniforms, transportation, books, computers and tutoring. Some caveats: Contributions are not tax deductible; tax benefits are lesser if the initiator’s household income exceeds $95,000; the CESA must start before the bearer is 18; the bearer keeps the money regardless of education and he must withdraw it by age 30 to keep it tax-free. CESA contributions can be a practical and meaningful gift option for birthdays, often culminating with a significant high school graduation gift.
A 529 College Savings Plan
Also known as Qualified Tuition Programs, these savings plans have no income limitations and may even offer tax advantages. Additionally, the funds remain in the giver’s name so as not to impair the student’s ability to qualify for additional financial aid when applying for FAFSA and scholarships. Learn more about 529 Plans here.
Shares of Stock in Their Favorite Company
If your loved one is a brand loyalist, why not give them a share of ownership in something they love? Although subject to stock market fluctuations and possible losses, gifting a loved one shares of stock in their favorite company is a novel way of introducing them to the investing world with the added perk of knowing they will most likely watch the stock value grow rather than spend all the money at once.
A number of other financial gifts would also make viable options; online sources mention down payments on houses or mutual funds. Effective financial presents for children were recently discussed in the Wall Street Journal, including individual stocks that reflect the recipient’s interests; Series I savings bonds; corporate bonds; investment accounts; Roth IRAs or 529 plans. Author Jonnelle Marte recommends tracking the markets and earnings with children to teach them investment principles.
Whatever financial vehicle you choose, know that you’re making a practical choice that most any recipient would appreciate.
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