As we approach the gift-giving season for many families, with Hanukkah starting on November 28, Christmas on December 25, and more than a few families celebrating Christmas somewhere between Thanksgiving and New Years, I wanted to suggest a very thoughtful idea for the young ones in your life.
If you have a young child that you need to give a gift to this holiday season – say, a niece, a nephew, or the child of a friend – it’s probably tempting to drop somewhere between $10 and $25 on a gift for that child.
Instead of spending money in that way, split the amount you would give to the child into two piece.
With some of the money, buy a very small gift. Ideally, keep this under $5. You can get packs of trading cards, LEGO mini figures, and many other surprisingly fun items for under $5. For example, here’s a quick search of the toys and games at Amazon for $5 or less.
I look at this type of restriction as a challenge more than anything else. What kind of gift can I get for a young child that they will actually enjoy at this price point? The items you find typically end up being great “stocking stuffer” items. Honestly, many of the gifts I remember most from my childhood were just that – stocking stuffers.
What about the rest of the money? Along with the gift you give to the child, include a little card that says “I put $X into college savings for you.”
When you first give this gift, take the parents aside and tell them that you opened a 529 college savings account for their child with the child as beneficiary and that you’ll be putting some of the child’s gift from each gift-giving occasion into that account.
Let’s say you start this at birth. If you put $20 into a child’s college savings account for each birthday and Christmas and the account earns a 7% return on average, then you drop in an extra $100 on the day they graduate from high school, you’ll be handing that child $1,500 to help with college. If you put an additional $5 a month in, you’ll be handing that child $4,000 for their college expenses.
Rather than giving that child a bunch of forgettable gifts over the years, you can hand that child something that’s going to make a real difference in his or her life.
So, how do you do this? It’s simple. Open a 529 college savings account with the child as a beneficiary. There may be financial incentives to open one with the program in your state, particularly if you pay income taxes in your state, so check out the 529 plan for your state first. If there aren’t additional incentives, you can look at a comparative list of plans. I’ve been using College Savings Iowa and I’ve been very happy with it.
The idea here is that you’re trying to balance what a child values right now versus what a child will need down the road. Right now, they want something that will be fun to play with – but they also simply want a sign that you care. Later on, they’ll have a much stronger view of their financial needs.
This type of “split gift” handles both ends of the equation. They receive a gift that’s fun right now and that shows that you thought about them and care about them – but, later on, you’ll be able to give them a real boost as they transition into adulthood.
If you have some little ones in your life – particularly newborns – consider this as a method for making a real difference in their life, not just today, but later on and throughout whatever journey their life may take. Remember, knocking a couple thousand dollars off of their college costs likely means a smaller student loan burden for them.
It’s a gift that matters now and later.