Mary and her husband set out to build a stock portfolio worth $25,000 as a college graduation present for each of their children. That’s a lofty goal. How did they do it? In her entry to the GRS video contest, Mary explained:
Here’s how Mary describes her method in a post at her site, Frugal to Rich:
When our children were born and people wanted to get a gift for the baby, we asked family and friends to give us the gift of money that we would invest for them. We felt this was a much wiser choice than some new toy that would soon be worn out or in which they would lose interest.
We set up a very low cost stock index mutual fund (such as VFINX), along with a general stock mutual fund for each child and started investing.
When the children were old enough to start working, we wanted to really encourage their frugal living and investing, so we made them an offer they could not refuse: For every dollar they contributed to their savings, we would match it — so they would double the amount of money they had to invest!
When Mary’s kids graduated from college (debt-free!), she and her husband transferred portfolio ownership.
I think this is a fantastic idea. It’s a great way to teach children about frugality, investing, priorities, and more. Do you know anyone who’s done this with their children? What other effective ways have you seen to teach kids about saving and investing?
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Absolutely a great idea. It’s important to teach kids young that money has multiple purposes. It’s not just to spend. It’s also to save, give to help others and invest.
I have a one-year old son and we started a similar thing. We’re probably going to choose an index ETF but will have it set up by the end of August – still doing a little research. Because I target saving 40% of take home we’re going to have a “savings” jar for our baby where he will put 40% of whatever he gets. That money will go into savings for him and we’ll deposit it together. That’s the plan for now until we think of something better… We’ll evaluate as we go.
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I don’t have kids, but I do think it’s very important. I don’t remember who it was, but I had someone in my childhood who encouraged me to save…it may have been all of my grandparents, actually. I think one of them (or maybe my mother) offered to match what I saved, at least up to a point (not every dollar).
I wish they knew more about stocks and non-bank investments. I’d like to invest in some stocks without going through a financial planner, but I have no idea where to even start. I am in Canada, but I don’t even know if that makes a difference in regards to stocks.
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Although I don’t have any children, I have tried to get my friends to do the same. It hasn’t happened yet. I am interested to know how did Mary contribute towards the stocks? What kind of an income did her family have to work with? Did she also get a college plan of some sort for the children since they graduated without any college debt? Her website is not very detailed, it seems more like an infomercial than a blog.
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Skeptical Housewife:
You can open a self-directed account using an online discount broker like TD Ameritrade (the one I use), etrade, Charles Schwab, etc., and buy and sell stocks, mutual funds, bonds, ETFs, etc.
Below is the information I got from my TD Ameritrade “help” section about non-us residents opening accounts.
I know you don’t want to go “through” a financial planner, but it may make sense to go to a fee-only investment advisor in your area just to have someone take a look at your finances, goals, objectives, etc. For a few hundred dollars (maybe less) you should be able to have someone sit with you for an hour or so and help you get started.
You could also open an account like TD Ameritrade or something and go to their education section. TDA has an amazing one. I’m sure the others are good too, but I haven’t seen them myself.
Good luck!
TD AMERITRADE welcomes international clients. The following guidelines apply:
•If you are not a permanent U.S. resident, you must complete the IRS W-8 BEN form, which can be found in the Forms & Agreements section under Client Services, in order to open an account. TD AMERITRADE is required to have this tax form on file for each non-U.S. resident client. You will need to include a complete copy of your current passport. If you have a U.S. home or mailing address, you must include a signed letter of instruction that explains why you claim non-resident alien status but have a U.S. address.
•If you are a legal resident alien of the United States or Puerto Rico, you are not considered an international client and do not have to fill out a W-8 BEN form.
•All international clients must fund their accounts by depositing checks drawn on U.S. banks.
•TD AMERITRADE does not accept transfer of options or stocks that trade exclusively on foreign exchanges.
(Full disclosure. I don’t work for TDA or make any money from them (I may get a referral bonus if I invite someone through my account, but that’s it. I’ve “officially” referred one or two I believe through there)).
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I have been saving the kids’ gift money in their own savings accounts and matching up to $50. About 18 months ago, I transferred their accounts to SmartyPig. I plan to give them their funds after HS graduation, since the beginning of college can be expensive.
I have mentioned on a few occasions that we should look into their favorite companies and invest a portion (depending on their risk tolerance – LOL), and the one time I had just about gone through with (this past May), stocks took a nosedive. Boy am I glad I held off on that or my son would have lost a bundle.
Anyway, the idea of dollar-cost averaging with an index fund is a better way to go than individual stocks, I suppose.
It’s been tough since the kids ask for things (silly, expensive, unnecessary things like bunk beds or an iPod Touch), and I tell them that we are watching our spending. Needless to say they remind me that they have money sitting in the bank. At least if they’re investing, the money would be more difficult to cash in. I have not allowed them to ‘break the bank’.
Anyone out there looking to cash in before the expected capital gains tax increase?
Great post — thanks for the inspiration!
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Incidentally, here is a little calculator where you can see how much you would need to save (with and without taxes or inflation) to reach your goal. It’s a fun (sometimes depressing, depending on your goal) way to guestimate and set a logical savings/investment plan. I use it all the time.
http://www.dinkytown.net/java/SavingsVariables.html
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Wow – you have relatives willing to give you cash instead of gifts? I have one relative who writes the child’s name on the gift item (yes, opens the package and marks it with a Sharpie) so that the item cannot be returned or exchanged. Another one always sends clothes that are too small, young and were bought on clearance so long ago that even if the tags are on the clothing, we can’t return it. A total waste in both regards.
Although generous, this also seems a little controlling as well. Once they got the $25,000, how did the kids spend it?
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For their grandchildren, my parents gave both presents (toys, clothing, etc.) on a small scale and for each birthday a $50 savings bond & at Christmas a $100 savings bond was given to each grandchild (10 in total). Not quite the return investing in stocks or fund would have given, but definitely something the kids can use when they go to college. Much better gift (from parent’s point of view) than the latest greatest toy.
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I think a good follow up to this post would be for the adult children to give tell us their side of the story.
While I think the concept is noble and I do something similar I wonder if the kids were as gung ho about it as she describes.
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Fabulous idea! I’m so glad that she took the time to do a video and post about this unusual idea. Kids don’t need all the toys, clothes, baby items, etc. they receive as gifts from birth to adulthood. (How many gifts/toys from your childhood do YOU remember?) She taught her kids so many things–the importance of savings, delayed gratification, and money management.
My grandmother gave me several small denomination savings bonds as a kid. Then, I could care less about that fancy piece of paper. As an adult, I am much happier to have those fancy pieces of paper help me buy a house and pay for my education than having an attic full of old Cabbage Patch dolls.
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This can definitely be accomplished in a non-controlling way…just as you would allocate your money toward spending, saving, and giving, so, too, can you allow your children to keep some of their gift money to use as ‘fun money’.
And we also encourage them to earn extra $ through chores, etc. This allows them to realize that a purchase should be something that is worth working and saving for — and since mine are only 15, 12, and 10, we certainly don’t have them pay for their own clothes or food (just extras like candy and small toys/splurges).
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I do disagree with one comment on here. Money is meant to be spent but in a responsible manner for necessities. I think the poster meant it wasn’t meant to be wasted.
Back to the topic at hand, there was a significant amount of money left over in investment accounts after I finished college. To the point where it will likely be left over still longer for my kids.
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In case my comment was unclear (i.e. if Mike was referring to me) – my comment was that money is not JUST to spend, but ALSO to give, save and invest. Spending is certainly one aspect. And spending wisely is the key. Those are the lessons we’re trying to teach to our son (he’s only one now, so we’re still in the “planning” phase for those lessons).
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I’m just saying that you can’t consider giving as something different than spending. Also, what is the point of saving and investing if you just hide it under your matress for all eternity.
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With respect for your acheievement, I find it a bit weird to ask relatives to give my kids money that would slide into a portfolio I owned, where the promise is that it will be later transferred to my kids.
I also assume this was just when they were babies(?). I can’t imagine telling my 12-year old that I’m keeping their birthday money until they graduate from university.
I know I’m probably misunderstanding something. Can you please clarify what you did in their teens? What if they didn’t want to go to university?
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I think we’re saying the same thing for the most part with a few caveats.
Here is another way to describe the 4 simplified categories for kids and money in my opinion:
1. Spending on you and others around you (small, daily stuff);
2. Giving (charity/church/etc.);
3. Investing (stocks/bonds/mutual funds – long term stuff); and
4. Savings (for college, or to buy a car, that big toy you want, the video game).
So a basic strategy (because – to me – with kids the % aren’t as important as just seeing money as different and useful for multiple purposes) would be for my son to allocate 40% between investing and savings – (50/50 split for now), 10% to give away wisely and 30% to spend on daily stuff (on top of the necessities that we provide – a small toy, snack or something like that for example)..
Giving is definitely different than spending. Saving is with a purpose (hence my reference to college, cars and bigger toys) – it’s saving to spend ON SOMETHING. Blind saving is pointless IMO.
And investing is not to hide it under your mattress – it’s to invest for the future – for a down payment on a house, retirement, etc. It’s for the long-term. So my son will learn to look at money as a tool to make more money to achieve financial freedom.
I don’t think anyone on this blog who commented advised to hide money under a mattress for all eternity. I think their point is to teach kids to manage money, rather than just spend money. And to help make finance a blessing rather than burden on the next generation. I, for one, never want to see my son stressing over a late fee or credit card balance he can’t pay. Step one in that is to teach him when he’s young to understand that money can be used in many ways to bless you and others.
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Andrew – my guess is that a couple of the reasons to keep the money in the parents’ name was
(a) because when colleges look to financial aid and college grants, money the parents have is considered available for college at only a small percentage whereas money in the kids’ names is all considered part of the money available. (see http://www.finaid.org/fafsa/maximize.phtml). Thus, keeping money you want to survive college in the parents’ name is a good idea in that regard – and then they can gift it according to the gift transfer amounts over a year or two (depending on the amount); and
(b) because they committed to themselves that they would be giving it to the kids so they really considered it the kids money but wanted it as a nice surprise later on.
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I really like the idea of matching Dollar for Dollar any money that your kids contribute to the savings account.
Another great idea that I have read about is to purchase 1 share of an individual stock that children would be interested in (example – Disney or Mattel toys), in an effort to teach them about investing.
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I have some very close family friends who have a toddler. When the baby was born, I sent them a card saying that I opened a 529 in his name with $25. They seemed pleased with it, but I know they have very little money to make ends meet and although they mean well, they may not be investing much in the 529 themselves. I made myself the guardian of the 529 and put the investments in an ‘aggressive’ portfolio, and put an auto-payment for $25 a month onto my bank account.
I don’t miss the $25 a month at all, and I got a recent statement saying that the account had about $600 in it now, it’s earned about 15% or something since I opened it. I am proud of this and hopeful that my ‘honorary nephew’ will have enough money in the account in 16 years to attend the school of his choice without having to take big student loans out.
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I guess I’m confused as to the point of this. Maybe that’s because if someone had given me $25k when I was 22, I would have just bought a new car with it.
Saving $25k as a goal is a nice thing to do, but given 22 years to do it, it shouldn’t be particularly difficult, and the knowledge that it’s just going to be given as a gift to someone who can do whatever they want with it makes it seem a bit frivolous. It wasn’t saved to pay for college, or to help these kids buy their first home, it was just saved for the sake of saving, which is maybe why I have to ask, what was the point? Was there an actual goal here?
Having $25k is better than not having $25k, but I guess it’s hard for me to make that seem meaningful if the $25k has no purpose (i.e., it’s just going to be spent on a new car or a fancy home theatre system or whatever). I’m not saying this is a bad idea, I’m just saying I don’t understand what this exercise is aiming to accomplish.
Edit: I guess my question is essentially this: how is this really any different than giving your kids a new car as a college graduation gift?
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My parents did this for me, but as a high school graduation gift. They gave me a certain amount of stock — as it happened, it was all AT&T, because my aunt worked at AT&T and they thought it was a reliable company. As I remember, the stock was about $3000 worth. It wasn’t meant for me to liquidate; it was as an investment for the future. For many years I had it set to reinvest the dividends. At other times, when I’ve been short on money, I’ve taken the dividends in cash. But between reinvesting and the breakup of AT&T into the baby Bells, I now own stock in about ten companies, and the AT&T stock alone is worth around $70,000. Since it produces dividends, I’ll never cash it in unless I’m in desperate need, which I hope never to be in. When I think of the graduation presents other friends got — necklaces, cash that they spent on clothes — I’m very grateful for the particular present I got. I suggest that the kids who get the $25,000 worth of stock not liquidate it, but hold it for their futures too.
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Thanks for all the feedback. To give a bit of background- when we married, we were dead broke and set a very ambitious goal of only renting for a year, then we wanted to buy a home. In order to accomplish that goal, we determined we would need to save approx. 50% of our income. We realized the only way could do that was by being super frugal! We accomplished the goal with no problem after a year while having loads of fun too–and that was on salaries of about $ 17,000 each!
Our rationale with the kids was that hopefully our kids would determine they had more options in life if they had a strong financial foundation to build on when they started their lives as young adults. Beginning the saving process when they were young and showing them how the money was growing, motivated them and had the added benefit of teaching them to be hard workers. That is how they were both able to get admitted to–and graduate–with Honors–I may add- from one of the top universities in this country.
From the time they were old enough to understand the process, the kids had the option to spend BOTH the money they were given as gifts and the money they earned–or to receive the 50% bonus from us by investing the money. They usually chose the investment option. We did not control their choice.
Each of them knew the money legally was theirs and that they could buy a motorcycle or whatever–but they have both chosen to “let it ride” and are continuing to add to their investment funds while enjoying life and also saving some money for the future.
Because we were so frugal, our goal always was to save enough from our income to pay their entire college bill. That is how they graduated debt free. We felt that was something we wanted to do as parents.
I so agree- money is meant to be spent and enjoyed. The BEST feeling in the world is having financial security and that has been reinforced enormously through the stories being told through this current economic crisis.
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My parents kind of did this for me. Instead of birthday/Christmas gifts from them and relatives, we’d get something small and rest of money would go into savings.
My aunt always bought us a $50 savings bond every year. My father put rest of money into some balanced mutual fund (stocks/bonds).
All that money was used for education.
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I am a child of similar parents.
At the age of 26, my younger brother and I are contemplating what to do with our joint share portfolio that our parents started with some family tax benefit money when I was around 12.
The portfolio has always been in our names – not in our parents names, and we have been encouraged to contribute when we had extra cash from part time work, select new shares to buy and participate in share options/take over deals, when these things occurred.
In short it provided an excellent learning opportunity – teaching both of us a bit more about the stock market, especially the risks involved, and at the same time resulting in a nice little financial boost, just in time for us both to be contemplating first home ownership. For the record an initial investment of around $6000 was made, a few small contributions ($100 here and there) were made along the way and the total value at today’s prices is about $13,000.
But I can’t emphasise enough – the true value was the lesson! As a result I now have a good grasp of when and what to spend money on (things that will provide you with ongoing value) and the importance of working towards goals, which sees me today completely debt free with close to $75k in savings.
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I think it’s tacky as hell to ask for cash for any gift giving occasion. People like buying baby clothes and equipment and around here, you would get roasted for asking for cash.
Who in their right mind wouldn’t prefer cash for ALL occasions? Everyone likes cash, but it’s tacky to flat out suggest it. “Hey, if you were planning on giving us a gift for the new baby, cash would fit the best.”
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Tyler
It is different because you ASSUME that it will be used for a car.
Our children both received their money after high school. Our daughter blew through it. Our son has used it as a base and will, most likely, put down 50% for a house in Seattle in cash at the old age of 24. one learned the point- the other didn’t. They are 18 months apart in age- so they were, basically, brought up in the same house.
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@SAFTM (#4): Why would you advise a Canadian, who admits that she doesn’t know anything about investing, to open up a discount broker account through an American broker, which requires a lengthy and complicated process (including having an American bank account)??? There is really little point for a beginning investor to open up an account in another country, and I don’t understand the logic behind your lengthy advice. This may come as a surprise, but in Canada we have discount brokers too (and last year we got internet banking
).
@The Skeptical Housewife (#2): Read this article on how to start a “Couch Potato portfolio”: http://www.moneysense.ca/2006/04/05/couch-potato-portfolio-how-to-set-it-up/
The Couch Potato portfolio refers to a style of investing that is super easy and doesn’t take much time, but has proven to be a good approach for the average investor.
I have my investments at iTrade, but I’ve also heard that Questrade is a good discount broker. I am also a fan of TD e-series funds, unlike a discount broker where you pay commissions to buy and sell stocks you don’t with the e-series funds.
But first take a look at some of the articles in Money Sense magazine and their Canadian Couch Potato blog. They are good places to start if you don’t know much about investing and it is Canadian content.
Good luck!!
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Enough with the whining about $$ for kids. Anything you can set aside for them is great. I think everyone with kids should try to open a roth ira, for them–with them–however! just do it, this is the best thing I have ever done for my child! Yes, they do need “earned income” and this excludes most young children etc. But, for those who have teenagers, please try to do this, you will sleep much better knowing your child at least has a ( tax free earning ) retirement acct. that they can add to. I only had $250 and didn’t think my daughter would like the idea, I was wrong, she likes it still. Time Flies—Just Do It!!
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You say that you set up a very low cost stock index mutual fund. After retiring from the Navy I now have so many financial responsibilities that I rarely have more than $50 leftover between my wife and I. We splurge on absolutely nothing. We never eat out anymore, we never go out to the movies, etc. So how can I start to set up a low cost mutual fund with little cash flow? I want to start saving for my daughters college but just can’t seem to find a way. P.S. I am embarrased to say I only have $10 in my savings.
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Someone with a tax background correct me if I’m wrong. Giving someone $25,000, even a child, is a gift. Any gift over $13,000 is subject to a gift tax right? Now if the husband and wife give the gift jointly then the total gift allowed is $26,000 per year per child, but anything above that is subject to a gift tax. I may be wrong, but I don’t think I’m far off. Just a word of caution regarding amassing large sums of money and then gifting them to someone at a later time. It may be a better idea to open accounts in their name now and avoid the extra taxes. Just a thought. Any CPAs out there know the specifics on this?
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I think you’re pretty spot on Chett, if not spot on. But the parents would not have to give the entire amount in one year. They could do it over two or three or more years. If the amount ended up really big, they could do a number of things with the help of a competent attorney and tax advisor (trust for example). Here is that AXA Equitable says about the gift tax rules.
http://www.axa-equitable.com/plan/estate/gift-tax.html
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What a brilliant idea, much better than raising your kids to be materialistic.
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My teen-age daughter just finished working her first ever job. It was only a three week job, but she made $800. My plan is to open a Roth and deposit the amount she made this year and maybe for the next few years. When she finishes college, she should have a nice little start on her retirement. (She is a rising hs senior.) My main problem with this has been finding a company that will let minors have a Roth—there are not very many choices that I can find.
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I think the people who are both supportive of the idea of children having $XX,XXX at some point in their young lives and yet hesitant about the method may understand not everyone has their child’s best interest at heart.
First, my parents wouldn’t have thought to start investing in stock for me. Second, the majority of any monetary presents I might have gotten they would have just taken.
Yes, they would have.
So I can understand how some people don’t understand how you can leave something in your name, teach your child to be fiscally responsible, and then just give it to them when the time is right.
Another good idea I know of: I have a student whose parents have given her seed money and are encouraging her to invest it. She does this instead of working at a part-time job after school.
That, along with the post’s ideas, are good ways to teach your child how to get money to work for you.
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I was disappointed that Mary didn’t give more specific information on the year-to-year cash flows. I’d also love to hear how they and the kids reacted to the market crash.
I think there’s no better way to teach kids the power of compound interest than with actual money, over time. 22 years is a great time horizon in which to do this powerfully. At the same time, I think there’s no better way to demonstrate the meaning of the word “risk” than to invest in the stock market, including index funds. Mary links to the Vanguard S&P 500 index fund, which shows that between 2000 and 2010, the fund lost 1.3% of its value: $10,000 in, $9,870 out ten years later. Lesson learned.
Also, although it’s not stated anywhere, it’s useful to remember that if you save $20 a week for 22 years and put it in a savings account, you get $25,000 in the end. $20 a week: that’s less than what many parents spend on cigarettes, beer, lattes, or dry cleaning.
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for those looking for other ways to contribute to kids . . . savings bonds are an interesting vehicle, but I found they didn’t help me for college. My grandma gave me savings bonds each year for a present. I’m 28, and I still haven’t cashed any in. Last time I checked, they were all still maturing — they were past their main date, but bonds continue to accrue interest for another many years after that. I’ll check again this Christmas to see if any are finally done accruing interest. I do have a chunk of money coming to me from this (maybe a thousand or two?), but it’s kind of a bummer that I just have to let them keep sitting around and maturing long past when my grandmother “intended” me to use them.
I also have “wedding” money my grandma gave, on the assumption that she won’t be around for my wedding ($50, I think). Somewhere around the age of 15, I bought a multi-year year CD with it at a pretty decent interest rate. I forgot, and it renewed more than once. I finally got it out this year and have significantly more than my brothers who just let it sit in savings. I believe I ended up with $150. So if stocks aren’t your cup of tea, you could also have money for the kids in CD ladders or high-interest, long-term CDs (if those ever come back) to make the most of money you won’t need for awhile.
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I don’t know. I definitely could not ask any of my (or especially DH’s) relatives to give money as a gift. They buy Stuff because it makes them happy to pick out toys and clothes and books. Even requesting that money be funneled in a 529 seems impolite.
My father had us follow Exxon growing up, so we had a very good understanding of the mechanics of how stocks worked, including dividends and splitting. I remember weekends with Investor’s Daily open reading the listings.
He did transfer some stock to us, but not until a couple of years of me showing I could live on next to nothing in graduate school (I’m not sure if that was planned or just took that long for him to decide what to do), and at that point the stock market crashed so selling what was left for living expenses seemed like a bad idea. My sister got a fancy job right out of college so she got a choice of having him pay her student loans or just getting the stock equivalent plus what he’d given me. She took the stock equivalent… it’s still sitting there accruing. Neither of us actually need the money… mine occasionally provides annoying tax years as companies go out of business or I try to sell individual stocks to replace with index funds. (Sometimes writing off the loss makes up for the annoyance factor… but since it wasn’t my money to begin with I don’t feel the actual loss of stock… I’m not sure what that is teaching me.)
I believe that the gift tax is not the only potential tax when transferring stock, even amounts under the gift tax (something about the basis?). This is the kind of thing worth discussing with a tax lawyer or accountant. Back in the 80s things were easier in terms of setting up trusts.
Personally, other than paying our kids’ bills in college I don’t think we will give our children any additional funds. There’s a lot of life skills to living on what you earn, making mistakes on your own dime, not buying more house than you can afford, and having a steadily increasing quality of life.
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Wow, that’s awesome, what a gift! If only I knew 20 years ago what I know now, I would have done more for my kids (not that I’ve done nothing). The flip side is that giving the kids too much could hurt ability to understand how to build their own nest egg and make their own way in life.
That probably isn’t the case here, but I live in a wealthy area and see how easy some of the super-rich make it for their kids, who end up never learning some important money lessons.
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My brother takes it one step further, kids who earn income can invest in a Roth IRA. So my niece and nephew (early teens) each have a Roth IRA, my brother matches their contributions $2.00 for every $1.00 they ivnest. So, if they invest $500, he invests $1000 up to the $2000 limit for teens. The kids study and follow stocks and help make investment choices. I think it is great.
I think it is wonderful to give money, stock, 529 contributions as gifts to kids. Most kids don’t need stuff anyways. I also don’t think it is impolite to let family and friends known that you would prefer contribution gifts rather than toys.
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I’m also following this route. I’m a bit younger than your reader, so I’m only about half way there (my kids are 10 and 6).
For me, learning is best when you actually do the task. My plans are to buy some dividend stocks so they reap the rewards of the amount that we (really I) saved.
My kids are still pretty young so I’m just saving and not involving them too much at this stage, I talk about my saving goals here. I’m shooting a little higher (a little more that $50,000) per kid. But that far in the future, maybe be the same amount in real money or even less that the $25,000 your reader has saved…
Kudos to your reader, nice job!
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#19 Tyler–I don’t see this as a frivolous gift, especially when the children are encouraged to use their own money to increase the value of the fund. This is about parents taking the time to educate their children about the value of a hard-earned dollar, to appreciate financial gifts and also the importance of keeping a watchful eye on your finances. Obviously, these children trust their children to do the right thing at the right time. There is no proof that the children will blow the money.
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It never really took for us, but my dad always had us deposit half of our earnings (paper routes, babysitting, prize monies, McDonald’s job, etc) into our savings accounts. Mine was opened on my 10th birthday with $25 birthday cash, plus a $25 loan (it required $50 to open) that I earned later from them. It wasn’t much by the time I graduated. Around $500, which I had blown on a 5-disc CD changer and prom. But it had been money he was having us save for ourselves to spend on something big, rather than college money, and he expected us to get scholarships instead of having him pay. That didn’t pan out for him.
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I usually give money to the parents of my nieces and nephews when they are small. Preschoolers generally get more stuff than they can use or appreciate for Christmas and b-days. They don’t know or care that I didn’t give them a present. By 6 or 7 I start giving gifts or money to the children themselves.
Some parents put in 529 and others in savings account. None invest in stock that I know of.
I know this wouldn’t fly in some families, but it works for me. (And less shopping!)
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Believe me, I’ll all for buying gently used toys bought at yardsales and thrift stores to give to my son for gifts, but I can’t imagine telling relatives cash only please so I can give to him years later. It may be the most practical thing to do but I think the kid and the giver misses something in the process – when gift giving time comes around at my house, I hear from relatives “so what is Billy Bob into at this age?” and the gift giver seeing the excitement of having their gift opened and hearing the “Oh wow ! This is sooo cool! I wanted this!” type of comments.
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@529 fan: That’s a really awesome thing you’re doing! The world needs more people like you.
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It’s all about the family’s culture, I think – in my family, typical gifts for kids are something small, plus a savings bond – as I got older (8-12), everyone just sent me checks, because all my aunts and uncles lived far away.
I remember the disappointment of signing the checks over to the bank and then writing thank you letters for what looked like nothing – but that money paid for summer camp, college application fees, etc.
My partner’s family is more about stuff, but his grandparents gave him enough savings bonds, over time, to equal out to a year of college when he was 19.
We set up a 529 when our son was born and requested that people either not give us gifts or if they wanted, contributed to his college fund; both sides of the family did pretty much exactly what they wanted – my mom gives stock, my dad gives big flashy lump sums of cash, his other grandma buys stuff, and his other grandpa quietly set up a monthly automatic deduction. I can’t see that anything we said or requested had any effect on their behavior.
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‘My teen-age daughter just finished working her first ever job. It was only a three week job, but she made $800. My plan is to open a Roth and deposit the amount she made this year and maybe for the next few years’
Or how about you let your daughter decide what to do with it?
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When I was in college working during the summers, my parents gifted me my Roth IRA contribution. I had to have the earned income to justify it (I was the only waitress I’ve ever met who claimed every single penny of her tips), but they gifted the contribution and I used my earnings as spending money throughout the school year.
I was incredibly grateful then and am still incredibly grateful now. It was a great example to me of how important they considered retirement saving and in some part why it’s so important to me now.
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@Chett – I assume they split the gift, so $25k wouldn’t cause a problem this year (the yearly exemption is $13,000 each). Even if they did go over the annual exemption, each person has a lifetime exemption, so they could apply some of the gift against that, assuming they hadn’t previously used it up.
But you’re right to caution people to watch out giving large sums of money at one time.
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@SAFTM: I appreciate you trying to help me with what you know, but it does sound very complicated. I’d really prefer to do something Canadian-based. Still, thank you, as your response gives me an idea of what’s out there.
@Meghan: Thanks for your advice from a Canadian perpective! I will check out that website you linked to. Easy and quick-sounds good to me! I’ll be keeping your comment in my email to refer back to until I “get it.”
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