The Early Show's money maven, Ray Martin, says you could consider financial gifts for youngsters.
Money, he says in the first of a three-part year-end series, is always much-appreciated for the holidays. But, instead of giving a Christmas present, why not give a Christmas future -- one that will keep on giving for years?
There are alternatives -- better ones -- to cash, checks and savings bonds, Martin points out.
Nobody will ever argue with getting them but, for the gift-giver who wants to make a bit more of an impact -- who doesn't necessarily want his or her money going toward video games and would prefer it go toward something like a college education or other higher purpose -- there are other things to give. After all, Martin observes, just handing over money isn't enough: You want to give wisely, so the money grows and becomes as useful, and plentiful, as it possibly can.
In general, Martin loves to stress -- that's what separates many financial gifts from others: They can grow over time.
Along those lines, Martin filed this column, chock full of his wisdom:
Financial Gifts to Family
Let's face it, making a gift of an investment in stocks or mutual funds may not create the same excitement as giving the latest electronic gadget or clothing. But gifts of investments can become more valuable and meaningful as time goes by. Gifts of investments have never been more affordable and accessible to parents and gift-givers of all incomes and financial status.
Here are a few ideas for any gift-giving list:
Consider a gift of a few shares of Walt Disney Co. or McDonald's -- to go along with gift cards from these companies that make products many children crave. The stock certificates are colorful and have become popular stock-ing stuffers for investors' children and grandchildren.
From a purely financial point-of-view, it's better to give shares of stock you already own, because it's easy to transfer them into the child's name, which avoids the transaction cost of buying a single share. Giving appreciated shares you own makes the best gift when considering taxes, as well. That's because, when the child eventually sells the stock, the gain will be taxed at their capital gains tax rate, which could be as low as five or 10 percent.
Another great gift idea is to give the colorful certificates in a matted and engraved frame. That makes for a great presentation to hang on a wall to enjoy, and it just might inspire a youngster's interest in investing. You can check out several services such as oneshare.com and shareinaframe.com which, for about $40 to $80, plus the price of the stock, will prepare a matted and engraved setting to frame the stock certificate of your choosing.
I can't tell you how often I come across people who buy and give savings bonds as gifts to youngsters. The problem I have with these is that they are too slow to grow -- the current rate for Series EE Savings Bonds is 3.0 percent and 4.28 percent for Series I Bonds. At that rate, it will take 17 years or more for a Savings Bond to double in value. Stocks of well-managed companies should do better than that -- doubling every seven to ten years. In fact, stocks have outperformed bonds 90 percent of the time in any rolling 20-year time period. Another knock on savings bonds is that the interest earned is taxed at higher rates than the lower, capital gains tax rates that apply to stocks.
Instead, give shares of appreciated stock or mutual funds to your child. When they later sell the shares, the gains could be taxed at their lower capital gains rate (five or 10 percent) as opposed to the parent's higher rate (15 percent). Finally, owning stocks and mutual funds can be a good tool to learn about investing, especially if it involves a company that makes products the young investor uses and enjoys.
Give the Gift of an Education
Parents, or anyone who wants to give the gift of a future education to a child, should think about contributing to either a 529 plan account or a Coverdell Education Savings Account. The advantage is that money accumulated in these accounts can be withdrawn tax-free when used to pay for qualified education expenses.
Why contribute to a 529 education savings plan account now? Contributing to a 529 Plan account sponsored by your state may allow you to tack a deduction on your state's income tax return for contributions made this year.
Why open and contribute to a Coverdell Education Savings Account now? The limit on annual contributions is, as we said, $2,000 per year, so if you open and contribute to one of these accounts in December, you can contribute to the account again in January and have a good start -- $4,000 -- on college savings.
Accounts for Youngsters
The basic problem with giving investments to children is that, generally, someone under the age of 18 isn't permitted to own investment accounts. However, there are several types of accounts that allow folks to make gifts to children, the fund in which they could later use toward the down payment on their first home or to give them a head start on their retirement.
Here are a few of my favorite accounts that can be used to hold gifts of investments for children:
Give a Million Dollars
Here's an example to inspire you to consider making a financial gifts to the children in your family. Unlike a stuffed animal or cell phone, these gifts can grow into something truly spectacular over time. Suppose you made a one-time gift of $2,000 to an IRA for your child or grandchild. Do you know how much that $2,000 can grow into, without adding another penny? Invested over 65 years in a stock or stock mutual fund earning a 10 percent annual return, it could be worth almost $1 million! If you do this, put a card in their stocking that reads, "My gift for your future - $1 million!" That's a gift worth remembering!