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Make This Week Black Friday for Your Family, Not Retailers

Retailers and Federal Reserve chairman Ben Bernanke are no doubt praying that the Black Friday start to the holiday gift-shopping season will trigger a resurgence in consumer spending that in turn will goose the anemic economic recovery. But what's good for business' bottom line -- that's what the "black" in Black Friday refers to -- often leaves families in the red. According to a recent survey by Consumer Reports, nearly 14 million Americans are still paying off their credit cards from last year's Christmas spending.

Where's the love and joy in that? How about mixing this year's presents with some gifts that will actually help keep your family in the black for years to come?

Yep, I'm pitching smart financial gifts. And yes, of course, I fully appreciate that the list that follows lacks the holiday flair of a brand new Kinect, iPad, or Sing-a-Ma Jig. But what could be more in the true holiday spirit than making sure the ones you love are well taken care of? An added bonus: No trip to the mall needed!

Financially Smart Gifts: From Babes to Aging Boomers

  • Newborns to age 18: Contribute to a 529 college savings plan. I'm with MoneyWatch's Stacey Bradford who recently said she is asking her family to go easy on the toys this holiday season and focus their gift-giving effort on helping fund the kids' 529 college savings plans. The average college grad leaves school with more than $23,000 in student loans, to say nothing of the parents' financial hit. Reducing future borrowing costs by making a gift contribution today seems like a solid move all-around. And to answer a question that gets asked a lot: Money in a 529 receives favorable treatment when colleges figure out a family's financial aid package. Specifically, a maximum of 5.6 percent of 529 assets are considered when calculating the Expected Family Contribution.
  • Teens through college: Fund a Roth IRA. As long as a child or grandchild has earned income, parents and grandparents can give them the money to fund a Roth IRA. For example, if your 16-year -old earned $2,000 last year in an after-school job, you could contribute $2,000 to that child's Roth IRA. Let's face it, most of us don't get started focusing on retirement saving until our late twenties, at the earliest. Starting your kid's retirement fund a decade or more earlier is a huge advantage that can transform a $1,000 gift today into six figures by the time your child is 75. And there's nothing keeping parents of adult kids from keeping up this tradition once their kids are out of college. If you're in a position to fund $5,000 a year for a few years, your financial gift today could be worth $1 million when your twenty-something turns 75.
  • College students: Pay their in-school loan interest. Students with unsubsidized federal Stafford loans are on the hook for paying the 6.8 percent interest on their loans while they are in school. Or they can opt to ignore those payments while they are in school and have the interest expense added to their loan balance (that's called "capitalization" in student loan-speak). Most students do indeed opt to defer the payment; they are either unaware of the cost of capitalization or simply don't have the money to handle those payments. Offering to cover the interest payments while a student is in school will reduce the size of their loan balance once they hit the repayment stage by at least a few thousand dollars. ( has a handy calculator where you can estimate the potential savings your gift will generate.) That's a nice assist for college grads who are increasingly overwhelmed by their loan payments. Paying off in-school interest can also be a great gift to give to your adult children who have taken out PLUS loans for their children. If your grown child is now paying for your grandchild's college with a PLUS Loan, you can help keep the total balance low by paying the 7.9 percent interest charges while your grandchild is still in school.
  • College grads: Get them a financial plan. As someone who spends way too much time poring through reams of retirement research, I can tell you that one universal theme that always crops up is the regret factor. People polled in their 40s and 50s say their biggest regret is that they didn't start saving sooner, or that they didn't fully appreciate all the moving pieces of their financial life. No wonder. It's a ridiculous maze of complicated decisions that require a lot of focus. MoneyWatch's Jane Bryant Quinn offers up a great gift that will pay dividends throughout your college grad's life: Time with a financial planner now, so they won't have any regrets in a few decades. (Jane's article includes advice on how to find fee-only financial advisors.)
  • New Parents: Gift them death protection. Okay, this isn't exactly a fun topic, but young parents who have yet to amass much in the way of assets need term life insurance. And a will. And probably a trust. And all that fun death-related stuff isn't exactly front and center when you're in the thralls -- and sleep deprivation -- of being new parents. That makes it a great gift opportunity for the grandparents (and great grandparents). The combined monthly premiums for two healthy, 30-year old parents who each get a 20-year, level term policy with a $1 million death benefit can be had for just $100 or so a month. If that's too steep, go for a lower death benefit (you can get a sense of what premiums might be at the website; two solid sites selling term insurance are and For the will and trust, gift them a few sessions with an attorney who specializes in family estate planning.
  • Older Parents: Help them revamp their retirement plan. After the bruising 2008-2009 bear market and the steep loss in home values in many parts of the country, it's not exactly a secret that many 50-somethings are suddenly stressed out that they are behind -- and often way behind -- on their retirement planning. If that sounds like your parents, why not get together with your other siblings and give Mom and Dad some time with a financial planner who specializes in retirement planning issues? (Again, see Jane Bryant Quinn's post on where to find good fee-only financial planners.) If you get some push back that they couldn't possibly accept that gift, just let 'em know it's one gift that will help the entire family. The better prepared they are for retirement, the less pressure the sandwich generation will feel.

Photo courtesy Flickr user mrskyce

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