Holiday investing gifts: Beyond savings bonds and piggy banks

By Kimberly Clouse, Private Client Advocate and Chair of Covestor’s Advisory Board

The average American expects to spend about $700 on Christmas gifts this year. What if instead of giving children gifts that required a healthy supply of AA batteries, you considered giving financial gift that “kept on giving?”

Consider making a gift that boosts earning power and/or or improves financial literacy. A few ideas:

  • College savings: Get your little one started on saving for college by opening a 529 account for her, or contributing to an existing plan. A 529 plan is a tax-advantaged education savings plan designed to help families set aside funds for future college costs.  And college costs continue to skyrocket.  According to the College Board, the average cost of tuition and fees (not including room and board) for the 2012-2013 school year was about $8,500 for in-state public colleges, $22,000 for out-of-state public colleges and $30,000 for private colleges.

  • Investment account: Help a child start learning about investing by opening and funding a brokerage account for him. Several brokerage firms offer accounts with low minimum requirements, and no set-up or annual fees. For example, TradeKing charges low commissions of $4.95 a trade, and some brokers like ShareBuilder offer specialized stock gift accounts. If you would rather open a savings account on behalf of the child, consider an online savings account provider like Smarty Pig. Smarty Pig helps savers set aside funds for specific goals, like an iPad or a trip, and replaces the “buy-now-pay-later” approach with a “save-then-spend” mentality. Invaluable.

  • Tangible gifts: If you’re looking for something more tangible or traditional, there is always the piggy bank (with maybe a little money to get started), or a book to learn about money. For the younger child, one book option is Curious George Saves His Pennies, while Alexander, Who Used to Be Rich Last Sunday may be appropriate for older children. And board games like Monopoly and Pay Day can be a fun way to learn about money.

From a federal estate tax standpoint, keep in mind that individuals in 2013 can give as much as $14,000 tax-free, or $28,000 for married couples.

However, the most precious present for children is simply spending time with them and teaching them responsibility when it comes to money and finances. Sam Davis, a Tennessee-based financial advisor said in a recent Investopedia report:

The most important thing you can give your child is the ability for them to view and watch you make good financial decisions over the course of your life. If you are not teaching them about investing and how to save a portion of their income every month then you are doing your child a great disservice.

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DISCLAIMER: The information contained in this article is general in nature and not intended as specific advice. Neither Covestor Limited nor its representatives are engaged in rendering tax, accounting or legal advice. A qualified professional should be consulted regarding the effect of such considerations on the matters covered in this article.