By Damon Poeter
If you want your new graduate to thank you while they’re dressed in their cap and gown, throw them a graduation party. If you want them to still be thanking you years from now, give them financial gifts that get them on the path to financial responsibility and independence.
Graduating high school and college are accomplishments worth celebrating. But when their graduation caps hit the ground, new grads will be facing new financial challenges. Graduating high school seniors might be concerned with paying for college. New college graduates may be anxious about entering a competitive job market while saddled with student loan debt.
Gifting a new graduate with a financial product is a gift with potential short- term and long-term benefits, says Robert Steen, USAA advice director for retirement and complex planning.
“Certain financial gifts can also be a learning opportunity for a new graduate,” he says.
The good news is that even if you aren’t personally able to give a large financial gift to your new grad, there are financial products worth gifting that start as low as $25. Let’s look at three categories of financial gifts you might consider: gifts over which you’ll be able to exert some control, gifts that require some creativity and commitment between you and your new graduate, and gifts over which the recipient has total ownership.
It may be that you want to help your new grad financially but want to do so in a way that ensures your gift will be used for a purpose you prefer or be restricted in some other way. Here are a few ideas for financial gifts that allow the giver some measure of control over how they’re used.
Paying off student debt. If your favorite grad has finished college owing money for student loans, giving them an assist in paying them back can be a great financial gift, Steen says. This is a gift that you can scale to your own means – you’re helping whether you’re able to pitch in hundreds or thousands, he says.
Life insurance. Most young people aren’t in a rush to buy life insurance. But helping a grad fund a policy sooner rather than later can may save them money later in life; perhaps when they’ve started their own family, they will come to appreciate your help with the initial funding on their behalf, Steen says.
Trust funds. A trust fund is usually set up to transfer a lump sum or some combination of assets – like stocks, bonds or real estate – to an individual or individuals when they reach a certain age. But trusts can be complicated, expensive and difficult to set up, Steen says. It might be simpler to gift them the sum or assets outright instead of setting up a trust.
If educating your new graduate in financial responsibility is important to you, negotiating a more customized plan with certain goals and milestones can be a great project, according to Steen. Here are a few ideas to get you started:
Retirement fund assistance. Starting early is one of the best ways to improve chances of reaching long term financial goals like retirement. Are there any ways you can help your recent grad understand the importance of starting early? One way would be to help them understand what a 401(k) match is and how it’s a benefit some companies provide to help their employees reach their retirement goals.
“When young people graduate from school, it’s important for them to get off on the right financial footing,” Steen says. The type of financial gift you give may help them get off to a good start financially, require them to take on some responsibility for managing their financial portfolio or some combination of both. If they don’t have debt, helping them to get started on a retirement fund is a potential gift. And if they do have debt, assisting them with it will create better opportunities for them earlier to start building their financial portfolios.”
When you give a cash gift to an adult child, they now own it. You can advise them on what to do with the money, but they have the power to decide how to use it, even if their decision doesn’t please you. Many financial gifts work the same way, Steen says. Here are some other financial gifts you might consider giving:
Government bonds. Products like treasury bills can be low-risk investment gifts for graduates. Once you give a government bond to a new grad, they own it completely, but the bond will have to mature over months or years before they can cash it out. Visit Treasury Direct for more information about bond gift options costing as little as $25.
Stocks or mutual fund shares. The simplest way to gift stocks or shares in a mutual fund may be to arrange to transfer them from your brokerage account to an account the graduate either already has or sets up for this purpose. If you want to give the grad a physical stock certificate, you’ll have to sign it over to them with a guarantor like a bank or a stock broker. It’s important that the gift recipient be aware of any tax consequences involving capital gains that may be levied when securities are ultimately sold.
Down payments toward a house or condo. Real estate is a popular investment regardless of age. Helping a new grad purchase a home will be beyond the means of many. For those who can afford it, assisting in a home purchase would give a young person both a place to live and a foundational piece of their investment portfolio.
Note: It’s important to understand the rules involved with gifting financial products, and members should review any gifting strategies with their appropriate tax or legal advisor.
Robert Steen, MBA, CFP® professional, is the USAA advice director for retirement and complex planning. Robert serves as the advice professional on topics such as maximizing retirement savings, establishing a retirement income plan, managing financial needs during retirement, estate/trust/inheritance tax planning, charitable gifting and distribution of assets.
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