Author Topic: Gift for a child - a start on investing instead of cash?  (Read 4036 times)

otter

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Gift for a child - a start on investing instead of cash?
« on: November 04, 2015, 11:03:45 AM »
In a couple of weeks I am going to the bar mitzvah of the son of a dear friend. In my mind cash is the stereotypical bar/bat mitzvah gift, and indeed mom said cash would be perfect (preferably in some multiple of 18, which I had to have explained to me :) ) However, it immediately occurred to me that it would be even better to give him a gift that, rather than being plain cash, gave him an active start on investing, whether retirement-focused or not. I don't think it is practical, or perhaps even possible, for me to actually open an account for him somewhere since I am not one of his parents (but maybe I am wrong!) and I cannot donate a big starting fund. But I think that surely there is a way that I can help.

Can some of y'all suggest good options for this, whether something I can do myself or guidance for his mom (she thought it was a great idea, but realistically I know this is more likely to happen with some help/guidance) AFAIK something like a Vanguard account has a starting minimum that is certainly way too high for me to help with, and probably too high for what his mom could start with, too.

I have always been a saver but got a really late start on investing. I've also always been pretty conservative and seem to have picked up some growing-up-in-the-Depression style habits of thought, even though I had quite a comfortable and privileged childhood. Among other things, this meant that my savings were heavily biased towards cash. My parents didn't impart the importance of investing to us when we were teenagers, something I (and my mom) wished they had done. My girlfriend, who is terrific with money, has a 401k that her dad opened for her when she was 15 or so and he contributed to it until she started working full-time on her own. Better late than never for me, but why not early for the bar mitzvah boy?

Pardon me if this has been covered - I haven't been on the forum in quite a while (you can't see everything on the internet, after all).

frugalnacho

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Re: Gift for a child - a start on investing instead of cash?
« Reply #1 on: November 04, 2015, 11:22:33 AM »
You can open a custodial account for him.  You will need the parents to fill out a form with his social security number and stuff like that.  Or if the parents think it's a good idea you can give them the money and have them open the account.  Since he is under 18 I don't think he can set it up and purchase funds himself, but with a custodial account you (or the parents) could invest in an index fund on their behalf, and he will gain control of the money when he is 18 or 21 (depends on state, and depends what you specify when the custodial account is opened).

Charles schwab has custodial accounts with a minimum investment of $100.  I currently have one for my niece through scwab and she is invested in the schwab total market index fund.

I'm a red panda

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Re: Gift for a child - a start on investing instead of cash?
« Reply #2 on: November 04, 2015, 11:50:23 AM »
I got a ton of savings bonds when I was a kid. Of course the interest rate is crap now; but it is still really nice to cash them as an adult :)

frugalnacho

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Re: Gift for a child - a start on investing instead of cash?
« Reply #3 on: November 04, 2015, 01:12:31 PM »
Savings bonds are worthless and most have maturation dates way too far into the future.    I'm assuming he wants the cash before he is 30.

Interest Compound

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Re: Gift for a child - a start on investing instead of cash?
« Reply #4 on: November 04, 2015, 01:47:11 PM »
Savings bonds are worthless and most have maturation dates way too far into the future.    I'm assuming he wants the cash before he is 30.

As someone who struggles to teach young people about compound interest, and the benefits of saving money over long periods of time, I see something that's inaccessible for 20 years as a benefit. I'd try to find something like that, but with better interest.

How about a corporate bond? A 20 year bond in Dell is yielding 7.8% right now. Give them a $250 Dell bond and tell them, "Hold this until it matures, and it will be worth over a thousand dollars".

I'm a red panda

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Re: Gift for a child - a start on investing instead of cash?
« Reply #5 on: November 04, 2015, 02:10:48 PM »
Savings bonds are worthless and most have maturation dates way too far into the future.    I'm assuming he wants the cash before he is 30.

You can cash them before then if you want; my husband used most of his childhood bonds when he was 16 to buy his first car.  I saved mine, and now they have finally stopped earning interest am cashing them; as you said, starting at 30.

As a 30 year old, it really is a nice treat. 

If you are giving him "future money" it is delayed gratification either way.  To a small child, money they can have at 15 vs. money they can have at 30 is still money they can't have.

The crap interest is a different problem. 

Yankuba

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Re: Gift for a child - a start on investing instead of cash?
« Reply #6 on: November 04, 2015, 02:31:17 PM »
I like the bonds idea. I got bonds when I was a teen and it was a nice windfall when I cashed them in at the bank. I think they were savings bonds.

norabird

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Re: Gift for a child - a start on investing instead of cash?
« Reply #7 on: November 04, 2015, 02:49:07 PM »
The new myRA might work for this--plus withdrawal doesn't have a penalty!

frugalnacho

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Re: Gift for a child - a start on investing instead of cash?
« Reply #8 on: November 04, 2015, 11:44:55 PM »
Savings bonds are worthless and most have maturation dates way too far into the future.    I'm assuming he wants the cash before he is 30.

You can cash them before then if you want; my husband used most of his childhood bonds when he was 16 to buy his first car.  I saved mine, and now they have finally stopped earning interest am cashing them; as you said, starting at 30.

As a 30 year old, it really is a nice treat. 

If you are giving him "future money" it is delayed gratification either way.  To a small child, money they can have at 15 vs. money they can have at 30 is still money they can't have.

The crap interest is a different problem.

You can cash them in, but you get shit pay out before maturity date.  I get the idea that it can be a benefit to wait longer, but that is too long.  I didn't need a few savings bonds when I was 30 because I was already an established adult at that point with a career and retirement accounts.  I needed that money when I was in college and in my young 20's.  I assume that money will be far more valuable to them at that age as well, so I don't like the idea of locking it up in a terrible investment that they can't touch until they are well into their careers and adult lives.

Interest Compound

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Re: Gift for a child - a start on investing instead of cash?
« Reply #9 on: November 05, 2015, 12:57:48 AM »
Savings bonds are worthless and most have maturation dates way too far into the future.    I'm assuming he wants the cash before he is 30.

You can cash them before then if you want; my husband used most of his childhood bonds when he was 16 to buy his first car.  I saved mine, and now they have finally stopped earning interest am cashing them; as you said, starting at 30.

As a 30 year old, it really is a nice treat. 

If you are giving him "future money" it is delayed gratification either way.  To a small child, money they can have at 15 vs. money they can have at 30 is still money they can't have.

The crap interest is a different problem.

You can cash them in, but you get shit pay out before maturity date.  I get the idea that it can be a benefit to wait longer, but that is too long.  I didn't need a few savings bonds when I was 30 because I was already an established adult at that point with a career and retirement accounts.  I needed that money when I was in college and in my young 20's.  I assume that money will be far more valuable to them at that age as well, so I don't like the idea of locking it up in a terrible investment that they can't touch until they are well into their careers and adult lives.

That depends on the goal. My goal would be to give a lesson on compound interest, delayed gratification, and the benefits of saving. I would consider it a success if they started investing/saving on their own, after the example was set. If they instead cashed in the bonds at a dramatically lessor price at the age of 16 so they could buy a car, that would be a failed lesson.

Rubic

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Re: Gift for a child - a start on investing instead of cash?
« Reply #10 on: November 05, 2015, 12:23:24 PM »
I gifted my nieces and nephews with shares in Berkshire Hathaway.  When they're old enough to understand, I'll explain the cost basis of those shares compared to their current market value.  Hopefully this will turn a boring lecture about compound interest into something they'll immediately grasp, since it's about money in their pockets.

CoderNate

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Re: Gift for a child - a start on investing instead of cash?
« Reply #11 on: November 05, 2015, 05:35:02 PM »
Savings bonds are worthless and most have maturation dates way too far into the future.    I'm assuming he wants the cash before he is 30.

You can cash them before then if you want; my husband used most of his childhood bonds when he was 16 to buy his first car.  I saved mine, and now they have finally stopped earning interest am cashing them; as you said, starting at 30.

As a 30 year old, it really is a nice treat. 

If you are giving him "future money" it is delayed gratification either way.  To a small child, money they can have at 15 vs. money they can have at 30 is still money they can't have.

The crap interest is a different problem.

You can cash them in, but you get shit pay out before maturity date.  I get the idea that it can be a benefit to wait longer, but that is too long.  I didn't need a few savings bonds when I was 30 because I was already an established adult at that point with a career and retirement accounts.  I needed that money when I was in college and in my young 20's.  I assume that money will be far more valuable to them at that age as well, so I don't like the idea of locking it up in a terrible investment that they can't touch until they are well into their careers and adult lives.

That depends on the goal. My goal would be to give a lesson on compound interest, delayed gratification, and the benefits of saving. I would consider it a success if they started investing/saving on their own, after the example was set. If they instead cashed in the bonds at a dramatically lessor price at the age of 16 so they could buy a car, that would be a failed lesson.

I feel like $250 is actually worth more to a kid than $1k is to a 30 year old - even ignoring interest. If anything I would see if the kid has a 529 plan you can contribute to. 529 is a great way to aggregate a lot of small contributions to have a huge impact in the future (which is closer to what saving actually is anyway).

One Noisy Cat

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Re: Gift for a child - a start on investing instead of cash?
« Reply #12 on: November 05, 2015, 06:47:48 PM »
   Stock of a blue chip company that he would be familiar with or like, such as Disney or Coca-Cola, with the dividends reinvested. Perhaps the local electric utility. Get the parents to do the UGMA thing as others have suggested. And get some tables down on what the stock will be worth 18-36-54 years down the road.

thedayisbrave

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Re: Gift for a child - a start on investing instead of cash?
« Reply #13 on: November 06, 2015, 05:21:45 AM »
Joshua Kennon talks about this a little bit - he gifts shares of stock in the kid's favorite company or one that they get to choose.  Maybe give him 3-5 choices on companies he might like, and he gets to pick.  Also I think there's a way to get the physical stock certificate so that he can see it and hold it... makes it much more real for the little ones, IMO.