Each holiday season, people try to come up with gift options that are just right for their loved ones. In recent years, this has increasingly meant shying away from the purchase of a physical gift item.
In its annual survey, the National Retail Federation found that gift cards were the second most popular gift purchase this holiday season. A separate survey by Deloitte found that the growing popularity of giving experiences instead of items is showing no signs of slowing down, with spending on experiences expected to grow by 18 percent this year.
There are several reasons influencing the move away from the purchase of physical gifts. Gift cards can simplify the holiday shopping experience and minimize the possibility of purchasing something the recipient won’t enjoy. Both gift cards and experiences are in line with the growing popularity of more minimalist lifestyles, as people cut down on unnecessary belongings to reduce the clutter in their home and reduce their impact on the environment.
Despite these trends, giving cash as a gift remains fairly taboo. Writing someone a check or giving them an envelope of cash is often regarded as lazy, impersonal, or insulting. Even when someone requests money to help with a larger purchase, it’s easy for life to intervene and the cash to simply get mixed in with regular savings and expenses.
Thankfully, there are still financial gift options that can provide a truly meaningful gift for your loved ones. Here’s a look at how you can do some financial gift giving for the holidays, and what important considerations you should keep in mind when doing so.
Financial gift options
The following financial gift options go beyond a simple contribution to someone’s bank account. Each one supports a specific financial goal or overall financial wellness, with a potential to grow the recipient’s assets.
- Higher education savings: Starting or contributing to tax-advantaged savings plans such as 529s and Coverdell ESAs give parents a way to save for their children’s college education. You can kick off these plans even when a child is just an infant, allowing contributions to grow significantly by the time they graduate high school.
- Stocks and bonds: You can purchase shares in a company the recipient enjoys, or several businesses in a field they’re interested in. There are also options like savings bonds that offer more conservative and predictable investments.
- Investment accounts for minors: Uniform Gifts to Minors Act accounts and Uniform Transfers to Minors Act accounts allow parents or guardians to set up an investment account on behalf of a minor. These accounts are a useful way for children to learn about financial literacy as they track changes in their account, and provide them with a helpful asset when they reach adulthood.
- Contributions to a retirement account: Some retirement accounts will accept third-party contributions if you contact the plan provider to arrange a transfer of funds.
- Charitable gifts: There are numerous options for supporting charities or nonprofit organizations. Gifts can be made in honor of a loved one, and they may also receive the tax deduction associated with the gift.
- Debt reduction: Making a contribution to reduce or eliminate a loved one’s debt (for a mortgage, student loans, etc.) can greatly improve their financial flexibility.
Important considerations for financial gifts
While these types of financial gifts can be very meaningful, they can still cause complications if you aren’t careful. Take the following into consideration before committing to this type of gift:
- Do your research: Take some time to look into any financial gift option before you decide on it. For example, if you are contributing to a higher education savings plan, you should research the different investment options offered, what the funds can be used for, and what fees are associated with different plans. When giving stocks or bonds, assess which options that are most likely to provide strong returns based on current trends and future expectations.
- Consult with the recipient: While this takes some of the surprise out of the gift, it also ensures that your gift won’t offend a recipient and will align with their financial goals and needs. Check with them on their risk tolerance, time horizon, and other factors to make sure your gift will support them. Taking this step can also avoid unexpected difficulties, such as inadvertently exceeding contribution limits when giving to a retirement fund.
- Follow any necessary steps: For some gifts, you’ll need to make sure the transaction is properly documented so that the ownership of assets is clear. This documentation will also be useful for tax purposes.
Finally, accompanying a financial gift with a heartfelt letter is always a good idea. This will demonstrate why you chose the gift you did and show that you are well aware of the recipient’s interests and needs.