As the holidays approach, so do requests from family and friends about what to give the kids this year. Meanwhile, visions of unused toys and clothes dance in parents' heads. Instead of asking for the hottest toy this year, consider a gift that will actually keep on giving: an investment in your child's future. Not only does a financial gift provide an opportunity to talk to kids about responsibility, but it can also set your child on the path for sound savings habits and help protect your own hard-earned savings.
In fact, there are some simple investments that require little oversight in the near-term but offer big advantages over the long-term. Three accounts to consider asking friends and family to contribute to this holiday season include a basic savings account, a college fund and a retirement plan. While college and retirement might seem like a long way off for your kids, it's important to think about the potential financial impact of these expenses on your own financial future.
Back to the Basics
While a savings account might seem "basic," there's good reason it's an old standby. A traditional savings account provides a place for kids to make deposits and watch the interest build up as they practice saving toward specific goals -- all while facing the temptation of withdrawals. If friends and family give your child $50 this holiday season to put into a savings account, in just a few years -- and a few more deposits -- she'll be able to pick out and buy her own first bike and win some serious financial bragging rights. Not to mention, she probably won't even realize she didn't get the "hot toy" of 2014 when she was three.
Beyond holding out for that first bicycle, savings that add up in your child's bank account can be put toward other investments as he gets older. Whether it's the account he uses to buy books for his first semester of college, put a down payment on his first house or fund his investment portfolio, these early savings result in two things: mom and dad having the ability to keep saving for their own retirement and him being able to avoid tapping into his 401(k) or other savings as he gets older.
More than Lunch Money
While your child's future college alma mater might be in question, there's no debate that the price tag associated with higher education is hefty and important to prepare for. This holiday season, friends and family can help your little one (and you) avoid future loans and debt through a financial gift toward their education, starting with a contribution to a 529 plan. Today, roughly 80 percent of Millennials are responsible for paying the majority of their student loan debt, and 41 percent have put off saving for retirement because of financial challenges.
Moreover, a gift toward your kids' future education is one that can also make a major impact on your own financial future. Saving for your children's college can be a challenge when you're trying to manage your own financial priorities. When family members and friends donate to a 529 plan or other college savings vehicle, you're on the receiving end of that gift in more ways than one: You can sock away a little more money toward retirement and breathe easier about affording college for your children without tapping into your 401(k) to make tuition payments.
While asking for a gift toward your child's savings account or even college fund might have crossed your mind, here's another investment gift to consider: your child's retirement. A quick look at how retirement has changed in the last few years will help put this in perspective. It's safe to expect that your children will not have a pension, and while their retirement might seem light-years away, Americans are delaying retirement at rapid rates because they haven't saved enough. A gift toward a mutual fund, UGMA savings account or annuity now can help set your child on the path towards retirement readiness.
Instead of asking family and friends for that new toy your child has been eyeing, request a gift that won't end up in the bottom of the toy chest in six months. While it might not be something your child can unwrap, a financial gift is one that keeps on giving and also means that as a parent, you don't have to sacrifice your retirement dreams.
Voya Financial's Born to Save program offers every baby born in the U.S. on October 20, 2014 a $500 mutual fund investment as a head start on their retirement savings. Enroll the October 20th baby in your life by December 19 to participate.
1 Voya Financial (formerly ING U.S.), a leading retirement, investment and insurance company serving the financial needs of approximately 13 million individual and institutional customers in the U.S., recently commissioned a study, representing responses from 2,000 Millennials (young adults aged 20-34), to gauge the financial needs and challenges of America's younger generation.
The material contained herein is for informational purposes only and does not constitute tax or legal advice. You should consult with your tax or legal advisor regarding your own individual situation.