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Investing In Kids: Financial Gifts to Invest for Children

Written by Banks Editorial Team

Updated September 18, 2023​

4 min. read​

gifting money for children

Gifting money for children can be a good way of helping them in the future. But other financial gifts will help them find their bearings in the adult world involves financial support. From college funds to retirement accounts, giving your kids a head start in the financial realm is an excellent way of contributing to their future.

Gifting money for children doesn’t just involve straightforward financial gifts. You can start investing for your kids to ensure substantial returns in the future while teaching them an intelligent approach to financial resources. 

  • Roth IRA
  • Contribute to a 529 College Savings Plan
  • Buy Some Stock
  • UTMA/UGMA Account
  • Savings Bonds
  • Few Hours with a Financial Adviser
  • A Wallet and a Moneybox
  • Cash
  • Financial Board Games

Financial Gifts for Children 

Financial gifts for children can differ from cash allowance to college funding. The type of financial support you choose depends on your initial assets, investment goals, and the child’s current age.

Investing for Kids 

Here are a few ways you can financially invest in your children. 

1. Consider a Roth IRA 

With Roth IRA, you pay taxes when contributing money to the account. All contributions and their earnings inside the account are “after-tax” money. When the child withdraws the funds after the age of 59.5, they don’t have to pay income tax on them.

If your child has a job, no matter how low-paying it is, opening a Roth IRA helps them discover the world of investing and makes it easier to save for retirement when they get full-time jobs as adults.

As a custodian, you control all the child investment account assets and make decisions until your child reaches adulthood.

2. Contribute to a 529 College Savings Plan

About 15% of American adults say that they have outstanding undergraduate student debt. That’s why many parents believe that the best investment for kids is a contribution to a 529 college savings plan.

Your child can use the 529 plan to cover college costs in qualified institutions nationwide. Similar to Roth IRA, all contributions are taxed before going into the account. You can set up as many 529 accounts in as many states as you wish. Family and friends can easily contribute to your child’s 529 plan. For tax purposes, these contributions are considered gifts.

3. Buy Some Stock 

The pillar of successful investing is a long time horizon. Since children have plenty of time ahead of them, setting up investment accounts for kids is an excellent way to earn money while teaching them about the investment world.

You can create a custodial brokerage account for minor children and make decisions until they reach the majority age. Some accounts have zero investing minimums so that you can start small. Older children can contribute to the account by doing research and making a case for buying stock from a particular company.

4. Set Up a UTMA/UGMA Account

UTMA (Uniform Transfers to Minors Act) and UGMA (Universal Gifts to Minors Act) accounts are custodial accounts held in the name of your kids. You control the accounts until children reach the majority age.

These kids’ investment accounts don’t give you such impressive tax benefits as 529 College Savings Plans. However, you still contribute with after-tax money. To avoid gift tax, you need to keep the annual contribution under $15,000.  

UTMA/UGMA accounts are more flexible than 529 plans. You can spend the money on anything that benefits your child.   

5. Buy Savings Bonds 

Savings bonds grow steadily over time, which turns them into a highly reliable way to invest for kids. They are available for purchase as gifts. When you buy a savings bond for your child, you are loaning the money to the U.S. government. In exchange for this loan, your kid earns interest for up to 30 years.

Savings bond are an excellent investment for child’s needs since it’s highly flexible. You can redeem the bond for its face value at any time after 12 months, along with the interest it earned during that time.

Other Financial Gifts for Children Instead of Gifting Money 

Gifting money for children can come in a mix of investment options and “gifts with benefits.” Here are a few ways you can add to your best investment plan for your child’s future.

1. A Few Hours with a Financial Advisor 

Setting up a consultation with a financial advisor can help an older child understand the importance of managing available assets. It gives them a head start on the investment playground.

2. A Wallet and a Money Box 

Wallets and moneyboxes can help you teach children about money management and responsibilities. They can also encourage you to share your experience with your kids. 

3. Cash 

Cash is an excellent way of investing for children. While your child is likely to spend the first cash, you give them immediately. Eventually, they’ll understand the importance of planning.

It’s much easier to explain money basics to small children when they are holding the money in their hands instead of accessing them virtually. 

4. Financial Board Games 

One of the most effective ways to teach your kid about money is to play a game. Financial board games teach money management, financial literacy, budgeting basics, and much more.

Why Invest for Kids? 

From setting up a free savings account for kids to contributing thousands of dollars to 529 plans, why should parents invest for their children?

Teach Kids Financial Literacy and Investing Skills

“Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime,” – Lao Tzu.

By investing in your children, you are helping them learn how to behave in the financial world. Even the most basic investment skills your child gains with your assistance can help them succeed in the future.

Many people are wary of investments, preferring a steady paycheck to be their only source of income. If you teach your kids the importance of investment when they are small, they can achieve impressive financial heights in adulthood.

Investing in Their Future 

The earlier you start investing for your children, the more benefits they can reap in the future. Many investment opportunities require time to turn into something substantial. You are in a position to take full advantage of this time while your children are still small.

With smart investing, you can help your children avoid college debt while teaching them much-needed financial literacy.

Gift That Keeps on Giving 

From contributing to online savings account for kids to buying savings bonds, a parent who invests for a child gives a gift that keeps on giving. By investing reasonably small amounts right now, you could be giving thousands of dollars to your child in the future.

If they pay close attention to your financial lessons, your kids will continue benefiting from your financial gifts for decades.

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