As you shop for your children or grandchildren this holiday season, don't forget some gifts that teach lessons about money and set them on a path to financial learning. Here are a few suggestions.
Money Savvy Piggy Bank
This plastic piggy bank is my all-time favorite gift for children as young as five. The colorful, transparent plastic piggy bank is divided into four chambers — save, spend, donate or invest. Each chamber has a different slot for depositing money, teaching children the different uses for money and the importance of making decisions. The piggy-shaped bank comes in six different colors, so all the children in one family can tell them apart. And if the traditional "piggy" bank doesn't appeal, it also comes in a soccer ball or football shape, as well as a cow — each with the different slots for the four money categories.
This piggy bank is the brainchild of entrepreneur Susan Beacham, who has created a foundation — Money Savvy Generation — dedicated to teaching children about money and finances. This Parents' Choice award-winning gift costs $18.99 and is available online at msgen.com, where you can also search for local stores that carry this product. And while you're at the website, check out an interesting money gift for teens — the Cash Cache, a binder that holds a beginning personal finance system designed to help high school students establish and work towards life goals that will require funding at some point.
Gift of Stock: Sharebuilder.com
Most mutual funds have account minimums of at least $1,000 these days, but at Sharebuilder.com you can open an account with absolutely no minimum and purchase from 1 to 1,000 shares of stock for a flat fee of $6.95. In fact, if you set up an automatic monthly investment account, the fee drops to $4 per transaction.
You can choose almost any listed stock, or Exchange Traded Fund — and buy just a few shares, even setting a price limit on your purchase. Then you can print out a gift card and give the child a link to the online portfolio so he or she can watch the investment. You might pick a company that the child is familiar with — say McDonalds, Apple, Amazon or Twitter. Or your teen might surprise you by coming up with a tech company you've never heard of for future purchases.
If you open a custodial account for a child, and place your first trade before year-end, a $50 bonus will be credited to your account at ShareBuilder.com. Surely this is a gift that will teach the ups and downs, risks and rewards of the market — and might even start a lifetime habit of investing.
529 College Savings Plan
Though buying stock in a custodial account is a more direct and obvious investment gift, it does have some drawbacks. First, at the age of majority (18 or 21, depending on your state), the money belongs to the child! And second, money in a custodial account weighs far more heavily against the family in the college financial aid formula.
Those are two reasons to open a 529 College Savings Account. But the third reason is equally important: All the money in these accounts grows tax-free to be used for college tuition or expenses, at any college in any state, for any child in the same family.
Most plans let you start with a very small amount of money — and build up with additional investments at any time. Wealthy grandparents can jumpstart a plan by combining five years of the allowable $13,000 per year gift, making a huge contribution to a future college education. But the parents or grandparents who set up the plan control it in the future and can direct its use to any child in the family.
Investing is simple, with most plans offering an "age-based" formula that gradually grows more conservative as the child approaches college aid. Or you can choose between selected funds, though you have limited chances to change your investments each year. This is not meant to be a trading account.
Each state has set up its own 529 plan, and some do offer a small tax deduction for investing in your state's plan. But you really want to choose a plan that has a good track record of investing and the lowest fees and costs. You can do that at Morningstar.com, using their 529 College Savings Plan Screener. Or you can just go to Vanguard.com or Fidelity.com and opt for their 529 plans, which offer good investment choices at low cost.
These three gift ideas don't come with fancy paper and ribbons. But they do give the lessons of money, starting at an early age. And along the way, they will create interests and habits that keep on giving for a lifetime. That's the Savage Truth!
Terry Savage is a registered investment adviser and is on the board of the Chicago Mercantile Exchange. She appears weekly on WMAQ-Channel 5's 4:30 p.m. newscast, and can be reached at www.terrysavage.com. She is the author of the new book, "The New Savage Number: How Much Money Do You Really Need to Retire?" To find out more about Terry Savage and read her past columns, visit the Creators Syndicate Web page at www.creators.com.