I recently attended a birthday for one of my kids’ friends, and was blown away by the amount of cash gifts they received. Apparently, giving cash is cool again, and I was impressed by the generosity from mostly family members, but a few family friends, too.
My kids occasionally receive a little birthday money themselves, along with gift cards and other small presents from friends and family. Since it is their birthday, we let them take a little bit of money to the store and pick out a toy or game that they’ve been wanting. But we like to encourage them to save the rest of that money in a variety of places.
Local savings account. Savings accounts at a local bank or credit union are practically a financial rite of passage for kids. While they don’t offer particularly good rates, local savings accounts do offer a great way to introduce kids to banking. Take them along and let them fill out the deposit slips and update their balances at home.
529 college savings plan. Most kids are not worried about paying for college until it comes time to pay for college. So I think it is a good idea for them to contribute a little along the way. Invest a little of this “found cash” for your kids in the best 529 savings plan you can find.
Savings bonds. My kids received some savings bonds when they were little to “put up for college.” Later, I convinced the person that gave them to let us convert them to cash and send to the kids’ college savings funds, where I hope the money will get a better return. Sure, they are interesting and colorful and all that, but apart from novelty there isn’t that makes me want to buy and hold them for the kids over the long term.
Individual, kid-friendly stock. I generally dislike the idea of picking individual stocks because I am not good at it, and because I worry over diversification. However, I think it is safe to take a small percentage of your portfolio, say less than 10%, and invest it in a handful of individual stocks you know something about. Same goes for kids. Not long ago we invested a little money in two companies kids are familiar with, McDonalds and Disney. Later, we might add Coca Cola and Mattel to the mix. Be sure to reinvest those dividends, and hold the stock for the long term. Who knows what a few hundred dollars invested in Microsoft twenty years ago would be worth today.
Where do your kids park their “birthday” money?