Graduation Gifts That Can Keep on Giving

A study from 2017 showed that Americans planned to spend upwards of $5.6 billion on graduation gifts—more than half of it expected to be in cash.¹ Gifts in cash provide great flexibility for the graduate to save or spend according to their unique goals or preferences. But what if their graduation milestone could also be leveraged to show the value of continued investment in themselves long after the diploma or degree is in hand?

Here are a few gift ideas to guide your grad to start thinking more long-term about becoming a financially independent and responsible future investor:

1. Give stocks with youth appeal. Gifting stocks that appeal to young graduates is an effective way to pique their interest in investing. Think about what appeals to them: biotech, technology, or socially responsible investments and be sure to include the grad/s in making the decision.²
2. Consider gifting appreciated stocks. Gifting appreciated stocks can help build the graduate’s assets while reducing the capital gains of the gift giver. ²
3. Fund (or match contributions to) an IRA. Opening a tax-advantaged Individual Retirement Account (IRA) could be the right move if the graduate is freelancing or ineligible for a 401(k) through their employer. Roth IRAs, funded with after-tax dollars, offer tax-deferred growth and tax-free withdrawals, and are a practical option for those with smaller incomes. ²

And here are a few other ideas to increase the impact of a cash gift:

1. Student Loan Payments. For some loans, there is a six-month grace period after graduation before student loans start coming due.  However for most loans, interest still accrues during the grace period.  A gift toward student loan payments can help the grad lower their monthly payment or achieve a faster loan payoff while making the transition from school.
2. Student Loan Payoff. If you are looking to give more than a student loan payment, wealthier individuals might consider paying the loan in full.  Another way to approach this could be to personally refinance the loan agreement with the grad.  In this case, you’d execute the loan terms in a legal contract drafted by an attorney, payoff the existing student loan/s, and the grad would begin making loan payments to you.  When the loan is fulfilled as agreed, the gift is essentially in the more favorable loan terms.  You get your gift back but the grad gets the benefit of a lower interest rate, shorter repayment term, and consolidation if there are multiple student loans.
3. Bills and Living Expenses. Graduating from high school to college or from college to a career is a big financial transition in either case. Grads are likely to experience a financial gap somewhere.  A cash gift that can help maintain vital needs such as insurance coverage can be very helpful.
4. Match Savings Contributions. Opening a savings account can open the door to developing a savings habit. Parents or any individual giving a gift can make the initial deposit and match a portion of their graduate’s contributions. (Note: In 2018, individuals can give up to $15,000 per recipient without incurring gift tax, $30,000 if you’re giving as a couple). ²

At Seneschal Advisors, we are your financial partner through life’s transitions and we always welcome opportunities to connect with all generations in your family for their planning needs.  If any of the strategies mentioned above are of interest, we’d be delighted to help facilitate your gifts.

Sources

1. “Graduation Spending to Reach Record-High $5.6 Billion,” National Retail Federation, May 17, 2017,
   https://nrf.com/media/press-releases/graduation-spending-reach-record-high-56-billion
2. “Help Families Guide Their New Grads to Financial Success,” Charles Schwab Advisor Services, Advisor News April 2018.