THE GIFT OF MONEY HOLIDAY CASH FOR YOUNGSTERS CAN BE AN OPPORTUNITY TO TEACH BASICS OF FINANCIAL SAVVY.
After years of buying sweaters and books that failed to satisfy her grandson's finicky tastes, Phyllis Rothman now gets him a prepaid debit card for his holiday gift.
``Now he can go buy clothing and books on his own,'' said an optimistic Rothman, hoping Josh won't fritter away the Hanukkah money on video games.
Many gift givers swear never to give cash during the holidays, saying it's too cold and impersonal. But financial experts and educators say the gift of green is not only practical, it can also provide youngsters valuable lessons in spending and saving, if done right.
For years, gift cards have been popular, offering convenience and a good excuse to blow a few dollars at a favorite retailer. But gift cards aren't always an effective way to teach children, tweens and teenagers the value of money.
Iris Riggs, a mom and associate dean of teacher education at California State University, San Bernardino, doesn't like gift cards.
``I've purchased them in the past, and I don't want to do that ever again,'' she said. ``I'd rather purchase a money gift card rather than limiting my child to one store. Then she'll at least learn a little bit about comparison shopping.''
Laura Levine, executive director of JumpStart, a Washington, D.C.-based nonprofit organization committed to financial education, says that because cash or prepaid debit cards give kids a tremendous amount of freedom to spend, parents should not shy away from discussing what kids will do with the money.
``Parents need to sit down with their children after they've received a gift card and talk about how they plan to spend the money,'' Levine said.
Another good financial lesson - that could start as a holiday gift - is a dip into the stock market.
For starters, Levine recommends investing in a stock that has name brand appeal, however, she wants to remind parents that the holidays are ``supposed to be fun, and you don't want to spend the whole time preaching investment strategies.''
Parents who don't have the stomach to put even a small fraction of their hard-earned savings in the stock market, could try the Money Savvy Pig.
Unlike a traditional piggy bank, this glutton for greenbacks has four slots on its back for saving, spending, donating and investing.
``The idea is to teach a child to stop, think and set a goal before putting money in the bank,'' said Susan Beacham, a former investment manager who created the Money Savvy Pig.
``Just handing a kid a $20 bill or a holiday card, screams 'spend me.' How about giving them $20 and the bank, and letting them decide where they want to put their money,'' said Beacham, noting that her pig can be purchased for about $15 at www.moneysavvygeneration.com.
The YOUniverse ATM Machine is yet another alternative. Meet the modern piggy bank - a $50 toy ATM machine replete with money dispensing capabilities, a faux camera and push-button numbers that go beep. The machine is available at www.summittoy.com.
If post-modern piggy banks aren't your thing, there are plenty of traditional savings tools that make safe green gifts.
Mary Tuszynski, a West Hills stay-at-home mom, she's going to purchase a savings bond for her 1-year-old nephew.
``He's not going to know the difference between that and cash. And he'll be able to take advantage of it in the future,'' said Tuszynski, 38, who plans on purchasing a Series EE bond for $25, which the U.S. Treasury guarantees will double in value in 20 years. Paper bonds can be purchased at most major banks and credit unions, while electronic versions can be purchased at www.savingsbonds.gov.
For the more ambitious holiday green giver, there are other investment vehicles. Specifically, Roth IRAs and trust accounts.
Derek Munchow, a financial adviser with Ameriprise Financial in Long Beach, is a proponent of the Roth IRA as a holiday gift idea (the Roth stands for the Individual Retirement Account's creator former Delaware Senator William V. Roth Jr.).
``When you open a Roth, children don't really understand the value of the dollar. But parents can show them this is a way to save for their future,'' said Munchow, 27, whose mom opened an IRA for him when he was a teenager.
One drawback to a Roth IRA is the cost. They usually start at about $1,000 to open.
Another investment vehicle that can serve as a holiday gift is UGMA property, or the Uniform Gifts to Minors Act. This option is a simple way to transfer money and other investments to a minor without the complications of a formal trust.
``But you have to remember that minors can gain control of the account by 18 years of age. And would you really want your 18-year-old to have access to $200,000?,'' said Nadia Allaudin, a wealth management adviser for Merrill Lynch in Pasadena, who acknowledges that UGMA gifts can come in handy when the minor is ready to purchase a home or pay for a wedding.
College tuition is also something to consider when it comes to a holiday gift. Allaudin recommends a Cloverdell Education Savings Account, which allows investors to make tax-free withdrawals for education expenses including tuition, fees, books, supplies, equipment - even for elementary and secondary school expenses. But contributions can only be made until the minor is 18, and assets in the account must be withdrawn before the child turns 30.
And then there are 529 Plans, a 401(k)esque account for the college tuition-minded. William Odell, branch manager of Fidelity Investments in Woodland Hills, said a lot of parents use this vehicle to teach about investing because it's flexible. ``It's also tax-deferred,'' said Odell, something that can certainly bolster the holiday spirit when the bills finally do arrive.
Evan Pondel, (818) 713-3662
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|Publication:||Daily News (Los Angeles, CA)|
|Date:||Dec 11, 2005|
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