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Giving a Lasting Gift to a Baby (But Not the Parents)?

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Today, instead of the usual Friday guest post, I'll be passing forward a question I received yesterday from a frequent commenter. Why no guest post - because I've been a grade A gluteus maximus orifice to a lot of personal finance bloggers by not responding (like Pennywise Family - not intentionally, but just that I've been too busy to get back to them. New job and another bundle of joy (to be announced soon), plus the wife being out of town have left me exhausted.

I'm going to leave the asker of the question anonymous... I didn't get a chance to ask if I could mention his name or not. Anyway, his question is:

When friends have babies, is it tacky to want to give the baby a financial gift instead of a toy?

I have friends that have a baby turning 1 year old and I want to get the baby a financial gift. I don't trust the parents to do the right thing if I give cash, completely unaccountable. What financial products could make for a tangible gift in that situation? How does this all play in the current economic climate (what products would be best right now)?

Let me take them in order:

  • It is not tacky to give the baby a financial gift - Well maybe it is, but I don't care. I'm didn't start this website to be Mister Manners, so I'm going to be biased on the side of nurturing a strong, secure, financial future. A young lady about a couple of months ago told me a story that sounded a little like this, "I grew up with every Barbie and accessory you could imagine... I had anything I wanted. However, I got older and found that a car would have been a lot more important to me at 16 than the pile of toys at 7. Same could be said of the security deposit on my first apartment." I don't know much about baby safety, but aside from that aspect of it, a paper towel roll could probably be as good as most toys... chances are that everyone else is getting the baby toys anyway. It should have plenty.
  • It's hard to find a gift that the parents can't access - My wife's parents used some money that her grandmother earmarked for my wife's schooling, so this hits close to home. I think the money should be used for what it was intended, but I can see the side where the parents may have used it with good reason - to get through a difficult economic time. Either way, when I went through this for my nephew I decided to open up a 529 plan in the baby's name (here's how I chose it and donate to it every year. This doesn't work well for my reader though - he wants to give a small one-time gift. He doesn't want to be custodian in case they aren't friends in 17-18 years when the baby gets to college. I can understand that.
  • I don't think today's economic environment is the big issue here - It seems to me to be a distant second place to worries in the previous question. The good news that I think things will be looking better 17 or 18 years from now than they do today. Maybe not - there could be another down cycle then - I just don't think we'll be down quite that long. So this is a case where almost everything is a buy low situation.

With that in mind, I'm really stuck on that second question.

Here are a couple more ideas on that:

  • What about savings bonds or a really long term CD? - They sound good on the surface, but I think the parents could cash them in. I have to admit that I haven't researched these vehicles well enough - the 529 solved my particular problem.
  • What about forming a corporation? - This one is kind of looney tunes. However imagine that you have a corporation and put money in that. Give out a share or two to each baby you like. Instead of Christmas cards you send out financial statements. I think it could be fun... except that I'm dorky and there is a lot of legal and overhead issues to deal with.
  • My Best Idea is... - To not give the baby the gift... give the parents one. Make the gift a great financial book like Your Money or Your Life. Inside the financial book, I'd write an IOU that says, "When you open up a 529 Plan, I promise to match the first $X you put in there." (As long as I give the account number, anyone can add money directly into my nephew's 529 plan from Ohio, so I'm making the assumption it's the norm - but it's worth looking into.) Even if it's a small amount, I think everyone likes free money and it's the kind of carrot stick that may push the family in the right direction. Yet if the family really is irresponsible, they could just take the 10% penalty and spend the money for unintended purposes.

So this is where you come in... got any ideas to add?

Last updated on April 3, 2009.

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19 Responses to “Giving a Lasting Gift to a Baby (But Not the Parents)?”

  1. Slinky says:

    I had this same thought for my nephew. He sure doesn’t need more toys and I was not about to just hand over cash. I wanted the money to do him some real good. I ended up going the same route as you and opening a 529 plan for him. If he wants to go to school he’ll have some money for books, and if not, I’ll sign it over to him when he turns 25.

  2. Candace says:

    Most importantly…”another bundle of joy to be announced soon”….Now you got me! I will be waiting to hear!

    On to the article and the question at hand. Personally, I love your last and “best” suggestion. I think it’s a superb idea and would have been thrilled if someone had done so for my kids.

    I don’t have other suggestions, especially in this economy, and with the condition that the gift giver doesn’t want a long term tie to the family. But I have seen many times people giving savings bonds as gifts. Yes, the parents or guardians can cash them in, but it behooves them not to…whether the parents/guardians understand that or not is another matter altogether.

    Excellent article, I will be watching to see what others have to say.

  3. Wayne says:

    Would try to do both. I would tell the parents my intention and ask if they have a 529, Education IRA to contribute to directly on behalf of the child or buy a Savings Bond for the child. I would still get the child a small gift, something for them to open and to have. If they have none of the above, then the gift can still be a financial gift, get them a gift of stock, see website, http://www.oneshare.com

  4. MB says:

    I agree with Wayne. My inlaws asked us about this for our now 7 month old at Christmas and we were all for it. They gave us money, instead of a gift, to put into his college fund. Now, we are responsible, so we will save it for him (it’s currently in a savings account until we open the 529 plans this year).

    Personally, I would think a financial gift would be a welcomed alternative to more ‘stuff’, especially if it’s a second child, since most families already have a million toys. I know it is for me. Books are always nice too, if you still wanted to give something tangible, like Wayne suggested. But, when they are really young, like one, they don’t know any different anyway.

  5. Abigail says:

    I think the idea of giving a financial gift is fabulous, not tacky at all.

    My only caution on savings bonds… A few of my family members gave savings bonds off and on throughout my childhood. I always appreciated (no pun intended) them.

    But about two years ago, I finally cashed them in and — despite having all of them for at least 10 years — several of them hadn’t yet reached full value. They accrue VERY slowly. I tried to read up (at the time) about savings bonds and figure them out. I was lost, but the gist is: If you’re giving the kid something at birth, chances are it’ll be at full value when he/she is ready for college (or even done with college). But past age, say, 6 or 8, there’s no guarantee.

  6. Daniel says:

    Two years ago I setup a UTMA (uniform transfer to minors) account for my niece. I have it buy McDonalds stock through their DRIP plan every Christmas. That way when she turns 18 she’ll hopefully have a really cool gift from her boring uncle and maybe gain a little more knowledge on investing in general. I go into more detail about it on my blog at http://incrediblylucky.com/content/what-i-got-my-niece-christmas

  7. I set up custodial accounts at Sharebuilder for my nieces and nephews, and contribute to it for their birthdays and big holidays (Xmas, etc.). Not big amounts, but enough that when they turn 18 hopefully they’ll say “whoa, thanks, uncle Steve”.

    I still give toys and books and so on from time to time but I made it clear to the parents that we’d give financial gifts, especially when we can’t be there for the celebration. If we are there in person, we bring a gift, but if not – financial gifts.

    I wouldn’t feel embarrassed, anyway. It’s the gift-givers’ money. He/she can spend it as he/she sees fit.

  8. I was reading the post thinking that the question was all wrong-headed. Basically you can’t give the baby a present that the parents can’t mess up. (If just by passing on wrong financial values). You nailed the answer. It reminds me of people getting a new dog and deciding whether to pay for obedience school… dog obedience school has nothing to do with training the dog and everything to do with training the owner.

  9. Lazy Man says:

    Interesting thought, Bill and thanks for the praise of the answer.

    Still, this isn’t exactly like training a dog. The baby will be responsible for itself someday and will need to have some kind of finances at that point. A dog (who has owners) will not be expected to provide for himself.

  10. Michael says:

    For cases where you don’t want to worry about being custodian of an account for somebody else’s child, I think the suggestion to give a book and offer to match the parents’ first contribution to a 529 plan is a great idea.

    Of course, they may never do anything about it. I offered something similar to an adult relative regarding investing in an mutual fund IRA. I even printed out the application, but he never did it.

    So maybe to be safe, you also bring over a bunch of boxes for the kid to play with. :)

  11. geny150 says:

    Why not check and see if they have a baby registry? Although college savings are great, you’re making a lot of assumptions (like, that the child will want to go to college, and that the parents couldn’t use a thermometer / car seat / something-for-the-baby’s-health-&-safety now instead). There are things new parents need for the child, not just toys.
    And, frankly, as an expectant mother, I think the book idea’s pretty crappy. Again, you’re making a _lot_ of assumptions here. And parents-to-be are already a little stressed out… please don’t add to it with criticism.

  12. Lazy Man says:

    I think I would agree with you if it was newborn – I always buy off a registry. However, I’ve never heard of someone having a registry for a birthday though. Yes, I made the assumption that by one-year old the baby has the necessities like a car seat… I think I’m pretty safe with that one. Then again I’ve never raised a baby so I don’t know if anything pops up at 1-year old.

    The premise to this whole thing is that the giver is looking to give something to help secure the financial future of the baby.

    I told the person offline, but didn’t put it in this post, that it would be uncomfortable gift to give publicly as it can be viewed as criticism.

  13. geny150 says:

    Funny, I reread the question several times, and didn’t see the one-year birthday part.

    Don’t worry, it won’t happen again; I’ve removed your blog from my feed.

  14. Lazy Man says:

    “I have friends that have a baby turning 1 year old and I want to get the baby a financial gift.”

  15. Roger says:

    I have to agree with Bill McCollam; it’s awfully hard to give money to a child without allowing the parents to have access. Doubly so if you don’t have a connection to the child that would endure for years; if you aren’t related, many of the good ideas (529 plans) tend to fail.

    I do like the personal finance book idea. My only worry would be that, if the parents consider themselves trustworthy, responsible people, such a gift might come across as an insult.

  16. nobelle says:

    Have you asked the parents what THEY need right now (or might need in the future) to aid the raising of their child? Maybe throw your ideas at them, even pass them a 529 (to use the last idea) information brochure underlined/highlighted with your ideas and a question mark.

  17. Tom says:

    This is a hard decision not knowing how the child will turn out. God forbid that the child hits 18 years old and is a drug addict and now has access to these funds to feed the habit and to he’ll with college

  18. Ashley says:

    With a savings bond (eg. that you would buy from treasurydirect.gov), you would set up the savings bond account under the baby’s SSN, with the parent (or you if you’re local) as the custodian. Technically the parent isn’t allowed to take money out of the savings bond unless it’s to spend it on the child, though this is hard to monitor/enforce. But if the child is old enough to know what’s going on and they see their parent spending money from the account on unrelated stuff, the child can sue the parent for the spent money.

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