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?