Giving the Gift of Financial Independence

Can you think back to your formative years and bring to mind a gift or two that you still recall fondly to this day? Now fast-forward back to your adulthood. I’m sure we’ve all noticed how difficult it can be to replicate those types of gifts for children and grandchildren year after year. This year, with a holiday season likely shaping up to look anything but normal, may present a special challenge.

Clearly, there are many variables to consider when evaluating what makes a truly great gift, but one factor that cannot be overlooked is whether or not it has withstood the test of time. Sadly, I’m not still playing my Sega Genesis or riding my Razor scooter from the 1990s, but I am still benefiting from a $100 gift from my grandparents in more ways than I can count (more to come on that later). So, what kind of gift can be memorable and also able to ace the test of time? It’s an extremely valuable gift, and one that keeps on giving: the gift of financial independence.

Gifting Financial Education

As the adage goes, give a man a fish and you feed him for a day, teach a man to fish and you feed him for a lifetime. What better (and affordable) way to teach financial independence than by empowering your child or grandchild with the gift of knowledge? Our very own Tim Maurer, Director of Advisor Development, has handpicked 10 of his favorite books from the world of personal finance to help serve as a starting point.

  • “The Rent Collector” by Camron Wright
  • “The Only Guide to a Winning Investment Strategy You’ll Ever Need” by Larry Swedroe
  • “Reducing the Risk of Black Swans” by Larry Swedroe and Kevin Grogan
  • “The Undoing Project” by Michael Lewis
  • “Misbehaving” by Richard Thaler
  • “Thinking Fast and Slow” by Daniel Kahneman
  • “Seven Stages of Money Maturity” by George Kinder
  • “Give and Take” by Adam Grant
  • “The Power of Moments” by Chip and Dan Heath
  • “When Breath Becomes Air” by Paul Kalanithi

Annual Investment

After handing down knowledge, the next step toward gifting financial independence is a little bit more literal. Consider prioritizing a small investment each holiday season to be deposited into an account for your loved one, and make sure that this contribution is articulated to the beneficiary each year. This can create an opportunity to discuss and identify needs versus wants when it comes to saving and spending behavior. Perhaps a new video game can represent a want and a similar $100 investment may represent a need (to save for future goals).

It can also help create an active interest in investing and financial planning, without the immediate imposition of risk. Ultimately, specific account types and investment portfolios should be discussed with your advisor, but it may not hurt to emphasize to your child or grandchild the potential long-term benefits of such an annual investment. For instance, a $100 gift put into an investment account each holiday season and earning 7% compounded annually would grow to more than $4,000 over 20 years (say, roughly the time it takes for many children to officially leave the nest).

Financial Literacy

The importance of these gifts runs much deeper than their face value, as they can create an invaluable opportunity to have a family-oriented, constructive conversation about money. Two-thirds of wealthy Americans have not spoken to their children about their finances or don’t plan to do so. But without parental guidance, it’s difficult to predict the scope of the next generation’s financial education or the route children may take to it. When do they decide to take this step, and is it early enough to make informed decisions in real-time? Where are they getting their information, and is it a reliable source? Do they decide to educate themselves at all? The number of educational resources available today is abundant, but all are not created equal. This gives you the opportunity to help build the foundation from the ground up and ensure that it’s done the right way.

My Own Experience

Our journeys obviously will depend a lot on our own personal money stories, but that doesn’t mean the experience can’t be transformative. I was a beneficiary of these gifts during my childhood. Every year, my grandparents would give me $100, and every year my mom took it upon herself to invest that money for me, long before I knew anything about saving and investing.

Hindsight is 20/20, and I can now clearly see the progression of how I thought about my $100 gift from my beloved grandparents each holiday season. As a child, I remember the begrudging hand-off going something like, “Fine, mom, here’s my $100 check.” As a teenager, I still didn’t realize exactly what I was doing with that money, but I understood that it was something positive and that I should be happy about it. When I was 20 years old and living on my own for the first time, my mom watched me diligently budget as I tried to figure out if I could truly afford independent living. She also watched me buy stock whenever I had saved an extra couple hundred dollars. I like to imagine her as my personal finance mentor coming to the realization that I was now ready to assume the mantle of this responsibility. I don’t really know how that realization struck, but she finally asked me if I wanted the now $5,000 that “I” had been saving and investing for the last two decades. Of course, I said yes, and that money provided a valuable safety net that allowed me to live both comfortably and independently at 20 years old while continuing to save and invest at the same time.

What my mom may not have realized is that she had given me a gift much greater than $5,000, a gift that I personally consider one of the greatest someone can receive: the gift of financial education and ultimately independence.

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