Money is a popular graduation gift – and with good reason. College grads in particular will likely be leaving school with overwhelming amounts of student debt and not much knowledge of how to pay it off. Sure, you can simply hand them a wad of cash; that’s probably what students would prefer. But if you want to be more thoughtful about your gift, here are some other ways to give.
Schedule a meeting with a financial planner
Students are hit with harsh financial realities when they enter college, and as they prepare to leave. Learning to manage money typically requires some guidance, so why not prepare the student in your life for the upcoming obstacles. By setting up a meeting with a financial planner, recent college grads with their first real job can get advice on the best way to handle their expenses.
“When there is income coming in, a financial planner can really do the work of helping the recent grad select work benefits, create an efficient plan to pay back student loans, as well as help plug the personal finance knowledge gaps that the student has,” says certified financial planner, Kaya Ladejobi.
Ladejobi says that understanding taxes and how they affect take-home pay is a common area where students have questions. “A good advisor can help a recent graduate project what their net pay will be and help them set up their budgets accordingly to avoid financial hardships,” she says.
A one-time meeting with a financial planner can cost anywhere from $300 to $600, so it’s a service most graduates wouldn’t pay for, but most likely need. Find a financial planner in your city by visiting the National Association of Personal Finance Advisors.
Give your appreciated stock
Giving the gift of stock is great for two reasons. First, if your student is interested, it can provide them with an introduction to how the market works, as well as an education in how important how long-term investing is.
Secondly, it could be a smart move for you. If you sell your appreciated stock, you’ll have to pay higher taxes on your earnings. If you give it away, you can lessen this burden. Of course, there are some things to consider. Full-time students between 18 and 24 are subject to the kiddie tax, which is a tax on unearned income paid to minors. To avoid this tax, earned income for the student should not exceed one half of the child’s own support for the year, excluding scholarships. All told, earned income for the student should be kept below $2,100.
For more information on the kiddie tax and fees associated with giving appreciated stock, visit IRS.gov.
Open a Roth IRA
Most recent college grads are too young to start worrying about saving for retirement. In fact, young people wanting to work for themselves or for a smaller company may even take jobs that don’t offer a 401(k). Still, that doesn’t mean they should miss out on long-term savings.
By opening up a Roth IRA on your student’s behalf, you enable them to make a maximum contribution of $5,500 a year after-tax, every year for retirement. Starting the account, and showing them how to contribute to it could help them start healthy financial habits. Roth IRAs are also a great option because it allows the account holder to withdraw money yearly for educational expenses or up to $10,000 for a down payment on a home.
The one caveat is that Roth IRAs come with income limitations. You cannot make contributions if you make more than $120,000 year.
A gift card for books
We all know that textbooks are required for learning, but it’s hard to avoid the sticker shock when you see how much they cost. To avoid this, give your high school grad the gift of literature. ABE books is a popular site for students to buy and resell college textbooks. Instead of handing them cash, give your student a gift card to help pay for the books. You can find similar gift cards for textbooks at Barnes & Noble and Amazon. If you know where your student is going to school, most campus bookstores also offer gift cards.
Brittany is reporter at Yahoo Finance. Follow her on Twitter @bjonescooper.